SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission file number 001-12055
PARACELSUS HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3565943
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS
(Address of principal executive offices)
77067 (281) 774-5100
(Zip Code) (Registrant's telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, NO STATED VALUE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes[X] No[ ]
As of August 13, 1999, there were outstanding 55,118,330 shares of the
Registrant's Common Stock, no stated value.
<PAGE> 2
PARACELSUS HEALTHCARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1999
INDEX
PAGE REFERENCE
FORM 10-Q
FORWARD-LOOKING STATEMENTS 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements-- (Unaudited)
Condensed Consolidated Balance Sheets--
June 30, 1999 and December 31, 1998 4
Consolidated Statements of Operations--
Three Months and Six Months Ended June 30, 5
1999 and 1998
Condensed Consolidated Statements of Cash Flows-- 6
Six Months Ended June 30, 1999 and 1998
Notes to Interim Condensed Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION 19
SIGNATURE 21
<PAGE> 3
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
involve a number of risks and uncertainties. Factors which may cause the
Company's actual results in future periods to differ materially from
forecast results include, but are not limited to: general economic and
business conditions, both nationally and in the regions in which the
Company operates; 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;
liabilities and other claims asserted against the Company; competition;
the loss of any significant customer; changes in business strategy,
divestiture or development plans; the ability to attract and retain
qualified personnel, including physicians; the impact of Year 2000
issues; fluctuations in interest rates on the Company's variable rate
indebtedness; the continued listing of the Company's common stock on the
New York Stock Exchange; the Company's ability to divest assets to reduce
indebtedness and to realize its tax assets; the availability and terms of
capital to fund working capital requirements and the expansion of the
Company's business; the Company's continued compliance with its debt
covenants and its ability to obtain waivers in the event of
noncompliance; and the final resolution of settlement to litigation and
the fulfillment of the conditions contained therein. The Company is
generally not required to, and does not undertake to, update or revise
its forward-looking statements.
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in 000's)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 12,364 $ 11,944
Restricted cash 1,111 1,029
Accounts receivable, net 60,182 67,332
Deferred income taxes 10,757 9,641
Other current assets 39,842 38,923
--------- ---------
Total current assets 124,256 128,869
Property and equipment 539,615 531,908
Less: Accumulated depreciation and amortization (179,324) (168,009)
--------- ---------
360,291 363,899
Goodwill 134,751 136,994
Other assets 84,444 86,340
--------- ---------
Total assets $ 703,742 $ 716,102
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,124 $ 41,301
Accrued liabilities and other 52,392 58,758
Current maturities of long-term debt 4,379 6,284
--------- ---------
Total current liabilities 103,895 106,343
Long-term debt 537,759 533,048
Other long-term liabilities 36,942 42,370
Stockholders' equity:
Common stock 222,977 222,977
Additional paid-in capital 390 390
Accumulated deficit (198,221) (189,026)
--------- ---------
Total stockholders' equity 25,146 34,341
--------- ---------
Total liabilities and stockholders' equity $ 703,742 $ 716,102
========= =========
</TABLE>
See accompanying notes.
<PAGE> 5
PARACELSUS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 143,267 $ 176,693 $ 294,211 $ 363,575
Costs and expenses:
Salaries and benefits 58,135 72,775 117,100 147,891
Other operating expenses 56,939 71,275 115,024 145,982
Provision for bad debts 9,087 9,363 21,485 19,880
Interest 13,079 13,295 26,183 25,674
Depreciation and amortization 9,970 8,850 19,785 18,126
Unusual items 6,545 (22) 7,668 (22)
Loss (gain) on sale of
facilities 2,387 (7,100) 2,387 (7,100)
--------- -------- -------- --------
Total costs and expenses 156,142 168,436 309,632 350,431
--------- -------- -------- --------
Income (loss) before minority
interests, income taxes and
extraordinary charge (12,875) 8,257 (15,421) 13,144
Minority interests 58 (701) 121 (3,286)
--------- -------- -------- --------
Income (loss) before income
taxes and extraordinary charge (12,817) 7,556 (15,300) 9,858
Provision (benefit) for income
taxes (5,208) 1,858 (6,105) 2,535
--------- -------- -------- --------
Income (loss) before
extraordinary charge (7,609) 5,698 (9,195) 7,323
Extraordinary charge on
extinguishment of debt, net - - - (1,175)
--------- -------- -------- --------
Net income (loss) $ (7,609) $ 5,698 $ (9,195) $ 6,148
========= ========= ========= ========
Income (loss) per share - basic
and assuming dilution:
Income (loss) before
extraordinary charge $ (0.14) $ 0.10 $ (0.17) $ 0.13
Extraordinary charge on
extinguishment of debt - - - (0.02)
--------- --------- --------- ---------
Net income (loss) per share $ (0.14) $ 0.10 $ (0.17) $ 0.11
========= ========= ========= ========
</TABLE>
See accompanying notes.
<PAGE> 6
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1999 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,195) $ 6,148
Non-cash expenses and changes in operating
assets and liabilities 18,729 (1,929)
--------- ---------
Net cash provided by operating activities 9,534 4,219
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in DHHS - (64,816)
Proceeds from sale of facilities, net of expenses 1,925 22,998
Additions to property and equipment, net (14,644) (9,198)
Decrease in other assets, net 1,923 1,763
--------- ---------
Net cash used in investing activities (10,796) (49,253)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock - 67
Borrowings under senior revolving credit facility 17,000 64,528
Repayments under senior revolving credit facility (11,420) (30,275)
Repayments of debt, net (3,898) (3,184)
Deferred financing costs - (3,984)
--------- ---------
Net cash provided by financing activities 1,682 27,152
--------- ---------
Increase (decrease) in cash and cash equivalents 420 (17,882)
Cash and cash equivalents at beginning of period 11,944 28,173
--------- ---------
Cash and cash equivalents at end of period $ 12,364 $ 10,291
========= =========
Supplemental Cash Flow Information:
Interest paid $ 26,542 $ 24,568
Income taxes (refunded) paid $ (26) $ (415)
Noncash Investing Activities:
Notes receivable from sale of hospitals $ 6,169 $ -
Capital lease obligations $ 1,124 $ -
</TABLE>
See accompanying notes.
<PAGE> 7
PARACELSUS HEALTHCARE CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1999
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION - Paracelsus Healthcare Corporation (the "Company") was
incorporated in November 1980 for the principal purpose of owning and
operating acute care and related healthcare businesses in selected
markets. The Company presently operates 15 hospitals with 1,878 licensed
beds in 9 states, of which 11 are owned and four are leased.
BASIS OF PRESENTATION - On July 1, 1998, the Company completed the
purchase of Dakota Medical Foundation's 50% partnership interest in a
general partnership operating as Dakota Heartland Health Systems ("DHHS")
thereby giving the Company 100% ownership of DHHS. Prior to the
purchase, the Company owned 50% of DHHS and accounted for its investment
under the equity method. The transaction was accounted for as a step
purchase acquisition. As a result of this change in control, the Company
has recast its 1998 consolidated statement of operations to account for
DHHS under the consolidated method of accounting as though the
transaction had occurred on January 1, 1998.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. The balance sheet
at June 30, 1999, has been derived from the unaudited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for a
complete set of financial statements. The Company's business is seasonal
in nature and subject to general economic conditions and other factors.
Accordingly, operating results for the three and six months ended June
30, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. These financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31,
1998, included in the Company's 1998 Form 10-K.
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.
<PAGE> 8
EARNINGS PER SHARE - The following table sets forth the computation of
basic and diluted income (loss) before extraordinary charge per share
(dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Numerator (a):
Income (loss) before
extraordinary charge $ (7,609) $ 5,698 $ (9,195) $ 7,323
======== ======= ======== ========
Denominator:
Weighted average shares used
for basic earnings per
share 55,118 55,103 55,118 55,098
------- -------- -------- --------
Effect of dilutive securities:
Employee stock options - 2,445 - 2,446
------- -------- -------- --------
Dilutive potential common
shares - 2,445 - 2,446
------- -------- -------- --------
Shares used for diluted
earnings per share 55,118 57,548 55,118 57,544
======= ======== ======== ========
Income (loss) before extraordinary
charge per share:,
Basic $ (0.14) $ 0.10 $ (0.17) $ 0.13
======== ======== ======== ========
Diluted $ (0.14) $ 0.10 $ (0.17) $ 0.13
======== ======== ======== ========
</TABLE>
- ------------------------------------
(a) Amount is used for both basic and diluted earnings per share
computations since there is no earnings effect related to the dilutive
securities.
Options to purchase 7,671,402 and 4,988,000 shares of the Company's
common stock at a weighted average exercise price of $4.98 and $7.37 per
share and warrants to purchase 414,906 shares at a weighted average
exercise price of $9.00 per share were outstanding during the three and
six months ended June 30, 1999 and 1998, respectively, but were not
included in the computation of diluted EPS because their inclusion would
have an antidilutive effect in the periods presented.
RESTRICTED CASH - The Company had restricted cash of $1.1 million and
$1.0 million at June 30, 1999 and December 31, 1998, respectively, for
payments related to the commercial paper financing program.
COMPREHENSIVE INCOME - The Company had no other comprehensive income
(loss) for the three and six months ended June 30, 1999 and 1998.
Comprehensive income (loss) equaled net income (loss) for each of the
periods presented on the accompanying Consolidated Statements of
Operations.
NOTE 2. UNUSUAL ITEMS
In the six months ended June 30, 1999, the Company recorded unusual
items of $7.7 million, which included a $2.2 million net charge
associated with the execution of an executive agreement with certain
current and former officers of the Company, as previously reported, and a
$5.5 million corporate restructuring charge. The restructuring charge
was recorded in June 1999 as a result of the Company's efforts to further
reduce corporate overhead through the consolidation and/or elimination of
various corporate functions and contracts and a reduction of corporate
<PAGE> 9
office space under lease. Such charge included $2.2 million for employee
termination costs, $1.3 million for the cancellation of certain lease and
maintenance contracts and $2.0 million for the write-down of certain
deferred costs, leasehold improvements and redundant equipment. Employee
termination and contract cancellation costs totalling $3.5 million were
included in accrued expenses in the accompanying Condensed Consolidated
Balance Sheet as of June 30, 1999.
NOTE 3. DISPOSITIONS OF HOSPITALS
Effective June 30, 1999, the Company sold substantially all of the
assets of four skilled nursing facilities (collectively, the
"Convalescent Hospitals"). The facilities had 232 licensed beds. The
sales price of approximately $6.9 million, which excluded net working
capital, was paid by a combination of $3.0 million in cash and a $3.9
million second lien promissory note. The note matures on June 30, 2004
and is subject to prepayment discounts. In connection with the sale, the
Company paid $1.0 million to terminate a lease agreement at one of the
facilities and used the remaining cash proceeds of $2.0 million from the
sale to reduce its outstanding indebtedness under its senior revolving
credit facility. The Company recorded a pretax gain of approximately
$1.3 million on the disposition.
In June 1999, the Company also recorded a loss on sale of facilities
of $3.7 million in connection with the sale of the eight hospitals
located in metropolitan Los Angeles ("LA Metro") as previously reported
in the Company's 1998 Form 10-K. The charge resulted from the final
settlement of working capital and the recognition of a prepayment
discount on certain promissory notes. The notes were repaid in full
during the second quarter of 1999 and the proceeds were used to reduce
the Company's indebtedness under the senior revolving credit facility.
Effective March 31, 1999, the Company sold the stock of Paracelsus
Bledsoe County Hospital, Inc. ("Bledsoe"), which operated a 32 licensed
bed facility located in Pikeville, Tennessee. The sales price of
approximately $2.2 million, including working capital, was paid by a
combination of $100,000 in cash and the issuance by the buyer of $2.1
million in promissory notes. The notes are secured by all outstanding
common stock and assets of Bledsoe. The Company recorded no material gain
or loss on the Bledsoe disposition.
On June 30, 1998, the Company completed the sale of substantially
all of the assets of Chico Community Hospital, Inc., which included a 123
licensed bed acute care hospital and a 60 licensed bed rehabilitation
hospital, both located in Chico, California, (collectively, the "Chico
Hospitals") for $25.0 million in cash plus working capital and the
termination of a facility operating lease and related letter of credit.
The Company recognized a pretax gain of $7.1 million on the disposition.
The results of operations of the Convalescent Hospitals and Bledsoe
for the six months ended June 30, 1999 were not material to the Company's
consolidated statements of operations, individually and on a combined
basis. The pro forma effect of the dispositions of the Convalescent
Hospitals, Bledsoe, the Chico Hospitals and LA Metro on the Company's
1998 results of operations was previously reported in the Company's
Current Report on Form 8-K dated July 16, 1999.
NOTE 4. LONG-TERM DEBT
Effective June 30, 1999, the Company amended its senior bank credit
agreement (the "Amended Agreement"). The Amended Agreement provides for,
among other things (i) a 0.25% increase in interest rates applicable to
the Company's revolving credit facility and Tranche A term loan facility
(outstanding borrowings of $88.9 million and $41.8 million, respectively,
at June 30,1999), with such rates subject to an additional 0.25% increase,
retroactive to August 13, 1999, in the event certain asset dispositions do
not occur, as defined, by November 15, 1999 (ii) a 0.50% increase in
the interest rate applicable to the Company's Tranche B term loan facility
<PAGE> 10
(outstanding borrowings of $69.5 million at June 30, 1999), with such rates
subject to an additional 0.50% increase, retroactive to August 13, 1999, in the
event certain asset dispositions do not occur, as defined, by November 15,
1999 (iii) a change in certain financial covenants for the last three quarters
of 1999, (iv) a reduction in the revolving credit loan commitments for
any prepayment made in connection with an asset disposition, as defined, (v) an
increase in permitted letters of credit from $25.0 million to $26.0 million
and (vi) approval of certain asset dispositions, as defined. Pursuant to the
Amended Agreement, the interest rates, as adjusted, in effect on June 30,
1999 were 8.33% under the revolving credit facility and Tranche A term
loan facility and 8.58% under Tranche B term loan facility.
Effective July 21, 1999, the Company received waivers to certain
provisions of the Amended Agreement to permit the global settlement of
the putative class and derivative actions arising out of the Company's
August 1996 merger with Champion Healthcare Corporation ("Champion") and
two related public offerings. The terms of the global settlement were
described in detail in the Company's Annual Report on Form 10-K filed
on April 13, 1999 (See Note 6).
At June 30, 1999, the Company was in compliance with all debt
covenants to which it was subject under the Amended Agreement. The
Company's continued compliance with its debt covenants is predicated on
its ability to maintain certain levels of operating performance and on
its ability to sell certain non-core assets to reduce debt. If the
Company is unable to meet these objectives, it will be required to seek
waivers from its lenders in the future. However, there can be no
assurance that the Company will be able to obtain such waivers, if
needed.
NOTE 5. OPERATING SEGMENTS
The Company segregates its hospitals into core and non core markets
("Core Facilities" and "Non Core Facilities", respectively). There has
been no material change in the composition of Core and Non Core
Facilities or in the accounting policies of the segments as previously
reported in the Company's 1998 Form 10-K, except for the reclassification
of the Non Core Facilities sold in 1999 to the "All Other" segment in
each of the periods presented below. The Company does not allocate
income taxes, senior bank debt interest, or subordinated note interest to
its reportable segments. These items, along with overhead costs, and the
operations of sold/closed facilities, including the Convalescent
Hospitals, Bledsoe, the Chico Hospitals and LA Metro, have been included
in the "All Other" category. Selected segment information for the
three and six months ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 122,092 $ 17,506 $ 3,669 $ 143,267
Adjusted EBITDA (a) $ 23,487 $ 994 $ (5,317) $ 19,164
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 123,458 $ 19,263 $ 33,972 $ 176,693
Adjusted EBITDA (a) (b) $ 24,015 $ 1,775 $ (3,211) $ 22,579
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 248,148 $ 36,868 $ 9,195 $ 294,211
Adjusted EBITDA (a) $ 48,676 $ 2,506 $ (10,459) $ 40,723
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 251,504 $ 40,658 $ 71,413 $ 363,575
Adjusted EBITDA (a) (b) $ 47,492 $ 4,747 $ (5,703) $ 46,536
</TABLE>
- ---------------------------------------------
(a) Earnings before extraordinary charge, interest, taxes, depreciation,
amortization and unusual charges.
(b) Core Facilities adjusted EBITDA for the three and six months ended
June 30, 1998 included minority interest of $1.6 million and $4.1
million, respectively, attributable to the Company's former partner in
DHHS.
NOTE 6. CONTINGENCIES
SHAREHOLDERS LITIGATION - On July 22, 1999, the United States District
Court for the Southern District of Texas granted final approval of the
global settlement of the putative class and derivative actions arising
out of the Company's August 1996 merger with Champion and two
related public offerings. The terms of the global settlement were described
in detail in the Company's 1998 Annual Report on Form 10-K. The court's
approval is subject to appeal for a period of thirty days. Barring any
appeals, the settlement will take effect ten days after the expiration of the
appeal period.
IMPACT OF YEAR 2000 - The Company has a Year 2000 strategy for its
hospitals and corporate office that includes phases for education,
inventory and assessment of applications and equipment at risk, analysis
and planning, testing, conversion/remediation/replacement and post-
implementation and contingency planning. The Company can provide no
assurances that applications and equipment the Company believes to be
Year 2000 compliant will not experience difficulties, or that the Company
will not experience difficulties obtaining resources needed to make
modifications to correct or replace the Company's affected systems and
equipment. Failure by the Company or third parties on which it relies to
resolve Year 2000 issues could have a material adverse effect on the
Company's results of operations and its ability to provide health care
services. Consequently, the Company can give no assurances that issues
related to Year 2000 will not have a material adverse effect on the
Company's financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for further discussion.
NOTE 7. SUBSEQUENT EVENT
In July 1999, the definitive agreement on the sale of the remaining
two Tennessee facilities and the two facilities in Georgia and
Mississippi, as previously reported, was terminated.
Effective August 16, 1999, the Company entered into a definitive
agreement to transfer the stock of its subsidiary which will hold substantially
all the assets of the Company's five Utah hospitals with 640 licensed beds,
<PAGE> 12
including PHC Regional Hospital and Medical Center which has been closed
since June 1997, to an unrelated third-party. The consideration for the
transfer includes a combination of cash and a minority interest in the
transferred subsidiary. When completed, the transaction will eliminate
indebtedness currently outstanding under the senior credit facilities and
reduce borrowings under the commercial paper financing program. The
transaction is subject to regulatory approvals and the normal due diligence.
The Company expects the transfer to be completed in the fourth quarter of 1999.
However, there can be no assurance on the final outcome of the due diligence
process or that the terms and conditions of the definitive agreement will be
satisfactorily fulfilled.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The comparison of operating results for 1999 with prior years is
difficult given the acquisitions and divestitures in the affected
periods. "Same hospitals" as used in the following discussion, where
appropriate, consist of acute care hospitals owned throughout the periods
for which comparative operating results are presented. Accordingly, "same
hospitals" exclude facilities sold in 1998, the Convalescent Hospitals
and Bledsoe, which were sold effective June 30 and March 31, 1999,
respectively, and include DHHS which was consolidated in 1998 and
included in the Company's results of operations for both periods
presented.
While the most significant changes in Medicare payments mandated by
the Balanced Budget Act of 1997 (the "1997 Budget Act") and certain
proposed changes to various states' Medicaid programs were phased in by
October 1, 1998, these changes continue to have an unfavorable impact on
the Company's revenues and earnings through 1999. Additionally,
pressures to control healthcare costs and a shift from traditional
Medicare/Medicaid and traditional indemnity insurers have resulted in an
increase in the number of patients whose healthcare coverage is provided
under managed care plans, from which the Company generally receives lower
payments per patient. The Company anticipates that its managed care
business will continue to increase in the future.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999
COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
Net revenue for the three months ended June 30, 1999, was $143.3
million, a decrease of $33.4 million, or 18.9%, from $176.7 million for
the same period in 1998. The decline in net revenue is largely due to the
sale of eight acute care hospitals in June and September of 1998 and the
sale of Bledsoe in March 1999. The remaining decline in net revenue
occurred at the Company's "same hospitals," as discussed below.
Net revenue at "same hospitals" for the three months ended June 30,
1999 was $139.6 million compared to $142.7 million in 1998, a decrease of
$3.1 million, or 2.2%. Same hospital net revenue at Core Facilities
decreased $1.4 million, or 1.1%, from $123.5 million in 1998 to $122.1
million in 1999. Same hospital net revenue at Non Core Facilities
decreased $1.8 million, or 9.1%, from $19.3 million in 1998 to $17.5
million in 1999. Same hospital net revenue decreased in the three months
ended June 30, 1999 as compared to the same period in the prior year due
largely to the unfavorable impact of certain key provisions of the 1997
Budget Act, which were not implemented until the second half of 1998 and
resulted in the closure of certain skilled nursing facilities and the
restructuring of home health operations in the third and fourth quarters
of 1998. Additionally, increased managed care presence in certain
markets and downward pressure on payment levels by managed care plans
unfavorably affected same hospital net revenue in 1999. The full impact
of the 1997 Budget Act and managed care trend on same hospital net
revenue were partially mitigated by increased patient volumes in
admissions, patient days and outpatient visits (excluding home health).
While the restructuring of the home health operations and increasing
<PAGE> 13
managed care penetration are likely to continue in 1999, which may
further reduce net revenue, the Company anticipates that the 1997 Budget
Act will not have a significant impact on Company's net revenue in the
second half of 1999 as compared to 1998.
The Company's "same hospitals" experienced a 1.7% increase in
inpatient admissions from 14,017 in the three months ended June 30, 1998
to 14,256 in the comparable period in 1999. "Same hospitals" patient
days increased 1.7% from 62,729 in 1998 to 63,768 in 1999. Excluding home
health visits, outpatient visits in "same hospitals" increased 1.6% from
157,216 in 1998 to 159,757 in 1999. The increase in admissions and
outpatient visits were primarily driven by the Core Facilities and
resulted from (i) favorable demographic changes in certain markets, (ii)
an increase in the number of physicians and services at several of the
Company's hospitals and (iii) increased volume generated from certain
hospital benchmarking and service awareness programs implemented in 1998.
Volume at the Non Core Facilities, as reported below, declined due to
the closure of certain operations and increasing competition in a
selected market. Home health visits in "same hospitals" decreased 35.1%
from 103,560 in 1998 to 67,163 in 1999 primarily due to the closure or
sale of home health operations throughout 1998.
The following table presents "same hospitals" operating statistics
for the Company's Core and Non Core Facilities for the three months ended
June 30, 1999 and 1998.
<TABLE>
<CAPTION>
"SAME HOSPITALS"
-----------------------------------
THREE MONTHS ENDED JUNE 30,
-----------------------------------
1999 1998 % CHANGE
---------- ---------- ---------
<S> <C> <C> <C>
Core Facilities
- ---------------
Patient Days 54,836 51,985 5.5%
Inpatient Admissions 12,168 11,717 3.8
Outpatient Visits, excluding Home Health 135,249 128,540 5.2
Home Health Visits 41,485 62,370 (33.5)
Non Core Facilities
- -------------------
Patient Days 8,932 10,744 (16.9)%
Inpatient Admissions 2,088 2,300 (9.2)
Outpatient Visits, excluding Home Health 24,508 28,676 (14.5)
Home Health Visits 25,678 41,190 (37.7)
</TABLE>
Operating expenses (salaries and benefits, other operating expenses
and provision for bad debts), expressed as a percentage of net revenue,
remained relatively flat at 86.7% and 86.8% for the three months ended
June 30, 1999 and 1998, respectively. Operating expenses decreased $29.2
million from $153.4 million in 1998 to $124.2 million in 1999 primarily
from the Company's strategic disposition of certain facilities or closure
of unprofitable business operations, and from cost reduction efforts
implemented in the latter part of 1998. These initiatives contributed to
the stability of the Company's operating margins, which were 13.3% and
13.2% in 1999 and 1998, respectively.
Operating expenses at the Company's "same hospitals" increased from
80.8% of net revenue in 1998 to 82.5% in 1999, and operating margins
decreased from 19.2% to 17.5%, respectively. On a "same hospital"
basis, Core Facility operating margins declined from 20.8% in 1998 to
19.2% in 1999. The decline reflects, in part, the implementation of
certain key components of the 1997 Budget Act in the latter half of
1998, particularly with respect to the Company's home health operations,
as well as continuing downward pressure on payment levels by managed care
<PAGE> 14
plans. Operating margins were also negatively impacted by the loss of
higher margin home health volume and higher labor costs resulting from a
combination of increased patient volume and tight labor markets at
certain facilities. Operating margins at the Non Core Facilities
declined from 9.2% in 1998 to 5.7% in 1999, due to a significant
reduction in the home health operations which led to overall volume
reductions at these facilities and an increase in the provision for bad
debt due to collection issues from a computer system conversion at one
facility. In addition to the cost reduction strategies implemented in
1998, the Company implemented a plan in 1999 to further reduce corporate
overhead through the consolidation and/or elimination of corporate office
space and various corporate functions and contracts. Management believes
that the cost savings associated with these initiatives will have a
favorable impact on the Company's results of operations throughout 1999.
However, there can be no assurance that the Company will achieve its
desired cost structure or that any cost reductions will be sufficient to
offset present and/or future government initiatives and the effect of
increasing managed care penetration in selected markets.
Depreciation and amortization expense increased $1.1 million from
$8.9 million in the three months ended June 30, 1998 to $10.0 million for
the same period in 1999 primarily due to the Company's acquisition of
DHHS on July 1, 1998 and additions to property and equipment.
Loss before income taxes was $12.8 million for the three months
ended June 30, 1999 and included (i) unusual charges of $6.5 million,
which consisted of a $5.5 million corporate restructuring charge and a
$1.0 million charge associated with an executive agreement executed in
November 1998 (see Note 2) and (ii) loss on sale of hospitals of $2.4
million (see Note 3). Income before income taxes of $7.6 million for the
three months ended June 30, 1998 included a $7.1 million gain from sale
of the Chico Hospitals and minority interests of $1.6 million
attributable to DHHS. The Company acquired its former partner's 50%
interest in DHHS in July 1998.
The Company recorded income tax benefit of $5.2 million for the
three months ended June 30, 1999 and income tax expense of $1.9 million
for the same period in 1998. Income tax benefit in 1999 approximated the
statutory rate due to the offset of nondeductible goodwill amortization
and a non-taxable gain related to the executive agreement. Income tax
expense in 1998 differed from the statutory rate due to a decrease in the
valuation allowance, which was partially offset by nondeductible goodwill
amortization.
Net loss for the three months ended June 30, 1999 was $7.6 million,
or $0.14 per diluted share, compared to net income of $5.7 million or
$0.10 per diluted share, for the same period of 1998. Weighted average
common and common equivalent shares outstanding were 55.1 million and
57.5 million in 1999 and 1998, respectively. The decrease in weighted
average common and common equivalent shares outstanding resulted from the
effect of dilutive securities, which were excluded due to their anti-
dilutive effect on 1999 net loss.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999
COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
Net revenue for the six months ended June 30, 1999, was $294.2
million, a decrease of $69.4 million, or 19.1%, from $363.6 million for
the same period in 1998. The decline in net revenue is largely due to the
sale of Bledsoe in March 1999 and eight acute care hospitals sold in
1998. The remaining decline in net revenue occurred at the Company's
"same hospitals," as discussed below.
Net revenue at "same hospitals" for the six months ended June 30,
1999 was $285.0 million compared to $292.2 million in 1998, a decrease of
$7.2 million, or 2.4%. Same hospital net revenue at Core Facilities
decreased $3.4 million, or 1.3%, from $251.5 million in 1998 to $248.1
million in 1999. Same hospital net revenue at Non Core Facilities
decreased $3.8 million, or 9.3%, from $40.7 million in 1998 to $36.9
<PAGE> 15
million in 1999. As previously discussed, increased patient volumes in
admissions, patient days and outpatient visits (excluding home health)
partially mitigated the decline in same hospital net revenue that
resulted from the implementation of certain key provisions of the 1997
Budget Act in the second half of 1998, which led to the eventual closure
of certain skilled nursing facilities and the restructuring of home
health operations. The decline in same store net revenue was also due to
the increased penetration of managed care plans at selected markets.
The Company's "same hospitals" experienced a 2.1% increase in
inpatient admissions from 28,950 in the six months ended June 30, 1998 to
29,561 in the comparable period in 1999. Same hospital patient days
increased 2.6% from 132,347 in 1998 to 135,756 in 1999. Excluding home
health visits, outpatient visits in "same hospitals" increased 3.9% from
313,098 in 1998 to 325,292 in 1999. The increase in admissions and
outpatient visits resulted from (i) a delayed flu season in some markets
in the current year, (ii) favorable demographic changes in certain
markets, (iii) an increase in the number of physicians and services at
several of the Company's hospitals and (iv) increased volume generated
from certain hospital benchmarking and service awareness programs
implemented in 1998. Home health visits in "same hospitals" decreased
37.4% from 226,177 in 1998 to 141,515 in 1999 primarily due to the 1998
closure or sale of home health operations in response to the 1997 Budget
Act.
The following table presents "same hospitals" operating statistics
for the Company's Core and Non Core Facilities for the six months ended
June 30, 1999 and 1998.
<TABLE>
<CAPTION>
"SAME HOSPITALS"
-----------------------------------
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1999 1998 % CHANGE
---------- ---------- ---------
<S> <C> <C> <C>
Core Facilities
- ---------------
Patient Days 114,514 109,215 4.9%
Inpatient Admissions 24,645 23,987 2.7
Outpatient Visits, excluding Home Health 274,648 255,575 7.5
Home Health Visits 87,909 136,833 (35.8)
Non Core Facilities
- -------------------
Patient Days 21,242 23,132 (8.2)%
Inpatient Admissions 4,916 4,963 (0.9)
Outpatient Visits, excluding Home Health 50,644 57,523 (12.0)
Home Health Visits 53,606 89,344 (40.0)
</TABLE>
Operating expenses (salaries and benefits, other operating expenses
and provision for bad debts), expressed as a percentage of net revenue,
remained relatively flat at 86.2% and 86.3%, respectively, for the six
months ended June 30, 1999 and 1998, respectively. Operating expenses
decreased $60.1 million from $313.7 million in the six months ended June
30, 1998 to $253.6 million in 1999 largely due to reductions from
closed/sold facilities and cost reduction initiatives implemented in the
second half of 1998. Operating margins were 13.8% and 13.7% in 1999 and
1998, respectively.
Operating expenses at the Company's "same hospitals" increased from
80.7% of net revenue in 1998 to 82.1% in 1999, and operating margins
decreased from 19.3% to 17.9%, respectively. Core Facility operating
margins declined from 20.6% in 1998 to 19.6% in 1999, and Non Core
Facility operating margins decreased from 11.7% to 6.8%, respectively. As
discussed above, the decline in operating margins reflects (i) the
<PAGE> 16
implementation of certain key components of the 1997 Budget Act in the
latter half of 1998, particularly with respect to the Company's home
health operations, (ii) continuing downward pressure on payment levels by
managed care plans, (ii) the loss of higher margin home health volume and
(iii) higher labor costs resulting from a combination of increased
patient volume and tight labor markets at certain facilities.
Additionally, operating margins were further reduced by an increase in
the first quarter 1999 bad debt expense due to collection issues arising
from information systems conversions and personnel turnover at several
facilities. These issues have largely been resolved and management
expects that bad debt expense should be in line with historical results
for the remainder of 1999. Management also believes that the cost
savings associated with the initiatives implemented in 1998 and 1999 will
have a favorable impact on the Company's results of operations throughout
1999. However, there can be no assurance that the Company will achieve
its desired cost structure or that any cost reductions will be sufficient
to offset present and/or future government initiatives and the effect of
increasing managed care penetration.
Interest expense increased $509,000 from $25.7 million in the six
months ended June 30, 1998 to $26.2 million in 1999, primarily due to an
net increase in borrowings under the senior credit facilities (primarily
to fund the acquisition of DHHS in July 1998 and working capital) and the
commercial paper program, which was partially offset by a decrease in
interest rates under the credit facilities.
Depreciation and amortization expense increased $1.7 million from
$18.1 million in the six months ended June 30, 1998 to $19.8 million for
the same period in 1999 primarily due to the acquisition of DHHS on July
1, 1998 and additions to property and equipment.
Loss before income taxes and extraordinary charge was $15.3 million
for the six months ended June 30, 1999 and included (i) unusual charges
of $7.7 million, which consisted of a $5.5 million corporate
restructuring charge and a $2.2 million charge associated with the
executive agreement executed in November 1998 (see Note 2) and (ii) a
loss on sale of facilities of $2.4 million (see Note 3). Income before
income taxes and extraordinary charge was $9.9 million for the six months
ended June 30, 1998 and included a gain on sale of the Chico Hospitals of
$7.1 million and minority interests of $4.1 million attributable to DHHS.
The Company recorded income tax benefit of $6.1 million in the six
months ended June 30, 1999 and income tax expense of $2.5 million for the
same period in 1998. Income tax benefit in 1999 approximated the
statutory rate due to the offset of nondeductible goodwill amortization
and a non-taxable gain related to the executive agreement. Income tax
expense in 1998 differed from the statutory rate due to a decrease in the
valuation allowance, which was partially offset by nondeductible goodwill
amortization.
Net loss for the six months ended June 30, 1999 was $9.2 million, or
$0.17 per diluted share, compared to net income of $6.1 million, or $0.11
per diluted share, for the same period of 1998. Net income in 1998
included an extraordinary charge for the write-off of deferred loan costs
of $1.2 million (net of tax benefits of $816,000), or $0.02 per share,
relating to the credit facility in existence prior to March 30, 1998.
Weighted average common and common equivalent shares outstanding were
55.1 million and 57.5 million in 1999 and 1998, respectively. The
decrease in weighted average common and common equivalent shares
outstanding resulted from the effect of dilutive securities, which were
excluded due to their anti-dilutive effect on 1999 net loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $20.4 million at June 30,
1999, a decrease of $2.1 million from $22.5 million at December 31, 1998.
The decrease in net working capital resulted primarily from an increase
in accrued expenses for corporate restructuring charges recorded in June
1999, which was partially offset by a reduction in accounts receivable.
<PAGE> 17
The Company's long-term debt as a percentage of total capitalization
increased to 95.5% at June 30, 1999, compared to 93.9% at December 31,
1998, as the result of the 1999 year-to-date net loss and from additional
net borrowings under the senior credit facilities.
The acquisition of the remaining 50% interest in DHHS in July 1998
and increased efficiency in the utilization of the Company's operating
assets and liabilities contributed to a $5.3 million increase in net cash
provided by operating activities, which was $9.5 million in the six
months ended June 30, 1999 as compared to $4.2 million for the same
period in 1998. Net cash used in investing activities decreased $38.5
million from $49.3 million in 1998 to $10.8 million in 1999 due to (i)
the acquisition of DHHS for $64.8 million in 1998 partially offset by
(ii) a decrease in proceeds from sale of facilities of $21.1 million and
(iii) an increase in property and equipment additions primarily from
facility expansions at selected facilities and increased capital
expenditures in 1999 associated with Year 2000 and computer system
conversions. Net cash provided by financing activities during 1999 was
$1.7 million as compared to $27.2 million during 1998. The $25.5 million
decrease resulted primarily from a decrease in acquisition related
borrowings in 1999 relative to 1998, partially offset by a decrease in
repayments under the revolver portion of the senior credit facilities and
the payment of deferred financing costs associated with the refinancing
of the senior credit facility in March 1998.
Effective June 30, 1999, the Company amended its senior bank credit
agreement (the "Amended Agreement"). The Amended Agreement provides for,
among other things (i) a 0.25% increase in interest rates applicable to
the Company's revolving credit facility and Tranche A term loan facility
(outstanding borrowings of $88.9 million and $41.8 million, respectively,
at June 30,1999), with such rates subject to an additional 0.25% increase,
retroactive to August 13, 1999, in the event certain asset dispositions do
not occur, as defined, by November 15, 1999 (ii) a 0.50% increase in
the interest rate applicable to the Company's Tranche B term loan facility
(outstanding borrowings of $69.5 million at June 30, 1999), with such rates
subject to an additional 0.50% increase, retroactive to August 13, 1999, in the
event certain asset dispositions do not occur, as defined, by November 15,
1999 (iii) a change in certain financial covenants for the last three quarters
of 1999, (iv) a reduction in the revolving credit loan commitments for
any prepayment made in connection with an asset disposition, as defined, (v) an
increase in permitted letters of credit from $25.0 million to $26.0 million
and (vi) approval of certain asset dispositions, as defined. Pursuant to the
Amended Agreement, the interest rates, as adjusted, in effect on June 30,
1999 were 8.33% under the revolving credit facility and Tranche A term
loan facility and 8.58% under Tranche B term loan facility.
At June 30, 1999, the Company was in compliance with all debt
covenants to which it was subject under the Amended Agreement. The
Company's continued compliance with its debt covenants is predicated on
its ability to maintain certain levels of operating performance and on
its ability to sell certain assets to reduce debt. If the Company is
unable to meet these objectives, it will be required to seek waivers from
its lenders in the future. However, there can be no assurance that the
Company will be able to obtain such waivers, if needed.
In June 1999, the Company recorded a corporate restructuring charge
of $5.5 million in connection with its effort to further reduce corporate
overhead through the consolidation and/or elimination of corporate
functions and contracts and a reduction of corporate office space under
lease. Such charge included $2.2 million for employee termination costs,
$1.3 million for the cancellation of various leases and maintenance
contracts and $2.0 million for the write-down of certain deferred costs,
leasehold improvements and redundant equipment. Management expects that
approximately $3.5 million, which represented the cash portion of the
restructuring charge, will be paid in the second half of this year.
Effective July 21, 1999, the Company received waivers to certain
provisions of the Amended Agreement to permit the global settlement of
the putative class and derivative actions arising out of the Company's
<PAGE> 18
August 1996 merger with Champion and two related public offerings. The
terms of the global settlement were described in detail in the Company's
Annual Report on Form 10-K filed on April 13, 1999.
As of August 16, 1999, the Company had $22.5 million available for
borrowings under the revolver portion of its senior credit facilities,
subject to the terms thereof, to fund future capital expenditures,
working capital requirements and the issuance of letters of credit.
Additionally, approximately $14.6 million remained available for
borrowings under the commercial paper program, subject to the
availability of the eligible accounts receivable.
Effective August 16, 1999, the Company entered into a definitive
agreement to transfer the stock of its subsidiary which will hold substantially
all the assets of the Company's five Utah hospitals with 640 licensed beds,
including PHC Regional Hospital and Medical Center which has been closed
since June 1997, to an unrelated third-party. The consideration for the
transfer includes a combination of cash and a minority interest in the
transferred subsidiary. When completed, the transaction will eliminate
indebtedness currently outstanding under the senior credit facilities, reduce
borrowings under the commercial paper financing program and provide additional
capital for working capital needs and investment in existing markets. The
transaction is subject to regulatory approvals and the normal due diligence.
The Company expects the transfer to be completed in the fourth quarter of 1999.
However, there can be no assurance on the final outcome of the due diligence
process or that the terms and conditions of the definitive agreement will be
satisfactorily fulfilled.
The Company anticipates that internally generated cash flows from
earnings, existing cash balances, borrowings under the senior credit facilities
and the commercial paper program, proceeds from the sale of facilities, income
tax refunds and permitted equipment leasing arrangements will be sufficient to
fund future capital and Year 2000 expenditures (see "Year 2000" discussion
below) and working capital requirements through 1999. There can be no
assurance that the above sources will sufficiently fund the Company's liquidity
needs or that future developments in the hospital industry or general economic
trends will not adversely affect the Company's operations or its liquidity.
LITIGATION
On July 22, 1999, the United States District Court for the Southern
District of Texas granted final approval of the global settlement of the
putative class and derivative actions arising out of the Company's August
1996 merger with Champion and two related public offerings. The terms of
the global settlement were described in detail in the Company's 1998
Annual Report on Form 10-K. The court's approval is subject to appeal
for a period of thirty days. Barring any appeals, the settlement will
take effect ten days after the expiration of the appeal period.
The Company is subject to claims and legal actions by patients and
others in the ordinary course of business. The Company believes that all
such claims and actions are either adequately covered by insurance or
will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
YEAR 2000
The following discussion updates a more complete disclosure of the
Company's Year 2000 project plan previously reported in the 1998 Form 10-
K. The Company is on track with its Year 2000 seven-phase project plan.
As previously reported, the Company completed the first two phases of the
project plan. Phases three and four involving vendor certification and
developing test plans and compliance criteria for all patient care
critical and operations critical items are completed. The fifth phase,
which includes testing all patient care critical or operations critical
systems and identifying/replacing non-compliant items, is substantially
completed and documented in the Company's Year 2000 data repository.
Non-compliant patient care or operation critical systems have either been
replaced or the Company is in the process of approving/ ordering
<PAGE> 19
replacement systems. The Company has also received vendor certification
from a majority of the critical suppliers and third parties such as
fiscal intermediaries, insurance companies, banks and local community
service providers.
The sixth phase, which involves developing contingency plans, is in
process and is scheduled for completion in the third quarter of 1999. The
Company has established and communicated a master contingency plan
guideline to all facilities and the corporate office requiring each
functional department to develop and document alternative means to
address all identifiable types of Year 2000 disruptions. The contingency
plan, by functional department, will include the identification of (i)
core functions and related supporting mission-critical systems, (ii)
procedures to detect data corruption and manual/replacement procedures to
execute in the event of system malfunction, (iii) loss impact of
potential failures on departmental core functions and procedures for
restoring data loss, (iv) a supply chain readiness assessment for all
critical suppliers, (v) a staffing plan during the weekend of the century
change and the scheduling of Year 2000 critical personnel to assist and
coordinate activities in the event of system malfunctions (vi) emergency
notification procedures with the Corporate command center and with points
of contact, including vendors, customers and/or legal counsel, (vii)
backup procedures for all critical physical facility equipment and
systems including heating, water supply, electrical power, elevators,
fire detection and security, and increased fuel resources for extended
usage of emergency power, and (viii) validation plan to ensure that the
contingency plan is realistic and executable. The seventh and final
phase which focuses on identifying and correcting any unpredictable
malfunction in the systems and equipment will be conducted throughout the
second half of the year, as planned.
Based on existing information, the Company believes that its
estimate of Year 2000 total costs in the range of $8.0 million to $10.0
million, as previously reported in the 1998 Form 10-K, remains
appropriate. To date, the Company has incurred approximately $5.5
million in capital expenditures on replacement systems and capital
projects that would have been undertaken notwithstanding the Year 2000
compliance program, but the timing of which was accelerated. The Company
has also incurred approximately $1.0 million in expenses to date,
including approximately $400,000 associated with the write-off of non-
compliant systems, which were or will be replaced. The Company expects to
incur the remainder of the projected cost, estimated at $1.5 million to
$3.5 million, in the latter half of 1999. The Company continues to
review its Year 2000 total cost estimate as appropriate. There can be no
assurance that the total projected Year 2000 costs, as reported, will not
differ materially from the actual costs incurred by the Company.
The foregoing assessment is based on information currently available
to the Company. The Company can provide no assurances that applications
and equipment the Company believes to be Year 2000 compliant will not
experience difficulties or that the Company will not experience
difficulties obtaining resources needed to make modifications to or
replace the Company's affected systems and equipment. Failure by the
Company or third parties on which it relies to resolve Year 2000 issues
could have a material adverse effect on the Company's results of
operations and its ability to provide health care services. Consequently,
the Company can give no assurances that issues related to Year 2000 will
not have a material adverse effect on the Company's financial condition
or results of operations.
REGULATORY MATTERS
Because of national, state and private industry efforts to reform
healthcare delivery and payment systems, the healthcare industry as a
whole faces increased uncertainty. The Company is unable to predict
whether any other healthcare legislation at the federal and/or state
level will be passed in the future and what action it may take in
response to such legislation, but it continues to monitor all proposed
legislation and analyze its potential impact in order to formulate its
<PAGE> 20
future business strategies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 22, 1999, the United States District Court for the Southern
District of Texas granted final approval of the global settlement of the
putative class and derivative actions arising out of the Company's August
1996 merger with Champion and two related public offerings. The terms of
the global settlement were described in detail in the Company's 1998
Annual Report on Form 10-K. The court's approval is subject to appeal
for a period of thirty days. Barring any appeals, the settlement will
take effect ten days after the expiration of the appeal period.
The Company is subject to claims and legal actions by patients and
others in the ordinary course of business. The Company believes that all
such claims and actions are either adequately covered by insurance or
will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(c) Exhibits
3.1 Amended and Restated Bylaws of Paracelsus Healthcare Corporation
dated March 24, 1999.
10.76 Employment agreement effective July 1, 1999 between James G.
VanDevender and Paracelsus Healthcare Corporation.*
10.77 Third Amendment to Amended and Restated Credit Agreement and
Approval of Asset Dispositions effective June 30, 1999.
10.78 Shareholder Agreement dated March 19, 1999, between Park-Hospital
GmbH and Paracelsus Healthcare Corporation.
10.79 Settlement Agreement dated March 24, 1999, by and among the former
shareholders of Champion Healthcare Corporation, Park-Hospital GmbH,
Dr. Manfred Georg Krukemeyer, and Paracelsus Healthcare Corporation.
10.80 Stipulation of Settlement dated May 11, 1999, by and among plaintiffs,
individually and as representatives of the Class, as defined, Paracelsus
Healthcare Corporation, Manfred G. Krukemeyer, R.J. Messenger, James T.
Rush, Charles R. Miller, James G. VanDevender, the Champion Shareholders,
as defined, Park-Hospital GmbH, Donaldson Lufkin & Jenrette Securities
Corporation, Bear Stearns & Co., Inc., Smith Barney, Inc., and ABN AMRO
Chicago Corporation in connection with the litigation captioned IN RE
PARACELSUS CORP. SECURITIES LITIGATION, Master File No. H-96-3464 (EW)
filed with the United States District Court for the Southern District of
Texas.
10.81 Settlement Agreement dated March 17, 1999, by and between James G.
Caven and Robert Orovitz, derivatively on behalf of Champion
Healthcare Corporation and double derivatively on behalf of
Paracelsus Healthcare Corporation; Paracelsus Healthcare
Corporation; the former shareholders of Champion Healthcare
Corporation; Park-Hospital GmbH; Donaldson Lufkin & Jenrette
Securities Corporation; Bears Stearns & Co.; Smith Barney, Inc.; and
ABN AMRO Chicago Corporation; Manfred Georg Krukemeyer; Charles R.
Miller; James G. VanDevender; Ronald R. Patterson; R.J. Messenger;
James T. Rush; Robert C. Joyner; Michael D. Hofmann; Christian A.
Lange; and Scott K. Barton.
27 Financial Data Schedule.
- ---------------------------------------------------
* Portions of the indicated exhibit have been omitted pursuant to a
request for confidentiality treatment which was filed separately
with the Securities and Exchange Commission on August 16, 1999.
(b) Report on Form 8-K
The Company filed on July 16, 1999, a Current Report on Form 8-K,
dated July 2, 1999, reporting pursuant to Item 2, the sale of
substantially all of the assets of four skilled nursing facilities
located in California effective June 30, 1999.
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Paracelsus Healthcare Corporation
(Registrant)
Dated: August 16, 1999 By: /S/ JAMES G. VANDEVENDER
----------------------------
James G. VanDevender
Chief Executive Officer
& Director
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,475
<SECURITIES> 0
<RECEIVABLES> 100,435
<ALLOWANCES> (40,253)
<INVENTORY> 12,411
<CURRENT-ASSETS> 124,256
<PP&E> 539,615
<DEPRECIATION> (179,324)
<TOTAL-ASSETS> 703,742
<CURRENT-LIABILITIES> 103,895
<BONDS> 537,759
<COMMON> 222,977
0
0
<OTHER-SE> (197,831)
<TOTAL-LIABILITY-AND-EQUITY> 703,742
<SALES> 0
<TOTAL-REVENUES> 294,211
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 261,843
<LOSS-PROVISION> 21,485
<INTEREST-EXPENSE> 26,183
<INCOME-PRETAX> (15,300)
<INCOME-TAX> (6,105)
<INCOME-CONTINUING> (9,195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,195)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
FORM OF
AMENDED AND RESTATED BYLAWS
OF
PARACELSUS HEALTHCARE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
CORPORATE OFFICES
SECTION 1.1 Principle Office..............................................C-1
SECTION 1.2 Other Offices.................................................C-1
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1 Place of Meetings.............................................C-1
SECTION 2.2 Annual Meeting................................................C-1
SECTION 2.3 Special Meetings..............................................C-1
SECTION 2.4 Notice of Shareholders' Meetings..............................C-2
SECTION 2.5 Manner Of Giving Notice, Affidavit of Notice..................C-2
SECTION 2.6 Organization of Meetings......................................C-3
SECTION 2.7 Quorum........................................................C-4
SECTION 2.8 Adjourned Meeting; Notice.....................................C-4
SECTION 2.9 Voting........................................................C-4
SECTION 2.10 Validation of Meetings; Waiver of Notice; Consent............C-5
SECTION 2.11 Action by Written Consent....................................C-5
SECTION 2.12 Record Date For Shareholder Notice; Voting; Giving Consents..C-6
SECTION 2.13 Proxies......................................................C-7
SECTION 2.14 Advance Notice...............................................C-7
SECTION 2.15 Inspectors of Election...................................... C-9
SECTION 2.16 Counting Consents...........................................C-10
ARTICLE III
DIRECTORS
SECTION 3.1 Powers.......................................................C-11
SECTION 3.2 Number of Directors..........................................C-12
SECTION 3.3 Election and Term of Office of Directors and Removal.........C-12
SECTION 3.4 Class or Series Directors....................................C-12
SECTION 3.5 Resignation and Vacancies....................................C-13
SECTION 3.6 Place of Meetings; Meetings By Telephone.....................C-13
SECTION 3.7 Regular Meetings.............................................C-14
SECTION 3.8 Special Meetings; Notice.....................................C-14
SECTION 3.9 Quorum.......................................................C-14
</TABLE>
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SECTION 3.10 Waiver of Notice............................................C-15
SECTION 3.11 Adjournment.................................................C-15
SECTION 3.12 Notice of Adjournment.......................................C-15
SECTION 3.13 Board Action by Written Consent Without A Meeting...........C-15
SECTION 3.14 Fees and Compensation of Directors..........................C-15
ARTICLE IV
COMMITTEES
SECTION 4.1 Executive Committee..........................................C-16
SECTION 4.2 Other Committees of Directors................................C-17
SECTION 4.3 Meetings and Actions of Committees...........................C-17
SECTION 4.4 Composition of Committees....................................C-18
ARTICLE V
OFFICERS
SECTION 5.1 Officers.....................................................C-18
SECTION 5.2 Appointment of Officers......................................C-18
SECTION 5.3 Subordinate Officers.........................................C-18
SECTION 5.4 Removal and Resignation of Officers..........................C-18
SECTION 5.5 Vacancies in Offices.........................................C-19
SECTION 5.6 Chairman of The Board........................................C-19
SECTION 5.7 Chief Executive Officer......................................C-19
SECTION 5.8 President....................................................C-19
SECTION 5.9 Vice Presidents..............................................C-19
SECTION 5.10 Secretary...................................................C-19
SECTION 5.11 Chief Financial Officer.....................................C-20
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
SECTION 6.1 Indemnification of Directors.................................C-20
SECTION 6.2 Indemnification of Others....................................C-21
SECTION 6.3 Payment of Expenses in Advance...............................C-21
SECTION 6.4 Indemnity Not Exclusive......................................C-21
SECTION 6.5 Insurance Indemnification....................................C-21
SECTION 6.6 Conflicts....................................................C-22
SECTION 6.7 Right to Bring Suit..........................................C-22
SECTION 6.8 Indemnity Agreements.........................................C-22
</TABLE>
ii
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<S> <C>
SECTION 6.9 Amendment, Repeal or Modification............................C-22
ARTICLE VII
RECORDS AND REPORTS
SECTION 7.1 Maintenance and Inspection of Share Register.................C-23
SECTION 7.2 Maintenance and Inspection of Bylaws.........................C-23
SECTION 7.3 Maintenance and Inspection of Other Corporate Records........C-24
SECTION 7.4 Inspection by Directors......................................C-24
SECTION 7.5 Annual Report to Shareholders; Waiver........................C-24
SECTION 7.6 Financial Statements.........................................C-24
SECTION 7.7 Representation of Shares of Other Corporations...............C-25
ARTICLE VIII
GENERAL MATTERS
SECTION 8.1 Record Date For Purposes Other Than Notice and Voting........C-25
SECTION 8.2 Checks; Drafts, Evidences of Indebtedness....................C-26
SECTION 8.3 Corporate Contracts and Instruments: How Executed...........C-26
SECTION 8.4 Certificates for Shares......................................C-26
SECTION 8.5 Lost Certificates............................................C-26
SECTION 8.6 Construction; Definitions....................................C-27
ARTICLE IX
AMENDMENTS
SECTION 9.1 Amendment by Shareholders....................................C-27
SECTION 9.2 Amendment by Directors.......................................C-27
SECTION 9.3 Records of Amendments........................................C-27
ARTICLE X
INTERPRETATION
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
PARACELSUS HEALTHCARE CORPORATION
ARTICLE I
CORPORATE OFFICES
SECTION 1.1 PRINCIPLE 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 515 West Greens
Road, Suite 800, Houston, Texas 77067.
SECTION 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
SECTION 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.
SECTION 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.
SECTION 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
<PAGE>
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, however, 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 (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.
SECTION 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.
SECTION 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
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<PAGE>
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.
SECTION 2.6 ORGANIZATION OF MEETINGS. The Chairman of the Board of
Directors, if any, shall preside at each meeting; 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, or 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 such acts and things as are necessary or desirable for
C-3
<PAGE>
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.
SECTION 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.
SECTION 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.
SECTION 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.
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
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<PAGE>
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.
SECTION 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 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 thereto 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.
SECTION 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.
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<PAGE>
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 proxy holders, or a transferee of the
shares, or a personal representative of the shareholder, or their respective
proxy holders, 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 on 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 the
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, interest, 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.
SECTION 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 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.
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<PAGE>
SECTION 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.
SECTION 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 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 a 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
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<PAGE>
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 principle 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 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.
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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 as of March __,
1999 (the "SHAREHOLDER AGREEMENT"), between the corporation and Park-Hospital
GmbH shall be in effect, nothing in Sections 2.14(a) or 2.l4(b) shall be deemed
to limit the rights and other provisions under the Shareholder Agreement,
including, without limitation, Sections 4 and 5 thereof.
SECTION 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
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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 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.
SECTION 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 (3) 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 consents 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 (60) 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
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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 (48) 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
(48) 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 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 (48) 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
SECTION 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
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affairs of the corporation shall be managed and all corporate powers shall be
exercised under the ultimate direction of the Board.
SECTION 3.2 NUMBER OF DIRECTORS. The authorized number of directors of
the corporation shall be not less than nine (9) and not 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, applicable laws and the Shareholder
Agreement. 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.
SECTION 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, 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.
SECTION 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
Restated 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 Restated 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
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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 Restated 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 his or her
successor is elected and qualified or until his or her earlier resignation or
removal.
SECTION 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
or these Bylaws or the Shareholder Agreement, 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, these Bylaws and the Shareholder Agreement.
(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, vacancies among the
Shareholder Directors (as defined in the Shareholder Agreement) and among the
other directors shall be filled in accordance with the terms of the Shareholder
Agreement.
SECTION 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
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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.
SECTION 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.
SECTION 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 five
(5) business 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.
SECTION 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.
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(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 and one director
who
is an Independent Director (as defined in the Shareholder Agreement) or their
respective designees, attending in person or, if necessary, via teleconference
call or other permitted means.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
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ARTICLE IV
COMMITTEES
SECTION 4.1 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;
(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; and
(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
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conversion into, or the exchange of such shares for, shares of any other class
or classes of stock 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, loan 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.
SECTION 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.l.
(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.
SECTION 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.
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SECTION 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 so that the number of
Shareholder 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
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
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
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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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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
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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 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.
SECTION 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 depositories 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
SECTION 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
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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.
SECTION 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.
SECTION 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
indemnification as authorized in this Article VI.
SECTION 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 Bylaw, 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.
SECTION 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.
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SECTION 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.
SECTION 6.7 RIGHT TO BRING SUIT. If a claim under this Article VI is
not paid in full by the corporation within ninety (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.
SECTION 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 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.
SECTION 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, employee, officer or agent of the
corporation
existing at the time of such amendment, repeal or modification.
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ARTICLE VII
RECORDS AND REPORTS
SECTION 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) business
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.
SECTION 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.
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SECTION 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 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 immediately 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.
SECTION 7.4 INSPECTION BY DIRECTORS. Directors 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.
SECTION 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 a 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.
SECTION 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
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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.
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.
SECTION 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
SECTION 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
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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.
SECTION 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.
SECTION 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.
SECTION 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 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.
SECTION 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 canceled 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
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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.
SECTION 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
SECTION 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.
SECTION 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 a Directors provided that the shareholders may from time to
time
specify particular provisions of the Bylaws which shall not be amend 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.
SECTION 9.3 RECORDS 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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EXECUTION COPY
|__| Employee's Copy
|__| Company's Copy
PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
To JAMES G. VANDEVENDER
This Agreement establishes the terms of your continued employment
with Paracelsus Healthcare Corporation, Inc., a California corporation
(the "COMPANY") and reflects your new position as the
Company's interim chief executive officer ("CEO").
EMPLOYMENT AND DUTIES You and the Company agree to your employment as
interim CEO. In such position, you will report
directly to the Company's Board of Directors (the
"BOARD"). You agree to perform whatever duties the
Board may assign you from time to time that are
consistent with those of the CEO of a public company.
During your employment, you agree to devote your full
business time, attention, and energies to performing
those duties (except as the Board otherwise agrees
from time to time). On termination of this
Agreement, you agree that you resign as an officer
and director and from all other officer and director
positions at the Company and subsidiaries.
You agree that, if the Company hires or promotes a
new CEO during the Term but retains your services in
some other capacity, your change in position by
itself does not constitute termination without CAUSE
and does not entitle you to any SEVERANCE, whether
under this Agreement or otherwise. However, the
hiring or promotion of a new CEO does not alter the
Company's obligations to you under this Agreement,
including those obligations described under the
SALARY, BENEFITS, BONUS, PAYMENTS ON TERMINATION, and
SEVERANCE sections.
TERM OF EMPLOYMENT Your employment under this Agreement begins as of
July 1, 1999 (the "EFFECTIVE DATE") and, unless
sooner terminated or extended, ends on December 31,
1999. The period running from the Effective Date to
the applicable date in the preceding sentence is the
"TERM."
<PAGE>
COMPENSATION
SALARY The Company will pay you a salary (the "SALARY") from
the Effective Date at the rate of not less than
$45,000 per month in accordance with its generally
applicable payroll practices.
BENEFITS During the Term, you will continue to be eligible to
participate in employee benefit and fringe benefit
plans and programs generally available to the
Company's executive officers and such additional
benefits as the Board may from time to time provide.
In addition, during the Term, you will continue to be
entitled to the following life insurance and
disability coverages and fringe benefits:
LIFE The Company will maintain for your benefit life
insurance
INSURANCE coverage with a face amount equal to three times
the amount of your annual SALARY as in effect
from time to time; PROVIDED, HOWEVER, that if
the Company cannot obtain the full amount of
such life insurance coverage at a reasonable
cost, the Company may instead provide you with a
lump sum death benefit, payable within 90 days
following your death, in such amount as will,
when added to any life insurance coverage the
Company actually obtains, provide your
beneficiary or beneficiaries with a net amount,
after payment of any Federal and state income
taxes, equal to the net, after-tax amount such
beneficiary or beneficiaries would have received
had the Company obtained the full amount of life
insurance coverage provided for above. You will
have the right to name and to change from time
to time the beneficiary or beneficiaries under
such life insurance coverage (and death
benefits, if any). Such life insurance coverage
(and death benefits, if any) will be in addition
to any death benefits that may be payable under
any accidental death and dismemberment plan, any
separate business travel accident coverage, or
any pension plan in which you may participate,
and such coverage will also be in addition to
any life insurance that you purchase for
yourself.
LONG-TERM If you become disabled (as defined in the long-
term
<PAGE>
DISABILITY disability plan the Company presently
maintains), you are to receive disability
benefits in an amount equal to 60% of your then
annual 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 to you or to your immediate
family as a Social Security disability benefit
or similar benefit will be counted towards the
Company's fulfillment of such obligation.
Disability benefits will be payable monthly
beginning 30 days following disability and will
continue until you are no longer disabled, or if
earlier, until you reach age 65.
VACATIONS You will be entitled to such paid vacation time
as you may
AND reasonably take in your discretion so long as
such vacation
HOLIDAYS time does not interfere with the efficient
discharge of your duties and responsibilities.
You will be entitled to all holidays as listed
annually in the Company's official holiday
schedule.
TAX RETURN The Company will provide you with the
assistance of its
PREPARATION; regular auditors for the preparation of your
Federal and
FINANCIAL state tax returns without charge to you. In
addition, the
ADVICE Company will reimburse you up to $5,000 per year
for the costs you incur for financial planning
services .
ANNUAL The Company will reimburse you 100% of the costs
you
PHYSICAL incur in obtaining an annual comprehensive
physical examination to be conducted by your
choice of physician, clinic, or medical group
located within a reasonable distance from your
place of employment.
Reimbursement for business expenses, including travel
and entertainment, will be limited to reasonable and
necessary expenses you incur on the Company's behalf
in connection with performing duties on the Company's
behalf and 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 Board's Audit
Committee, including periodic audits by the Company's
Internal Audit Department and/or the Audit Committee.
BONUS You will receive one but only one of the bonus
payments described below if the related event set
forth below (a "BONUS DETERMINATION") is completed
before December 31, 1999, with payment on the date of
completion:
<PAGE>
1. Upon the sale of the Salt Lake facilities (Pioneer
Valley Hospital, Salt Lake City Regional Medical
Center, State Street Hospital, Davis Hospital Medical
Center, Jordan Valley Hospital, and related operating
Utah assets), a bonus of $125,000, plus 1% of the
gross sales proceeds in excess of $306 million
(excluding any payments for working capital included
the gross sales proceeds),
2. Upon the sale of [-----------------------------]*,
a bonus of $125,000, plus 1% of the gross proceeds
in excess of [----------]* (excluding any payments
for working capital included in the gross sales
proceeds),
3. Upon the sale of all of the shares or assets of the
Company, a bonus of $125,000, plus 1% of the total
enterprise value (gross sales proceeds plus assumed
funded indebtedness) in excess of [-------------]*,
4 Upon a recapitalization and sale of at least $25
million of additional common stock in a private
transaction (i.e., other than through a public
offering), a bonus of $125,000, plus 1% of the
total amount received in excess of [-----] per
common share sold (with appropriate adjustments
for stock splits).
- ------------------------------------------
* Certain information was omitted pursuant to a request for confidential
treatment which was filed separately with the Securities and Exchange
Commission on August 16, 1999.
TERMINATION Subject to the provisions of this section, you and the
Company agree that it may terminate your employment, or
you may resign, except that, if you voluntarily resign,
you must provide the Company with 30 days' prior written
notice (unless the Board has previously waived such notice
in writing or authorized a shorter notice period).
FOR CAUSE The Company may terminate your employment for "CAUSE"
if you:
(i) commit an act of gross negligence or
otherwise act with willful disregard for the
Company's best interests;
(ii) fail or refuse to perform any duties
delegated to you that are consistent with the
duties of similarly-situated executives or are
otherwise required under this Agreement;
(iii) seize a corporate opportunity for
yourself instead of offering such opportunity to
the Company; or
<PAGE>
(iv) are convicted of or plead guilty or no
contest to a misdemeanor (other than a traffic
violation) or felony, or, with respect to your
employment, commit either a material dishonest
act or common law fraud or intentionally violate
any federal or state securities or tax laws.
Your termination for Cause will be effective
immediately upon the Company's mailing or
transmission of notice of such termination. Before
terminating your employment for Cause under clauses
(i) - (iii) above, the Company will specify in
writing to you the nature of the act, omission,
refusal, or failure that it deems to constitute Cause
and, if the Board considers the situation to be
correctable, give you 30 days after you receive such
notice to correct the situation (and thus avoid
termination for Cause), unless the Company agrees to
extend the time for correction. You agree that the
Board will have the reasonable discretion to
determine whether the situation is correctable and
whether your correction is sufficient.
WITHOUT CAUSE Subject to the provisions below under PAYMENTS ON
TERMINATION, the Company may terminate your
employment under this Agreement before the end of the
Term without CAUSE. The termination will take effect
15 days after the Company gives you written notice.
PAYMENTS ON If you resign or the Company terminates your
employment with
TERMINATION or without CAUSE or because of disability or death or
this Agreement expires, the Company will pay you any
unpaid portion of your Salary pro-rated through the
date of actual termination (and unless your
termination is for CAUSE, any bonus payments
(i) already determined by such date but not yet paid
or (ii) whose Bonus Determination occurs within 30
days of your actual termination), reimburse any
substantiated but unreimbursed business expenses, pay
any accrued and unused vacation time (to the extent
consistent with the Company's policies), and provide
such other benefits as applicable laws or the terms
of the benefits require. Except to the extent the
law requires otherwise or as provided in the
SEVERANCE paragraph, neither you nor your beneficiary
or estate will have any rights or claims under this
Agreement or otherwise to receive severance or any
other compensation, or to participate in any other
plan, arrangement, or benefit, after such termination
or resignation.
<PAGE>
SEVERANCE In addition to the foregoing payments, if
before the end of the Term, the Company terminates
your employment without CAUSE, the Company will pay
you severance equal to the Salary due between the
date of termination and December 31, 1999, in a
single lump sum, on your actual date of termination.
The Company will also, to the extent permissible by
the terms of its benefit plans, insurance contracts,
and applicable law and except as provided in the next
sentence, cover you for a period of 36 months under
the medical, accident, disability, and life insurance
programs of the Company, or, if shorter, until you
are provided a substantially equivalent benefit by a
new employer. You acknowledge that such continued
coverage may not be possible or practical and agree
to accept in lieu of such coverage (i) payment by the
Company of the premiums for the period indicated
above on individual insurance policies either you or
the Company obtain that provide substantially
equivalent benefits or (ii) if you are unable to
obtain such coverage (because you are uninsurable at
commercially reasonable rates or, as with disability,
because coverage may be unavailable if you are not
working), one or more payments totaling 150% of the
combined premium cost the Company paid on your behalf
in 1999 (annualized) for any of those coverages under
which you cannot participate after employment ends.
You are not required to mitigate amounts payable
under the SEVERANCE paragraph by seeking other
employment or otherwise. Expiration of this
Agreement, whether because of notice of non-renewal
or otherwise, does not constitute termination without
CAUSE and does not entitle you to Severance.
NONCOMPETITION You specifically agree that the noncompetition and
confidentiality
AND SECRECY obligations referenced in &&10 and 12 of the
Memorandum of Understanding among the Company, you,
and certain others dated as of November 25, 1998
("MOU") bar you from competition and disclosure or
use of confidential information for the periods
stated or incorporated by reference and according to
the terms of those paragraphs. You further
specifically agree that, for 36 months after your
employment ends, you will not become employed by or a
consultant to the Dakota Clinic. You agree that you
were separately and adequately compensated for the
noncompetition obligations, that they are ancillary
to the MOU and other agreements, and that they
reasonably reflect the need for the Company to
protect its business interests.
<PAGE>
ASSIGNMENT The Company may assign or otherwise
transfer this Agreement and any and all of its
rights, duties, obligations, or interests under it to
any of the affiliates or subsidiaries of the Company.
Upon such assignment or transfer, any such business
entity will be deemed to be substituted for the
Company for all purposes. You agree that assignment
or transfer does not entitle you to Severance. This
Agreement binds and benefits the Company and its
assigns and your heirs and the personal
representatives of your estate. Without the Board's
prior written consent, you may not assign or delegate
this Agreement or any or all rights, duties,
obligations, or interests under it.
SEVERABILITY If the final determination of an arbitrator or a
court of competent jurisdiction declares, after the
expiration of the time within which judicial review
(if permitted) of such determination may be
perfected, that any term or provision of this
Agreement is invalid or unenforceable, the remaining
terms and provisions will be unimpaired, and the
invalid or unenforceable term or provision will be
deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or
provision.
AMENDMENT; WAIVER Neither you nor the Company may modify, amend, or
waive the terms of this Agreement other than by a
written instrument signed by you and a director of
the Company duly authorized by the Board. Either
party's waiver of the other party's compliance with
any provision of this Agreement is not a waiver of
any other provision of this Agreement or of any
subsequent breach by such party of a provision of
this Agreement.
WITHHOLDING The Company will reduce its compensatory payments to
you for withholding and FICA taxes and any other
withholdings and contributions required by law.
GOVERNING LAW The laws of the State of Texas (other than its
conflict of laws provisions) govern this Agreement.
<PAGE>
NOTICES Notices must be given in writing by personal
delivery, by certified mail, return receipt
requested, by telecopy, or by overnight delivery. You
must send or deliver your notices to the Company's
corporate headquarters. The Company will send or
deliver any notice given to you at your address as
reflected on the Company's personnel records. You
and the Company may change the address for notice by
like notice to the others. You and the Company agree
that notice is received on the date it is personally
delivered, the date it is received by certified mail,
the date of guaranteed delivery by the overnight
service, or the date the fax machine confirms
effective transmission.
SUPERSEDING EFFECT Except as set forth below, this Agreement supersedes
any prior oral or written employment, severance, or
fringe benefit agreements between you and the
Company, other than with respect to your eligibility
for generally applicable employee benefit plans and
supersedes any other prior or contemporaneous
negotiations, commitments, agreements, and writings,
with respect to this Agreement, relating to the
subject matter of this Agreement, except as specified
in this Agreement. All such other negotiations,
commitments, agreements, and writings, with respect
to this Agreement, will have no further force or
effect; and the parties to any such other
negotiation, commitment, agreement, or writing will
have no further rights or obligations thereunder.
<PAGE>
Notwithstanding the previous paragraph, this
Agreement does not supersede or render invalid the
following agreements into which you previously
entered: (1) the MOU, as amended by the Derivative
Settlement Agreement dated March 17, 1999, should
that agreement become effective, except to the extent
a matter specifically addressed in this Agreement
conflicts with the MOU, in which event, this
Agreement will control; (2) the Derivative Settlement
Agreement dated March 17, 1999, except with respect
to those conflicts referenced in subparagraph (1) of
this paragraph; (3) the Class Action Memorandum of
Understanding dated March 24, 1999; (4) the
Stipulation of Settlement dated May 11, 1999; (5) the
Settlement Agreement referencing the Great American
Insurance Company Policy bearing policy number
DFX0009397; and (6) the VanDevender to Paracelsus
Release of SERP Benefits dated as of December 3,
1998. This Agreement must not be construed to
deprive you of any of your rights created or
preserved in any agreement or order entered into
after the Effective Date and relating to the
settlement of the IN RE: PARACELSUS SECURITIES CORP.,
the Caven, or the Orovitz litigation, unless such
agreement or order specifically provides that this
Agreement will control. This Agreement must not be
construed to abrogate or render invalid any
obligation or right of indemnification or advancement
of costs or expenses that may be owed to you under
any contract, the Company's Articles of Incorporation
or Bylaws, California law, or Texas law or to alter
any right created or preserved as part of the pending
settlement of the IN RE: PARACELSUS SECURITIES CORP.,
the Caven, or the Orovitz litigation, unless such
right is specifically altered by this Agreement.
This Agreement does not impair the effectiveness of
the release between the parties to this Agreement
delivered to you on April 14, 1999, by Bank One as
escrow agent.
If you accept the terms of this Agreement, please sign in the space
indicated below. We encourage you to consult with any advisors you
choose.
PARACELSUS HEALTHCARE CORPORATION
By: __________________________________
Name: ______________________
Title: ______________________
I accept and agree to the terms of employment set
forth in this Agreement:
___________________________
James G. VanDevender
Dated:_____________________
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
AND APPROVAL OF ASSET DISPOSITION
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
APPROVAL OF ASSET DISPOSITION (THIS "AGREEMENT") is made and entered into
effective as of June 30, 1999 (the "EFFECTIVE DATE") by and among
PARACELSUS HEALTHCARE CORPORATION, a California corporation (the
"BORROWER"), PARIBAS, a bank organized and existing under the laws of the
Republic of France ("PARIBAS"), as Agent, TORONTO DOMINION (TEXAS), INC.,
a Delaware corporation ("TD"), as Documentation Agent, BANK OF MONTREAL,
a Canadian chartered bank ("BMO"), as Administrative Agent, and the
Lenders as defined in the below-referenced Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, Paribas, as lead agent for the Lenders (in
such capacity, together with its successors in such capacity, the
"AGENT") and as the Issuing Bank, TD, as documentation agent for the
Lenders (in such capacity, the "DOCUMENTATION AGENT") and BMO, as
administrative agent for the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT"), and the Lenders (as defined therein) are parties
to that certain Amended and Restated Credit Agreement, dated as of March
30, 1998, as amended (the "CREDIT AGREEMENT");
WHEREAS the Borrower and the Required Lenders desire to amend the
Credit Agreement in the manner hereinafter set forth; and
WHEREAS, the Borrower desires that the Required Lenders approve the
disposition of the Utah Properties (as defined below);
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements hereinafter contained, for the
consideration stipulated in Section 9 below and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Required Lenders, each intending to be
legally bound, hereby mutually agree as follows:
1. CAPITALIZED TERMS. All capitalized terms used herein and not
otherwise defined shall have the respective meanings ascribed to such
terms in the Credit Agreement.
2. AMENDMENT OF SECTION 1.1: DEFINITIONS. Section 1.1 of the
Credit Agreement is hereby amended as follows:
(a) ADDITION OF THE DEFINITION OF EXECUTIVE AGREEMENTS. The
following definition of Executive Agreements is hereby added to
Section 1.1 of the Credit Agreement.
"EXECUTIVE AGREEMENTS" means those certain agreements
executed on November 25, 1998, as amended, between the Borrower
and each of Charles R. Miller, James G. VanDevender and Ronald
R. Patterson, as more fully described in the Borrower's annual
report on Form 10-K for the fiscal year ended December 31,
1998.
(b) AMENDMENT OF THE DEFINITION OF ADJUSTED EBITDA. The
definition of "Adjusted EBITDA" is hereby amended and restated
in its entirety as follows:
"ADJUSTED EBITDA" means, on a consolidated basis without
duplication for the Borrower and its Subsidiaries for any
period the Net Income (Loss) for such period taken as a single
accounting period (excluding the cumulative effect of a
non-cash change in accounting and discontinued operations),
PLUS (a) the sum of the following amounts for the Borrower and
its Subsidiaries for such period determined on a consolidated
basis in conformity with GAAP to the extent included in the
determination of Net Income (Loss): (i) Interest Expense, (ii)
depreciation expense, (iii) amortization expense, (iv) non-cash
impairment charges, (v) income tax expense and (vi)
extraordinary losses MINUS extraordinary gains, (vii) any debt
refinancing charges or gains to the extent such charges or
gains are not included in extraordinary gains or losses, in
each case (subject to the proviso below) measured on a twelve
(12) month basis and calculated as of the last day of the
fiscal quarter most recently ended, PLUS (b) a one-time charge
of up to $2,600,000 relating to compensation paid pursuant to
the Executive Agreements, PLUS, (c) a one-time corporate
restructuring charge of $5,500,000, MINUS (d) gains or losses
on asset sales determined on a consolidated basis in conformity
with GAAP, PLUS (e) with respect to the acquisition by the
Borrower or a Subsidiary of the Borrower which has not been
owned or effective for a full fiscal quarter, Adjusted EBITDA
(as calculated pursuant to CLAUSE (A) and (D) preceding) shall
be computed based on the actual period owned or effective and
the number of months prior thereto necessary to total twelve
months and, upon being owned or effective one full fiscal
quarter, Adjusted EBITDA will be computed based on annualized
results, MINUS (f) with respect to any divestiture of any
entity (corporation, partnership, limited liability company or
joint venture) by the Borrower or a Subsidiary of the Borrower,
the Borrower will exclude from Adjusted EBITDA any amounts
attributable to such entity in the computation of Adjusted
EBITDA pursuant to CLAUSE (A) and (D) preceding for the twelve-
month period following the divestiture.
(c) AMENDMENT TO THE DEFINITION OF APPLICABLE BASE RATE MARGIN.
The definition of "Applicable Base Rate Margin" is hereby
amended by replacing the table at the end of such definition
with the following:
<TABLE>
<CAPTION>
Applicable
SENIOR LEVERAGE RATIO BASE RATE MARGIN
<S> <C>
Less than 1.00:1.00 0.25% per annum
Greater than or equal to 1.00:1.00 and less than 0.50% per annum
1.50:1.00
Greater than or equal to 1.50:1.00 and less than 1.00% per annum
2.00:1.00
Greater than or equal to 2.00:1.00 and less than 1.25% per annum
2.50:1.00
Greater than or equal to 2.50:1.00 1.50% per annum
</TABLE>
PROVIDED, HOWEVER, that if the Company does not receive all
proceeds payable to the Company in connection with the
disposition of the Utah Assets (as defined below) on or before
November 15, 1999, each of the above-listed percentages shall
be increased by 0.25% which change shall be effective as of the
Payment Date (as defined below).
(d) AMENDMENT TO THE DEFINITION OF APPLICABLE EURODOLLAR MARGIN.
The definition of "Applicable Eurodollar Margin" is hereby
amended by replacing the table at the end of such definition
with the following:
<TABLE>
<CAPTION>
SENIOR LEVERAGE RATIO Applicable
EURODOLLAR MARGIN
<S> <C>
Less than 1.00:1.00 1.50% per annum
Greater than or equal to 1.00:1.00 and less than 2.00% per annum
1.50:1.00
<PAGE>
Greater than or equal to 1.50:1.00 and less than 2.50% per annum
2.00:1.00
<PAGE>
Greater than or equal to 2.00:1.00 and less than 2.75% per annum
2.50:1.00
Greater than or equal to 2.50:1.00 3.00% per annum
</TABLE>
PROVIDED, HOWEVER, that if the Company does not receive all
proceeds payable to the Company in connection with the
disposition of the Utah Assets (as defined below) on or before
November 15, 1999, each of the above-listed percentages shall
be increased by 0.25% which change shall be effective as of the
Payment Date (as defined below).
(e) AMENDMENT TO THE DEFINITION OF APPLICABLE TRANCHE B MARGIN.
The definition of Applicable Tranche B Margin is hereby amended
and restated in its entirety as follows:
"`APPLICABLE TRANCHE B MARGIN' means, for any day, a
percentage per annum equal to 3.25% for Tranche B Loans that
are Eurodollar Loans and 1.75% for Tranche B Loans that are
Base Rate Loans."
PROVIDED, HOWEVER, that if the Company does not receive all
proceeds payable to the Company in connection with the
disposition of the Utah Assets (as defined below) on or before
November 15, 1999, each of the percentages in the above-listed
definition shall be increased by 0.50% which change shall be
effective as of the Payment Date (as defined below).
3. AMENDMENT TO SECTION 2.7: MANDATORY PREPAYMENTS. Section
2.7(g) of the Credit Agreement is hereby amended and restated in its
entirety as follows:
"Notwithstanding any other provision of this Agreement, on
August 11, 1999 and thereafter, any prepayment made in
connection with an Asset Disposition pursuant to this Section
2.7 shall reduce pro rata each Revolving Credit Loans
Commitment of each Lender."
4. AMENDMENT TO SECTION 2.14: LETTERS OF CREDIT. Section 2.14 of
the Credit Agreement is hereby amended by replacing the number
$25,000,000 where it appears in clause (i) of the sixth line of
subparagraph (a) with the number $26,000,000.
5. AMENDMENT TO SECTION 10.1: SENIOR LEVERAGE RATIO. Section
10.1 of the Credit Agreement is hereby amended by replacing the table
therein with the following:
<TABLE>
<CAPTION>
Calendar Year Quarters Ending Maximum Permitted
DURING THE FOLLOWING PERIODS SENIOR LEVERAGE RATIO
<S> <C>
April 1, 1999 through June 30, 1999 2.55:1.00
July 1, 1999 through December 31, 1999 2.60:1.00
January 1, 2000 and at all times thereafter 2.00:1.00
</TABLE>
6. AMENDMENT TO SECTION 10.2: MINIMUM NET WORTH. Section 10.2
of the Credit Agreement is hereby amended and restated in its entirety as
follows:
"As of the close of each fiscal quarter ending on or
before December 31, 1999, the Borrower will not permit Net
Worth to be less than $30,000,000. As of the close of each
fiscal quarter ending on or after March 31, 2000, the Borrower
will not permit the Net Worth to be less than the sum of (a)
$30,000,000, PLUS (b) for each quarter on a cumulative basis
ending on or after the fiscal quarter after the fiscal quarter
ending December 31, 1999 or thereafter, seventy-five percent
(75%) of the positive Net Income, if any of the Borrower, PLUS
(c) ninety percent (90%) of all Net Proceeds from any Equity
Issuance following the Closing Date."
7. AMENDMENT TO SECTION 10.3: RATIO OF TOTAL DEBT TO ADJUSTED
EBITDA. Section 10.3 of the Credit Agreement is hereby amended by
replacing the table therein with the following:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
April 1, 1999 through June 30, 1999 6.30:1.00
July 1, 1999 through September 30, 1999 6.10:1.00
October 1, 1999 through December 31, 1999 6.50:1.00
January 1, 2000 through March 31, 2000 5.40:1.00
April 1, 2000 through September 30, 2000 5.20:1.00
October 1, 2000 through March 31, 2001 4.75:1.00
April 1, 2001 and at all times thereafter 4.50:1.00
</TABLE>
8. APPROVAL OF THE SALE OF THE UTAH ASSETS.
(a) By execution of this Agreement, each Lender that is a party
hereto approves, pursuant to Section 9.12 of the Credit
Agreement, the transfer and sale, whether by sale of stock or
assets, merger, consolidation, reorganization, recapitalization
or otherwise, of the health-care related operations and
business of the Borrower and its Subsidiaries in the Salt Lake
City Utah area (the "UTAH ASSETS"), including substantially all
of the Properties owned, leased or used in connection with the
acute care hospitals and other health care facilities and
related and other entities set forth on Exhibit A hereto;
PROVIDED, HOWEVER, that in connection with such disposition and
as a result thereof the Company receives in immediately
available funds consideration equal to not less than the
aggregate Commitments outstanding as of the Effective Date.
(b) The Borrower hereby agrees to pay, on August 16, 1999, to each
Lender that executes this Agreement on or prior to 5:00 p.m.
(Central Standard Time), August 13, 1999 (such time and date
hereinafter referred to as the "PAYMENT DATE") an amount equal
to .125% of such Lender's aggregate Commitments under the
Credit Agreement as of the Payment Date; PROVIDED, HOWEVER,
that if a valid and binding agreement with respect to the sale
of the Utah Assets is not executed on or before August 30,
1999, on such date the Borrower shall pay to each Lender that
has executed this Agreement on or prior to the Payment Date an
additional amount equal to .125% of such Lender's aggregate
Commitments under the Credit Agreement as of the Payment Date,
PROVIDED, FURTHER, that if the Company does not receive all
proceeds payable to the Company in connection with the
disposition of such assets on or before November 15, 1999, on
such date the Borrower shall pay to each Lender that has
executed this Agreement on or prior to the Payment Date an
additional amount equal to .125% of such Lender's aggregate
Commitments under the Credit Agreement as of the Payment Date.
Any payments made pursuant to this Section 8 shall be made by
wire transfer in immediately available funds to the Agent for
the account of each such Lender.
9. FURTHER REPRESENTATIONS OF THE BORROWER.
(a) The execution, delivery and performance by the Borrower of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite corporate or
other entity action on the part of the Borrower and do not and
will not (i) violate or conflict with, or result in a breach
of, or require any consent, except as may have been obtained
under (x) the Borrower's articles of incorporation or bylaws,
the violation of, conflict with, or breach of, which could
reasonably be expected to have a Material Adverse Effect,
(y) any Governmental Requirement or any order, writ, injunction
or decree of any arbitrator the violation of, conflict with, or
breach of, which could reasonably be expected to have a
Material Adverse Effect, or (z) any material agreement,
document or instrument to which the Borrower is a party or by
which the Borrower or any of its Property is bound or subject,
the violation of, conflict with, or breach of, which could
reasonably be expected to have a Material Adverse Effect, or
(ii) constitute a default under any such material agreement,
document or instrument which default could reasonably be
expected to have a Material Adverse Effect, or result in the
creation or imposition of any Lien (except for those in favor
of Agent pursuant to the Security Documents as provided in
ARTICLE 5 of the Credit Agreement and except for Permitted
Liens as defined after giving effect hereto) upon any of the
revenues or Property of the Borrower.
(b) This Agreement has been duly and validly executed and delivered
by the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to the
enforcement of creditors' rights and general principles of
equity.
(c) No authorization, approval or consent of, and no filing or
registration with or notice to, any Governmental Authority is
or will be necessary for the execution, delivery or performance
by the Borrower of this Agreement or for the validity or
enforceability thereof in respect of the Borrower, except for
such consents, approvals and filings as have been validly
obtained or made and are in full force and effect. The
Borrower has not failed to obtain any governmental consent,
Permit or franchise necessary for the ownership of any of its
Properties or the conduct of its business except where the
failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(d) The Borrower further represents and warrants that (i) all of
the representations and warranties made by the Borrower in
ARTICLE VII of the Credit Agreement, and in each other Loan
Document, are true and correct on and as of the date hereof, as
though made on the date hereof except for any such
representations and warranties as are expressly stated to be
made as of a particular date; and (ii) no Default or Event of
Default shall have occurred and be continuing as of the
Effective Date.
10. CONDITIONS. The obligations of the Borrower and the Lenders
under this Agreement are subject to the condition precedent that this
Agreement shall have been duly executed by the Borrower and delivered to
the Agent, and each of the Required Lenders shall have executed and
delivered a counterpart hereof.
11. RATIFICATION OF CREDIT AGREEMENT. All terms and provisions of
the Credit Agreement not expressly amended hereby are hereby ratified and
reaffirmed and shall remain in full force and effect without
interruption, change, or impairment of any kind.
12. GENERAL.
(a) APPLICABLE LAW. This Agreement has been delivered and accepted
in, and shall be a contract made under and governed by and
enforced in accordance with the laws of the State of New York.
(b) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Borrower and the Lenders and their
respective successors and assigns.
(c) HEADINGS. The Section and subsection headings of this
Agreement are for convenience and shall not affect, limit or
expand any term or provision hereof.
(d) COUNTERPARTS. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and each
counterpart shall be deemed an original. No one counterpart
need be signed by all parties hereto, but all such counterparts
shall constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to Amended and Restated Credit Agreement and Approval of Asset
Disposition to be executed and delivered by their duly authorized
officers, to be deemed effective as of the Effective Date.
BORROWER:______________________________
PARACELSUS HEALTHCARE CORPORATION
By:____________________________________
Deborah H. Frankovich
Senior Vice President and Treasurer
Approval Granted as of the Date First Written Above:
PARIBAS, as the Agent, as the Issuing Bank and as a Lender
By:____________________________________
Glenn E. Mealey
Managing Director
By:____________________________________
Name:_____________________________
Title:____________________________
TORONTO DOMINION (TEXAS), INC., as Documentation Agent
and as a Lender
By:____________________________________
Name:_____________________________
Title:____________________________
BANK OF MONTREAL, as Administrative Agent and
as a Lender
By:____________________________________
Name:_____________________________
Title:____________________________
COMERICA BANK
By:____________________________________
Name:_____________________________
Title:____________________________
FLEET CAPITAL CORPORATION
By:____________________________________
Name:_____________________________
Title:____________________________
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
By:____________________________________
Name:_____________________________
Title:____________________________
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
By:____________________________________
Name:_____________________________
Title:____________________________
KZH ING-2 LLC
By:____________________________________
Name:_____________________________
Title:____________________________
KZH HIGHLAND-2 LLC
By:____________________________________
Name:_____________________________
Title:____________________________
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc.,
as its Investment Manager
By:____________________________________
Name:_____________________________
Title:____________________________
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as investment advisor
By:____________________________________
Name:_____________________________
Title:____________________________
MERRILL LYNCH GLOBAL INVESTMENT SERIES:
INCOME STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as investment advisor
By:____________________________________
Name:_____________________________
Title:____________________________
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By:____________________________________
Name:_____________________________
Title:____________________________
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as investment advisor
By:____________________________________
Name:_____________________________
Title:____________________________
SENIOR HIGH INCOME PORTFOLIO, INC.
By:____________________________________
Name:_____________________________
Title:____________________________
DEBT STRATEGIES FUND, INC.
By:____________________________________
Name:_____________________________
Title:____________________________
FRANKLIN FLOATING RATE TRUST
By:____________________________________
Name:_____________________________
Title:____________________________
Alliance Capital Management, L.P.,
as Manager on behalf of ALLIANCE CAPITAL FUNDING, L.L.C.
By: ALLIANCE CAPITAL MANAGEMENT CORPORATION,
General Partner of Alliance Capital Management L.P.
By:____________________________________
Name:_____________________________
Title:____________________________
<PAGE>
EXHIBIT A
1. Stock and/or assets of PHC-Salt Lake City, Inc. d/b/a Salt Lake
Regional Medical Center
2. Stock and/or assets (including lease with AHP of Utah, Inc. or
successor) of Paracelsus Pioneer Valley Hospital, Inc. d/b/a/ Pioneer
Valley Hospital
3. Stock and/or assets of Pioneer Valley Health Plan
4. Stock and/or assets of PHC-Jordan Valley, Inc. d/b/a Jordan Valley
Hospital
5. Stock and/or assets of Paracelsus Davis Hospital, Inc. d/b/a Davis
Hospital and Medical Center
6. Stock and/or Assets of Paracelsus PHC Regional Medical Center, Inc.
d/b/a PHC Regional Medical Center
7. Stock and/or Assets of PHC Utah, Inc.
8. Stock and/or Assets of Clinicare of Utah, Inc.
9. Stock and/or assets of PHC/Psychiatric Healthcare Corporation but
excluding the shell subsidiary corporations of Psychiatric
Healthcare Corporation of Louisiana, Psychiatric Healthcare
Corporation of Missouri, Psychiatric Healthcare Corporation of
Texas. All these entities are Excluded Subsidiaries under the Credit
Agreement.*
11. Partnership interests of Paracelsus and/or its subsidiaries in
South Ridge MOB (11%); Davis Surgical Center, LLC (30%), and Sandy City,
ASC, LLC (50%)
12. Stock or assets of Select Health Systems, Inc., Select Home Care,
Inc., and Select Home Health & Services, Inc. (Currently these are
all Excluded Subsidiaries under the Credit Facility and since the
Salt Lake home health operations were sold in 1998, these entities
have minimal assets.)**
*This entity is being used for recapitalization accounting purposes by
one of the potential Buyers for transfer of substantially all Salt Lake
market assets into prior to closing. If the transfer is not
substantially simultaneously, Paracelsus will grant a stock pledge of and
grant an upstream guaranty from PHC/Psychiatric Healthcare Corporation to
the bank group.
**One of the potential Buyers has excluded the Select entities; however,
we include in the event the other prospective Buyer includes these
assets, although substantially all of the home health care assets in
the Salt Lake market owned by the Select entities were sold in 1998.
SHAREHOLDER AGREEMENT
BETWEEN
PARK-HOSPITAL GMBH
AND
PARACELSUS HEALTHCARE CORPORATION
DATED AS OF MARCH 22, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
SECTION 1. Certain
Definitions................................................................1
SECTION 2. Representations and Warranties of the Shareholder..............6
SECTION 3. Representations and Warranties of Paracelsus...................6
SECTION 4. Voting Security Transfers......................................6
SECTION 5. Right of First Offer...........................................8
SECTION 6. Agreement to Sell Voting Securities...........................10
SECTION 7. Board Representation..........................................10
SECTION 8. Demand Registrations..........................................13
SECTION 9. Piggyback Registrations.......................................15
SECTION 10. Holdback Agreements..........................................16
SECTION 11. Registration Procedures......................................16
SECTION 12. Shareholder's Cooperation....................................19
SECTION 13. Underwriting Agreement.......................................19
SECTION 14. Expenses......................................................19
SECTION 15. Indemnification...............................................19
SECTION 16. Changes in Paracelsus Common Stock...........................22
SECTION 17. Shareholder Protection Rights Plan...........................22
SECTION 18. Additional Agreements........................................22
SECTION 19. Legends.......................................................23
SECTION 20. Specific Performance.........................................23
SECTION 21. Successors and Assigns.......................................23
SECTION 22. Entire Agreement; Amendment; Waiver..........................24
SECTION 23. Miscellaneous.................................................24
</TABLE>
-i-
<PAGE>
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "AGREEMENT") is entered into as of
March 19, 1999, between Park-Hospital GmbH, a German corporation (the
"SHAREHOLDER"), and Paracelsus Healthcare Corporation, a California corporation
("PARACELSUS" or the "COMPANY").
WHEREAS, the Shareholder and Paracelsus entered into a Shareholder
Agreement, dated as of August 16, 1996 (the "ORIGINAL AGREEMENT");
WHEREAS, the Shareholder, Paracelsus and the Champion Shareholders
(defined below) have entered into a Settlement Agreement, dated the date hereof
(the "SETTLEMENT AGREEMENT"), as a result of which, among other things, the
Shareholder and its Affiliates will be the Beneficial Owners, as of the
Effective Date (as defined below), of 20,906,742 shares of Paracelsus Common
Stock, and
WHEREAS, the Shareholder and Paracelsus desire to terminate the
Original Agreement and to enter into this Agreement in lieu thereof;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 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 12b-2 of the Exchange
Act
as amended from time to time; provided, that Paracelsus and its Subsidiaries
and
existing directors and executive officers of 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 the Shareholder 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 a majority
of the entire Board, with at least one (1) of such majority being an
Independent
Director.
<PAGE>
2
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 (including, without
limitation, the beneficiary of any trust) 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 amended from time to time 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 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.
"CHAMPION DIRECTORS" shall mean the directors of the Board who took
office at the initiation of the Champion Shareholders (two of whom will
initially be Class II directors with original terms expiring in 2001 and one of
whom will initially be a Class I director with an original term expiring in
2000).
"CHAMPION SHAREHOLDERS" shall mean certain shareholders of Paracelsus
that are former shareholders of Champion Healthcare Corporation, a Delaware
corporation, who are (directly or indirectly) parties to the Settlement
Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"COMMISSION" shall mean the Securities and Exchange Commission.
"CURRENT MARKET PRICE" shall mean, on the date any determination
thereof, the average of the last sale prices per share of the Paracelsus Common
Stock reported on the New York Stock Exchange (or the principal trading market
or stock exchange for the Paracelsus Common Stock if other than the New York
Stock Exchange) for the 15 business days preceding the date of such
determination.
"DEMAND REGISTRATION" shall have the meaning specified in Section 8(a)
hereof.
<PAGE>
3
"DEMAND REGISTRATION REQUEST" shall have the meaning specified in
Section 8(a) hereof.
"DISTRIBUTION PERIOD" shall mean, with respect to a distribution of
Registration Shares in a firm commitment underwritten public offering, the
period extending until, but not beyond, such time as each underwriter has
completed the distribution of all securities purchased by it, and with respect
to any other distribution of Registration Shares in any other registration, the
period extending until, but not beyond, the earlier of the sale of all
Registration Shares covered thereby or 90 days following the effective date of
the registration statement utilized in connection with such registration under
the Securities Act.
"EFFECTIVE DATE" shall mean the later of (i) the Effective Date as
such
term is defined in Section XIII of the Settlement Agreement and (ii) the date
on
which the Shareholder has transferred shares of Paracelsus Common Stock to the
Champion Shareholders in accordance with Section I. A. of the Settlement
Agreement .
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"GROUP" shall have the meaning assigned to such term in Rule 13d-3 of
the Exchange Act as amended from time to time.
"INDEPENDENT DIRECTORS" shall mean those directors of the Board who
are
not Shareholder Directors, Champion Directors or officers of Paracelsus or any
of its Subsidiaries and who do not have, and have not had during the two (2)
years preceding election as a director, any business, employment, financial,
familial or other relationship with Paracelsus (other than being a director),
an
affiliate of Paracelsus, the Shareholder, a Champion Shareholder, a person
owning three percent (3%) or more of the voting securities of Paracelsus, a
director or officer of Paracelsus, or a significant supplier or payor of
Paracelsus.
"ORIGINAL AGREEMENT" shall have the meaning specified in the Recitals
hereof.
"PARACELSUS COMMON STOCK" shall mean the common stock, no par value
per
share, of Paracelsus.
"PARK NOTE" shall mean the $7.2 million subordinated note, dated
August
30, 1996, issued by Paracelsus to the Shareholder.
"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.
"PIGGYBACK REGISTRATION "shall have the meaning specified in Section
9(a) hereof.
<PAGE>
4
"PIGGYBACK REGISTRATION REQUEST "shall have the meaning set forth in
Section 9(a) hereof.
"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 Shareholder or any of its Affiliates or Associates, or Family Members
of the Shareholder or any of its Affiliates or Associates, 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 on the same basis as
the Shareholder under this Agreement.
"REGISTRATION SHARES" shall mean (i) any of the 20,906,742 shares of
Paracelsus Common Stock Beneficially Owned by the Shareholder upon the closing
of the transactions contemplated by the Settlement Agreement, (ii) any shares
of
Paracelsus Common Stock or other securities of Paracelsus issued (or issuable
on
the conversion or exercise of any warrant, right or other security which is
issued) as a dividend or other distribution with respect to, or in exchange for
or in replacement of, any shares of Paracelsus Common Stock referred to in
clause (i) as contemplated by Section 16 hereof and (iii) any shares of
Paracelsus Common Stock issued to the Shareholder upon conversion of the Park
Note.
"REGISTRATION EXPENSES "shall have the meaning set forth in Section 14
hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall have the meaning set forth in Section 14
hereof.
"SETTLEMENT AGREEMENT" shall have the meaning specified in the
Recitals
hereof.
"SHAREHOLDER" shall, in addition to the meaning ascribed thereto in
the
first paragraph hereof, mean and include (i) Park-Hospital GmbH, (ii)
Paracelsus-Kliniken-Deutschland GmbH, (iii) the trustees and beneficiaries of
the Estates of Dr. Hartmut Krukemeyer, (iv) Dr. Manfred G. Krukemeyer, (v) any
member of the immediate family of Dr. Manfred G. Krukemeyer (including, without
limitation, his stepmother, brother, sister, children and wife) and any
Affiliate of any of the Persons identified in (i) through (v).
"SUBSIDIARY" shall mean, with respect to any Person, any entity at
least fifty percent (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
<PAGE>
5
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 sixty percent (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 5 (b)
"Amended Proposal Notice" Section 5 (a)
"Eligible Person" Section 7 (a)
"Family Members" Section 4 (h)
"Heirs" Section 4 (h)
"Offer Price" Section 5 (a)
"Proposal Notice" Section 5 (a)
"Shareholder Directors" Section 7 (a)
"Shareholder Proposal" Section 5 (a)
<PAGE>
6
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The
Shareholder represents and warrants to Paracelsus that:
(a) the execution, delivery and performance of this Agreement by the
Shareholder have been duly and validly authorized by all necessary corporate
action and, assuming due execution by Paracelsus, this Agreement is a legal,
valid and binding obligation, enforceable against the Shareholder in accordance
with its terms;
(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.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARACELSUS. Paracelsus
represents and warrants to the Shareholder that:
(a) the execution, delivery and performance of this Agreement by
Paracelsus have been duly and validly authorized by all necessary corporate
action and, assuming due execution by the Shareholder, this Agreement is a
legal, valid and binding obligation, enforceable against Paracelsus in
accordance with its terms;
(b) the execution, delivery and performance by Paracelsus of this
Agreement do not and will not contravene or conflict with the certificate of
incorporation or bylaws of Paracelsus, any provision of any law, regulation,
judgment, injunction, order or decree binding upon Paracelsus or any agreement,
contract or other instrument to which Paracelsus is a party, other than any
such
contraventions or conflicts that would not prevent or materially delay the
performance of Paracelsus' obligations hereunder; and
(c) the Settlement Agreement is in full force and effect against
Paracelsus, there has been no notice (or, to its knowledge, threat) of
termination of such agreement and it has no reason to believe that the
Settlement Agreement is not in full force and effect against the Champion
Shareholders.
SECTION 4. VOTING SECURITY TRANSFERS. For a period of two (2) years
after the date of this Agreement, the Shareholder shall not, and shall not
suffer or permit any of its Affiliates or
<PAGE>
7
Associates to, Transfer, in any single transaction or group of related
transactions, any Voting Securities of Paracelsus, except for a Transfer that
complies with any of the following subsections:
(a) to any other Person which is included within the definition of
Shareholder in Section 1 hereof; provided, that such transferee Shareholder
becomes a party to this Agreement on substantially the same terms as the
transferring Shareholder;
(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 Section 4 is in effect, the Shareholder, or any Affiliates or
Associates of the Shareholder, 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 the
Shareholder and all Affiliates and Associates of the Shareholder, 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 Shareholder
under this Agreement (but shall not have any of the rights of the Shareholder
under this Agreement until such pledgee acquires such Voting Securities upon
foreclosure pursuant to the terms of the pledge agreement, in which case such
pledgee may transfer such Voting Securities in accordance with this Section 4
as
if such pledgee were the Shareholder hereunder and cause a transferee to have
all rights and obligations of the Shareholder 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 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 Shareholder'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 Shareholder or the Shareholder'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,
<PAGE>
8
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 Shares are validly
tendered and not withdrawn upon expiration of the offer and (iii) such Person
shall agree to be bound on the same terms as the Shareholder by all obligations
of the Shareholder under this Agreement.
(g) to any Qualified Parties; provided, that (i) at the time of such
Transfer, the Shareholder or any of its Affiliates or Associates constitute a
sufficient number of the directors or trustees, as the ease 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 a Person who is a natural Person, a
Transfer (A) in the case of the death of such a Person, to such Person's
executors, administrators, testamentary trustees, heirs, devisees, intestates
and legatees ("HEIRS") and (B) to such Person'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 on the same terms as the Shareholder to
all
of the obligations of the Shareholder under this Agreement; or
(i) to any Person in connection with an Approved Acquisition Proposal
or Surviving Company Merger.
SECTION 5. RIGHT OF FIRST OFFER.
(a) NOTIFICATION. After the Effective Date, Paracelsus will
not enter into or recommend any Approved Acquisition Proposal without
first notifying the Shareholder in writing (a "PROPOSAL NOTICE") of
such Approved Acquisition Proposal and providing the Shareholder
(including for purposes of this Section 5, 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,
<PAGE>
9
Paracelsus shall promptly notify the Shareholder in writing (an
"AMENDED PROPOSAL NOTICE"); provided, however, 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 six (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 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 fifteen (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 Directors of the Board other than the Shareholder Directors
(the "NON-SHAREHOLDER DIRECTORS") and their representatives. If at the
end of that fifteen (15) day period, a majority of the Non-Shareholder
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 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
<PAGE>
10
such value within fifteen (15) days following receipt by the
Shareholder of the Proposal Notice, then a majority of the
Non-Shareholder Directors and the Shareholder shall appoint a
nationally recognized investment banking firm mutually acceptable to a
majority of the Non-Shareholder Directors and the Shareholder which
shall resolve the issues in dispute; provided, that if a majority of
the Non-Shareholder 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 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 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 other
Person which is not deemed to be a Shareholder under this Agreement.
SECTION 6. AGREEMENT TO SELL VOTING SECURITIES. Subject to the rights
of the Shareholder to propose, negotiate and consummate a Shareholder Proposal
in accordance with Section 5, 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 or any Shareholder Proposal approved by the Board of Directors in
accordance with Section 5, 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 Person other than the Shareholder so long as, if the Shareholder
continues to be subject to this Agreement, such Person is not an Affiliate or
Associate of the Shareholder.
SECTION 7. BOARD REPRESENTATION.
(a) THE BOARD; SHAREHOLDER DIRECTORS. The Board, as soon as
practicable after the date of this Agreement but no later than the
Effective Date, and during the term of this Agreement, shall number
nine directors. 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 the Board's nominees for directors to be submitted
to
a shareholder vote, up to three (3) persons designated by the
Shareholder who are Eligible Persons (the "SHAREHOLDER
<PAGE>
11
DIRECTORS"), one of whom shall be a Class I director with an original
term expiring in 2000, one of whom shall be a Class II director with
an
original term expiring in 2001 and one of whom shall be a Class III
director with an original term expiring in 1999/2002. As soon as
practicable after the date of this Agreement and no later than the
Effective Date, the following persons shall be the initial Shareholder
Directors, to act as such until their successors are duly elected and
qualified: __________________ (Class I), Dr. Heiner Meyer zu Losebeck
(Class II) and Mr. Christian Lange (Class III; term expiring in 1999).
If the Shareholder, together with the Affiliates and Associates of the
Shareholder, shall cease to Beneficially Own at least (i) 20% of the
Total Voting Power of Paracelsus, the Shareholder shall only be
entitled to request that Paracelsus include, and Paracelsus shall only
be required to include, as the Board's nominees for directors to be
submitted to a shareholder vote, two (2) Shareholder Directors, (ii)
10% of the Total Voting Power of Paracelsus, the Shareholder shall
only
be entitled to request that Paracelsus include, and Paracelsus shall
only be required to include, as the Board's nominees for directors to
be submitted to a shareholder vote, one (1) Shareholder Director and
(iii) 5% of the Total Voting Power of Paracelsus, the Shareholder
shall
not be entitled to request that Paracelsus include, and Paracelsus
shall not be required to include, as nominee for the Board slate
recommended by the Board, any Shareholder Director.
For the purposes hereof, an "ELIGIBLE PERSON" shall mean any
person who is designated by the Shareholder, 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 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 so that the number of
Shareholder Directors, when taken together, on each such committee
shall be as nearly as possible proportional to the total number of
Shareholder Directors on the Board; provided, however, that the
foregoing 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 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 and one director who is an
Independent Director, or their designees, attending in person or, if
necessary, via teleconference call.
<PAGE>
12
(c) RESIGNATION. Upon the Shareholder ceasing to Beneficially
Own, together with all Affiliates and Associates of the Shareholder,
at
least 20% of the Total Voting Power of Paracelsus, Paracelsus may
request that one of the Shareholder Directors (to be chosen by the
Shareholder) then on the Board resign as director of Paracelsus and,
upon such request by Paracelsus, the Shareholder shall use its best
efforts to cause such Shareholder Director to promptly resign, and
thereupon 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 10% of the
Total Voting Power of Paracelsus, Paracelsus may request that a second
Shareholder Director (to be chosen by the Shareholder) then on the
Board resign as director of Paracelsus, and upon such request by
Paracelsus, the Shareholder shall use its best efforts to cause such
Shareholder Director to promptly resign and thereupon 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 5% 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 its
best
efforts to cause such Shareholder Directors to promptly resign and
thereupon relinquish all rights and privileges as a member of the
Board.
(d) MANAGEMENT DIRECTORS. One member of the Board will be a
director who is an officer of Paracelsus and who is not an Independent
Director, a Shareholder Director or a Champion Director.
(e) INDEPENDENT DIRECTORS. Immediately following the
Effective
Date, two members of the Board will be Independent Directors. One of
such Independent Directors shall be a Class I Director with an
original
term expiring in 2000 and one of such Independent Directors shall be a
Class III director with any original term expiring in 2002. Vacancies
among the Independent Directors occurring prior to the expiration of
their respective terms of office shall be filled by a vote of
seventy-five percent (75%) of the entire remaining Board. Independent
Directors to be nominated for election at a shareholder meeting of
Paracelsus will be nominated by a vote of seventy-five percent (75%)
of
the entire Board.
(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 Shareholder shall nominate and
shall use its best efforts, and shall use best efforts to cause the
Shareholder Directors and the Affiliates and Associates of the
Shareholder to use their respective reasonable efforts, to take and
cause to be taken all necessary action (corporate and other), which
efforts shall
<PAGE>
13
include the voting of all Voting Securities Beneficially Owned by the
Shareholder and the Affiliates and Associates of the Shareholder and
voting, subject to his or her fiduciary duties, as a Shareholder
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.
SECTION 8. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time during the period
commencing
on the date which is one year after the Effective Date and ending on the date
on
which the Shareholder ceases to Beneficially Own, together with all Affiliates
and Associates of the Shareholder, at least 10% of the outstanding Paracelsus
Common Stock, the Shareholder may request that the Company register under the
Securities Act all or any portion of such Registration Shares held by the
Shareholder for sale in the manner specified in such request (provided that the
aggregate number of such Registration Shares requested to be registered shall
have an aggregate fair market value, based on the Current Market Price of such
shares as of the date of such request, of at least $5,000,000 or shall consist
of at least 200,000 Registration Shares). Any such request shall be in a
writing
and will designate the specific number of Registration Shares proposed to be
sold by the Shareholder and the proposed plan of distribution for such
Registration Shares (a "DEMAND REGISTRATION REQUEST") All registrations
requested pursuant to this Section 8 are referred to herein as "DEMAND
REGISTRATIONS."
(b) NUMBER OF DEMAND REGISTRATIONS. The Company shall not be required
to effect more than two (2) Demand Registrations of Registration Shares
pursuant
to this Section 8, no more than one (1) of which may be requested prior to the
date which is two years after the Effective Date. Notwithstanding anything to
the contrary contained herein, a registration shall count as a Demand
Registration only when (i) a registration statement covering all Registration
Shares as to which registration has been requested shall have become effective
and (A) if the method of disposition is not a firm commitment underwritten
public offering, the Company has maintained the effectiveness of such
registration statement for a period not to exceed 90 days or (B) if such method
of disposition is a firm commitment underwritten public offering, (y) all such
Registration Shares shall have been sold pursuant thereto (unless such
Registration Shares have not been sold as a result of some act or omission by
the Shareholder) or (z) the applicable registration statement shall have been
effective for at least ninety (90) days and the Shareholder has not paid or
reimbursed the Company for all Registration Expenses and Selling Expenses
incurred by the Company in connection therewith; provided, however, that in any
such case, if, after such registration statement has become effective, the
offering of the Registration Shares pursuant thereto is interfered with by any
stop order, injunction or action of the Commission or other governmental agency
not occasioned by the fault of the Shareholder, a Demand Registration shall be
deemed not to have been effected unless such stop order, injunction or other
order or
<PAGE>
14
request shall have been vacated or otherwise removed, or (ii) a registration
statement filed by the Company pursuant to a request for a Demand Registration
shall be abandoned or withdrawn upon the request of the Shareholder, unless the
Shareholder elects to pay (or reimburse) all Registration Expenses and Selling
Expenses (if any) incurred by the Company in connection therewith.
(c) SELECTION OF UNDERWRITERS. If the method of disposition specified
by the Shareholder in the Demand Registration Request is an underwritten public
offering, the Company may designate the managing underwriter(s) of such
offering, which designation shall be made after reasonable consultation with
the
Shareholder.
(d) PRIORITY ON DEMAND REGISTRATIONS. The Company shall be entitled to
include in any registration statement referred to in this Section 8, for sale
in
accordance with the method of disposition specified by the Shareholder in
connection with a Demand Registration, shares of Paracelsus Common Stock to be
sold by the Company for its own account or by other shareholders of the Company
for their account, except that if the managing underwriter(s) advise the
Company
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering, then
the
Company will include in such registration (i) first, the Registration Shares
requested to be registered by the Shareholder, (ii) second, securities the
Company proposes to sell and (iii) third, other securities requested to be
included in such registration.
(e) SUBSEQUENT REGISTRATION RIGHTS. From and after the date hereof,
the
Company shall not, without the prior written consent of the holders of a
majority of the Registration Shares, enter into any agreement with any holder
or
prospective holder of any securities of the Company that would allow such
holder
or prospective holder to require the Company to include shares or securities in
any Demand Registration unless under the terms of such agreement such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of such securities will not reduce the amount of
Registration Shares registered in connection with such Demand Registration.
(f) EXCEPTIONS TO DEMAND REGISTRATIONS. Notwithstanding anything in
this Section 8 to the contrary, the Company shall not be required to file a
registration statement in connection with a Demand Registration (i) within six
months after the effective date of a registration statement filed in connection
with any other Demand Registration or a Piggyback Registration provided that
(A)
the Shareholder shall have been afforded the opportunity to sell Registration
Shares pursuant to such registration statement, (B) all Registration Shares
requested to be registered shall have been so registered and, (C) if such
registration statement shall relate to an underwritten public offering, all
Registration Shares requested to be registered shall have been included therein
to the extent so requested, (ii) if counsel for the Company shall deliver an
opinion reasonably acceptable to the Shareholder that, pursuant to Rule 144
under the Securities Act or
<PAGE>
15
otherwise, the Shareholder can publicly sell all the Registration Shares as to
which registration has been requested without registration under the Securities
Act, (iii) the Company elects within 15 days after receiving a request for a
Demand Registration to purchase all but not less than all of the Registration
Shares as to which registration has been requested at a price per share equal
to
the Current Market Price, and the Company closes such purchase within 30 days
after delivery of written notice to the Shareholder that the Company has
elected
to purchase such Registration Shares or (iv) the Board makes a good faith
determination that filing a registration statement, or continuing to permit
offers and sales pursuant to an effective registration statement filed pursuant
to Section 8 hereof, is not in the best interests of the Company or its
shareholders (including because of the reason in Section 8(e)(i)) and delivers
written notice to such effect to the Shareholder or holder whose shares are
registered pursuant to such effective registration statement; provided,
however,
that (A) any such deferral of the filing of the registration statement shall
not
exceed a period equal to 60 days after the date of the Demand Registration
Request or (B) (1) any such suspension of offers and sales under an effective
registration statement shall not exceed a period equal to 60 days after the
date
on which the Company gives notice of such suspension to the Shareholder and (2)
the Company shall not be permitted to suspend such offers and sales for more
than 60 days during any six-month period.
SECTION 9. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. If the Company at any time (other than
pursuant
to a Demand Registration) proposes to register any of its Paracelsus Common
Stock or other equity securities under the Securities Act for sale to the
public
for its own account or for the account of other shareholders or both (except
with respect to registration statements on Form S-4 or Form S-8 or another form
not available for registering the Registration Shares for sale to the public)
(a
"PIGGYBACK REGISTRATION"), the Company will promptly (but in any event at least
30 days prior to the filing of the registration statement) give written notice
to the Shareholder of its intention to effect such registration. Upon the
written request of the Shareholder, given within 15 days after receipt of such
notice, to register any of the Shareholder's Registration Shares (a "PIGGYBACK
REGISTRATION REQUEST"), the Company will use its reasonable efforts to cause
the
Registration Shares as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company. Any Registration Shares requested to be registered
in connection with a Piggyback Registration shall be sold under the same method
of distribution as the shares of Paracelsus Common Stock being sold by the
Company or such other shareholders.
(b) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company and the managing
underwriter(s) advise the Company in writing that in their opinion the number
of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the
marketability
of the offering, the Company will include in such registration (i) first, the
<PAGE>
16
securities the Company proposes to sell and (ii) second, the Registration
Shares
requested to be included in such registration and other securities requested to
be included in such registration, pro rata among the holders of such securities
on the basis of the number of securities requested to be registered by each
such
holder.
(c) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration
is
an underwritten secondary registration on behalf of holders of the Company's
securities and the managing underwriter(s) advise the Company in writing that
in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
in such registration (i) first, the securities requested to be included therein
by the holders requesting such registration and (ii) second, the Registration
Shares requested to be included in such registration and any other securities
requested to be included in such registration, pro rata among the holders of
such securities on the basis of the number of securities requested to be
registered by each such holder.
(d) ADDITIONAL RIGHTS. The right to Piggyback Registration provided in
this Section 9 is in addition to and not in lieu of the right to Demand
Registration provided in Section 8. The provisions of this Section 9 shall
apply
even though the Shareholder at the time it requests Piggyback Registration
pursuant to this Section 9 is permitted to sell any or all of the Registration
Shares with respect to which such registration was requested under Rule 144 (or
any similar rule or regulation) promulgated under the Securities Act.
SECTION 10. HOLDBACK AGREEMENTS. The Shareholder agrees not to effect
any public sale or distribution (including sales pursuant to Rule 144) of
equity
securities of the Company, or any securities convertible into or exchangeable
or
exercisable for such securities, during the seven (7) days prior to (provided
that the Shareholder receives a notice from the Company of the commencement of
such 7-day period) and the 90-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registration Shares are included (except as part of such underwritten
registration), unless the underwriter(s) managing the registered public
offering
otherwise agree.
SECTION 11. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 8 or 9 hereof to effect the registration
of any Registration Shares, the Company will, as expeditiously as practicable:
(a) prepare and file with the Commission a registration statement on
the applicable form with respect to such Registration Shares and use its
reasonable best efforts to cause such registration statement to become and
remain effective for the Distribution Period, but no longer;
<PAGE>
17
(b) notify the Shareholder promptly after it has received notice of
the
time when such registration statement has become effective or any supplement to
any prospectus forming a part of such registration statement has been filed;
(c) notify the Shareholder promptly of any request by the Commission
for the amending or supplementing of such registration statement or prospectus
or of additional information;
(d) prepare and file with the Commission, and promptly notify the
Shareholder of such filing, such amendments and supplements to such
registration
statement and the prospectus used in connection therewith as may be necessary
to
keep such registration statement effective for the Distribution Period, but no
longer, and to comply with the provisions of the Securities Act with respect to
the dispositions of all Registration Shares covered by such registration
statement;
(e) prepare and file with the Commission promptly upon the request of
the Shareholder during the Distribution Period only, any amendments or
supplements to such registration statement or prospectus which, in the
reasonable opinion of counsel for the Shareholder and counsel for the Company,
is required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Registration Shares by the Shareholder;
(f) furnish to the Shareholder and to each underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) and such other documents, as such
persons may reasonably request in order to facilitate the public sale or other
disposition of the Registration Shares covered by such registration statement;
(g) use its reasonable best efforts to register or qualify the
Registration Shares covered by such registration statement under the securities
or blue sky laws of such jurisdictions as the Shareholder or, in the case of an
underwritten public offering, the managing underwriter(s), shall reasonably
request; provided, however, that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified;
(h) to the extent the Company has such knowledge, immediately notify
the Shareholder and each underwriter at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact
or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and, upon the reasonable request of the Shareholder or underwriter
during the Distribution Period, prepare and file an amendment or supplement to
such prospectus to correct such misstatement or omission;
<PAGE>
18
(i) advise the Shareholder and the managing underwriter(s), if any,
after the Company shall receive notice or otherwise obtain knowledge of the
issuance of any stop order by the Commission suspending the effectiveness of
the
registration statement or amendment thereto or of the initiation or threatening
of any proceeding for that purpose and (iii) use its reasonable best efforts to
prevent the issuance of any stop order or to obtain its withdrawal promptly if
a
stop order should be issued;
(j) if the offering is underwritten, to furnish, at the request of the
Shareholder, on the date that Registration Shares are delivered to the
underwriters for sale pursuant to such registration: (i) an opinion dated such
date of counsel representing the Company for the purposes of such registration,
addressed to the underwriters, stating that such registration statement has
become effective under the Securities Act and that (A) to the knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus, and each amendment or supplement thereof, comply as to form
in all material respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder (except that such
counsel need express no opinion as to financial statements or financial or
statistical data contained therein) and (C) to such other effects as may
reasonably be requested by counsel for the underwriters or by the Shareholder
or
its counsel, and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters, stating
that
they are independent public accountants within the meaning of the Securities
Act
and that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects
with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five business days prior to the date of such
letter) with respect to the registration in respect of which such letter is
being given as are customarily covered in connection with an underwritten
public
offering; and
(k) make available for inspection by the Shareholder, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Shareholder or
underwriter, financial and other records, pertinent corporate documents and
properties of the Company as are reasonably necessary to enable them to conduct
an investigation fulfilling their due diligence responsibilities, and cause the
Company's officers, directors and employees to supply all information
reasonably
requested by any the Shareholder, underwriter, attorney, accountant or agent in
connection with such investigation.
SECTION 12. SHAREHOLDER'S COOPERATION. In connection with each
registration hereunder, the Shareholder will furnish in writing to the Company
and any underwriter participating in such offering such information with
respect
to themselves and the proposed distribution by them as shall be reasonably
necessary in order to assure compliance with federal
<PAGE>
19
and applicable state securities laws. Reasonable compliance with the obligation
to furnish such information shall be a condition to the rights afforded the
Shareholder hereunder.
SECTION 13. UNDERWRITING AGREEMENT. In connection with each
registration pursuant to Sections 8 and 9 hereof covering an underwritten
public
offering, the Company and the Shareholder agrees to enter into a written
agreement with the managing underwriter(s) selected in the manner herein
provided in such form and containing such provisions as are customary in the
securities business for such an arrangement between underwriters and companies
of the Company's size and investment stature; provided, however, that such
agreement shall not contain any such provision applicable to the Company which
is inconsistent with the provisions hereof; provided, further, however, that
the
time and place of the closing under said agreement shall be as mutually agreed
upon between the Company and such managing underwriter(s).
SECTION 14. EXPENSES. All expenses incurred by the Company in
connection with Demand Registrations and Piggyback Registrations, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the
Company,
fees and disbursements of counsel in connection with registration under state
securities laws, fees of the National Association of Securities Dealers, Inc.,
fees of the New York Stock Exchange (or the principal trading market or stock
exchange for the Registration Shares if other than the New York Stock
Exchange),
fees of transfer agents and registrars and costs of insurance (if any), but not
including any Selling Expenses, are herein referred to as "REGISTRATION
EXPENSES." All underwriting discounts, selling commissions, brokerage fees and
expenses and transfer taxes applicable to the sale of Registration Shares are
herein referred to as "SELLING EXPENSES."
The Company will pay all Registration Expenses in connection with any
Demand Registration or Piggyback Registration. To the extent registration has
been requested pursuant to a Demand Registration Request and such registration
does not count as a Demand Registration as provided in Section 8(b), the
Company
shall pay all Registration Expenses in connection with such registration. All
Selling Expenses in connection with any Demand Registration or Piggyback
Registration shall be borne by the Shareholder or by such persons other than
the
Company (except to the extent the Company shall be a seller) as they may agree.
SECTION 15. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of a registration of
any of the Registration Shares under the Securities Act pursuant to Section 8
or
9 hereof, the Company will indemnify and hold harmless the Shareholder, each
underwriter of Registration Shares thereunder, and each other person, if any,
who controls the Shareholder or underwriter within the meaning of the
Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Shareholder or underwriter or controlling person may become subject
under the Securities Act
<PAGE>
20
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registration Shares were registered under the
Securities Act pursuant to Section 8 or 9, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Shareholder, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or
is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by the
Shareholder, such underwriter or such controlling person in writing
specifically
for use in such registration statement or prospectus.
(b) INDEMNIFICATION BY THE SHAREHOLDER. In the event of a registration
of any of the Registration Shares under the Securities Act pursuant to Section
8
or 9 hereof, the Shareholder (severally and not jointly) will indemnify and
hold
harmless the Company, and each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or officer or director or underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Registration
Shares were registered under the Securities Act pursuant to Section 8 or 9, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or
alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Shareholder will be liable hereunder in any such
case if and only to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
information pertaining to such seller, as such, furnished in writing to the
Company by such seller specifically for use in such registration statement or
prospectus; provided, further, however, that the liability of each selling
Shareholder hereunder shall be limited to the proceeds received by such seller
from the sale of Registration Shares covered by such registration statement.
<PAGE>
21
(c) NOTICE. Promptly after receipt by an indemnified party hereunder
of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may
have
to any indemnified party except to the extent the indemnifying party is
prejudiced thereby. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 15 in connection with the defense
thereof other than reasonable costs of investigation and of liaison with
counsel
so selected; provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded based on advice of counsel
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests
of the indemnifying party, the indemnified party shall have the right to select
separate counsel (consisting of one law firm) and to assume such legal defenses
and otherwise to participate in the defense of such action, with the expenses
and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, in any such action, any indemnified party shall
have the right to retain its own counsel, but the fees and disbursements of
such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party shall have failed to retain counsel for the indemnified
party
as aforesaid; (ii) if representation of such indemnified party by the counsel
retained by the indemnifying party would, in the opinion of such counsel, be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding; or (iii) the indemnifying party and such indemnified party shall
have mutually agreed to the retention of such counsel. It is understood that
the
indemnifying party shall not, in connection with any action or related actions
in the same jurisdiction, be liable for the fees and disbursements of more than
one separate firm qualified in such jurisdiction to act as counsel for the
indemnified party. The indemnifying party shall not be liable for any
settlement
of any proceeding effected without its written consent, but if settled with
such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) CONTRIBUTION. If the indemnification provided for in this Section
15 is unavailable or insufficient to hold harmless a party that would have been
indemnified for such losses, claims, damages or liabilities (or actions in
respect thereof) under this Section 15, then each indemnifying party hereunder
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect the
<PAGE>
22
relative fault of the indemnifying party on the one hand and the indemnified
party on the other in connection with the statements or omissions which
resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault
shall
be determined by reference to, among other things, whether the untrue or
alleged
untrue statement of a material fact or the omission or alleged omission to
state
a material fact relates to information supplied by the indemnifying party on
the
one hand or the indemnified party on the other and the parties' relative
intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Shareholder of Registration Shares
agree that it would not be just and equitable if contribution pursuant to this
Section 15 were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable consideration referred
to
in this Section 15. Notwithstanding the provisions of this Section 15(d), the
Shareholder shall not be required to contribute any amount in excess of the
amount by which the total price at which the Registration Shares sold by it
exceeds the amount of any damages which the Shareholder 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 is not guilty of such fraudulent
misrepresentation.
SECTION 16. CHANGES IN PARACELSUS COMMON STOCK. If, and as often as,
there are any changes in the Paracelsus Common Stock by way of stock split,
stock dividend, distribution, combination or reclassification, or through
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Paracelsus Common Stock as so changed.
SECTION 17. SHAREHOLDER PROTECTION RIGHTS PLAN. Notwithstanding
Article
Eleventh of Paracelsus' Amended and Restated Articles of Incorporation,
Paracelsus covenants and agrees with the Shareholder that it will not adopt a
shareholder protection rights plan, or similar anti-takeover plan or mechanism,
without the prior approval of a majority of the Shareholder Directors.
SECTION 18. ADDITIONAL AGREEMENTS.
(a) NO AMENDMENT OR WAIVER. The Shareholder 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) 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
<PAGE>
23
necessary or appropriate to effectuate, carry out and comply with all of the
terms of this Agreement and the transactions contemplated hereby.
(c) EFFECTIVENESS OF THIS AGREEMENT; TERMINATION OF ORIGINAL
AGREEMENT.
This Agreement shall become effective, and each of the Original Agreement and
the Paracelsus Shareholder Registration Rights Agreement, dated August 16,
1996,
between Paracelsus and the Shareholder shall terminate, without any further
action by the parties, upon the Effective Date.
(d) BRING-DOWN OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Shareholder and Paracelsus shall be true and correct as
of
the Effective Date as if made at and as of such date, and each party, at the
request of the other, shall deliver a certificate on the Effective Date to such
effect.
SECTION 19. LEGENDS. (a) The Shareholder 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 MARCH __, 1999 (A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). 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 this Agreement in accordance with its terms and
upon request by the Shareholder, Paracelsus shall issue new certificates with
the foregoing legend removed.
SECTION 20. 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.
SECTION 21. 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, except as otherwise provided in this Agreement,
shall not be assignable (by operation of law or otherwise)
<PAGE>
24
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.
SECTION 22. 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.
SECTION 23. 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 County 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
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 23(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,
<PAGE>
25
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:
Park-Hospital GmbH
Am Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Facsimile: (011) 49-541-966-4020
Attention: Managing Director
with copies to:
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Facsimile: (212) 556-2222
Attention: Dr. Wilfried Witthuhn
<PAGE>
26
and to:
Dr. Manfred George Krukemeyer
-----------------------------
-----------------------------
, Germany
-------------------
Facsimile: (011) 49-541-
-----
If to Paracelsus, to:
Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Facsimile: (713) 873-6686
Attention: Board of Directors
(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.
(i) This Agreement shall terminate automatically without any
action by any party upon the earliest to occur of (A) the Shareholder, together
with all of its Affiliates and Associates, ceasing to Beneficially Own at least
5% of the Total Voting Power of Paracelsus or (B) the Shareholder, together
with
all of its Affiliates and Associates, Beneficially Own at least 90% of the
Total
Voting Power of Paracelsus; provided, that in the event of a termination
<PAGE>
27
pursuant to clause A of this subsection, the Shareholder shall remain subject
to
the obligations of Sections 7(c) and 7(d).
(ii) Notwithstanding Section 23(e)(i) above, this Agreement shall
terminate immediately, without any action by any of the parties, upon
termination of the Settlement Agreement before the Effective Date.
(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. Notwithstanding the above, each of
Paracelsus and the Shareholder confirms the respective agreements between them
and the Champion Shareholders which are set forth in the Settlement Agreement,
and the rights of the Champion Shareholders to enforce the provisions set forth
in Sections 4, 6, 7 and 8 of this Agreement, in all material respects, in order
to comply with the agreements set forth in the Settlement Agreement.
<PAGE>
28
IN WITNESS WHEREOF, the parties hereto 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:
EXECUTION COPY
SETTLEMENT AGREEMENT
Settlement Agreement (the "Agreement"), dated as of
March 24, 1999, by and among the former shareholders of Champion
Healthcare Corporation ("Champion") listed on Exhibit
"A" hereto (the "Champion Shareholders"), Park-
Hospital GmbH ("Park"), Dr. Manfred Georg Krukemeyer ("Dr.
Krukemeyer"), and Paracelsus Healthcare Corporation
("PHC") (collectively, the "Parties").
As used in this Agreement, "old-Paracelsus" means PHC
prior to its merger with Champion; "Class Action" means IN
RE PARACELSUS HEALTHCARE CORP. SEC. LITIG., Master File No. H-96-3464
(S.D. Tex.) (EW); "Derivative Actions" means CAVEN V.
MILLER, ET AL., C.A. No. H-96-3464 (S.D. Texas) (EW), and OROVITZ V.
MILLER, ET AL., C.A. No. H-97-2752 (S.D. Texas) (EW); "District
Court" means the United States District Court for the
Southern District of Texas; "State Court Actions" means all
of the actions filed in various state courts arising from the merger of
Champion and old-Paracelsus and the related public offerings, including,
without limitation, GAONKAR V. PARACELSUS, ET AL., No. BC 158899
(Cal.Super.Ct., Los Angeles Cty.), PRESCOTT V. PARACELSUS, ET AL., No. BC
158979 (Cal.Super.Ct., Los Angeles Cty.), HUTCHENS V. PARACELSUS, ET AL.,
No. SC38166, ESSEX IMPORTS V. PARACELSUS, ET AL., No. 96-51864 (Harris
Cty. Dist. Ct.), and MOLINARI V. MILLER, ET AL., C.A. No. 14945
(Del.Ch.Ct. New Castle Cty.); and "PHC Securities
Litigation" means the Class Action, Derivative Actions, and
State Court Actions combined.
I. CONTRIBUTION OF SHARES.
<PAGE>
A. Subject to the terms set forth herein, Park shall contribute
nine million eight hundred sixty-five thousand (9,865,000)
shares of PHC common stock (the "Shares
Available") towards a global settlement of the
claims which could have been asserted and which are being
asserted in the PHC Securities Litigation. On the Effective
Date, as defined below in paragraph XIII., Park shall transfer
up to the maximum amount of Shares Available to the Champion
Shareholders; PROVIDED, HOWEVER, that each of the Champion
Shareholders receiving shares from Park continuously held his,
her, or its shares of PHC common stock from August 16, 1996
through October 10, 1996; and PROVIDED, FURTHER, that no shares
will be transferred on account of any PHC warrants, PHC
options, PHC convertible securities, subscription and
preemptive right to any PHC stock, or any other PHC securities
(other than shares of common stock) held by Champion
Shareholders. In the event that the aggregate number of shares
of PHC common stock held by the Champion Shareholders totals
less than sixteen million five hundred thousand (16,500,000)
(the "Share Threshold"), the number of shares of
PHC common stock to be transferred from Park to the Champion
Shareholders shall be an amount equal to the product of (i) the
amount of shares of PHC common stock held by the Champion
Shareholders times (ii) 9.865/16.5 (the "Share
Product"). No PHC warrants, PHC options, PHC
convertible securities, subscription and preemptive right to
any PHC stock, and any other PHC securities (other than shares
of common stock), or shares of PHC common stock held by
individuals that were members of the pre-merger management of
Champion shall be counted in determining whether the Share
Threshold has been met or exceeded.
B. In the event that the number of shares of PHC common stock
transferred by Park to the Champion Shareholders pursuant to
paragraph I.A. hereof is less than the Shares Available,
contemporaneously with the transfer of the appropriate amount
of shares to the Champion Shareholders, Park shall make
available for the settlement of the Class Action an amount of
shares of PHC common stock equal to the difference between the
Shares Available and the Share Product. In no event, however,
shall Park transfer more than nine million eight hundred sixty-
five thousand (9,865,000) shares of PHC common stock to resolve
the PHC Securities Litigation and all claims that could have
been asserted by the Champion Shareholders arising from or in
any way related to the facts and circumstances forming the
subject matter of the PHC Securities Litigation.
C. The transfer of shares in accordance with paragraphs I.A. and
I.B. hereof shall only occur if the District Court certifies a
class in the Class Action that is substantially similar to the
class as defined with the consent of Park and the Champion
Shareholders in Section B of that certain Class Action
Memorandum of Understanding.
D. PHC shall ensure that all shares transferred to the Champion
Shareholders, the class certified in the Class Action, and Dr.
Krukemeyer in accordance with this Agreement are registered or
exempt from registration under the federal securities laws for
purposes of that transfer. Park and Dr. Krukemeyer shall
cooperate with PHC in this regard, but PHC shall be solely
responsible for all reasonable expenses, including reasonable
attorneys' fees. In the event that not all shares transferred
to the Champion Shareholders, the class certified in the Class
Action, and Dr. Krukemeyer in accordance with this Agreement
are registered, outside counsel to PHC shall, prior to the
transfer of shares to the Champion Shareholders, Dr.
Krukemeyer, and plaintiffs in the Class Action, provide Park,
Dr. Krukemeyer and the Champion Shareholders with a legal
opinion, substantially in the form attached as Exhibit
AB" hereto, that the unregistered shares being
transferred are exempt from registration under the federal
securities laws for purposes of that transfer and shall provide
standard assurances concerning the transfer of the securities
under state Blue Sky law.
<PAGE>
E. The transfer of shares of PHC common stock by Park to the
Champion Shareholders pursuant to paragraph I.A. hereof shall
resolve all claims that could have been asserted by the
Champion Shareholders arising from or in any way related to the
facts and circumstances forming the subject matter of the PHC
Securities Litigation. To the extent possible, such
resolutions shall be effected in such a way as to not affect
claims and causes of action, to the extent not otherwise
released in the course of a global settlement of the PHC
Securities Litigation, against PHC's current or former officers
and directors, PHC's independent accountants, and the
underwriters associated with the merger of Champion and old-
Paracelsus. Other than the consideration provided in this
Agreement, no other consideration from Park, Dr. Krukemeyer,
PHC, or any other person, including cash or the issuance of PHC
shares by PHC, shall be provided to the Champion Shareholders
to compromise the claims they could have asserted arising from
or in any way related to the facts and circumstances forming
the subject matter of the PHC Securities Litigation.
Additionally, except as provided in this Agreement, Park and
Dr. Krukemeyer will provide no consideration to compromise
claims being asserted in the PHC Securities Litigation by
plaintiffs other than the Champion Shareholders.
F. Except for members of the management of old-Paracelsus or
Champion who are included within the class certified by the
District Court, no shares of PHC common stock to be transferred
by Park shall be for the benefit of the pre-merger management
of old-Paracelsus or Champion. Additionally, no shares of PHC
common stock to be transferred by Park shall be on account of
any PHC warrants, PHC options, PHC convertible securities,
subscription and preemptive right to any PHC stock, or any
other PHC securities (other than shares of common stock) held
by the Champion Shareholders.
II. SHAREHOLDER LOAN.
A. The $7.2 million subordinated note (the "Note")
issued by PHC to Park, dated August 30, 1996, shall, beginning
with the annual payment originally scheduled to be made in
August 2000, be discharged in accordance with its original
terms. PHC shall pay to Park the interest due under the Note
as scheduled on August 30, 1999. Subject to the approval of
PHC's senior and subordinated lenders, if PHC in its discretion
determines that such approval is required, in which case PHC
shall use its reasonable best efforts to seek such approval,
all amounts of the Note in arrears shall be paid in full on the
date of the annual payment due in August 30, 2000 or as soon
thereafter as is possible. Subject to the provisions of
subparagraphs II.B and II.C hereof, the Note shall be prepaid
upon the earliest to occur of (i) the express consent of PHC's
senior and subordinated lenders, (ii) a refinancing by payment
of PHC's senior and subordinated indebtedness, and (iii) where
such payment would not violate the terms of PHC's existing
senior and subordinated indebtedness; PROVIDED, HOWEVER, that
the Note shall not be prepaid in any event prior to August 30,
2000.
<PAGE>
B. In the event that at any time within two (2) years following
the Effective Date (i) a voluntary petition in bankruptcy is
filed by PHC or (ii) an involuntary petition under Title 11 of
the United States Code is filed against PHC and (1) an order
for relief is entered or (2) such petition is not dismissed
within sixty (60) days of its filing, the outstanding principal
balance of the Note, together with accrued interest, shall be
converted into shares of PHC common stock and then immediately
issued by PHC to Park. The number of shares of PHC common
stock that Park shall receive in such a conversion shall be
calculated based on a share value of Four Dollars ($4.00) per
share. On Park's receipt of the shares, the Note shall
terminate and be canceled as fully discharged and performed.
C. If an agreement is reached to sell all or substantially all of
the outstanding voting securities or assets of PHC to a third-
party within two (2) years following the Effective Date for a
price of less than Four Dollars ($4.00) per share of PHC common
stock, the outstanding principal balance of the Note, together
with accrued interest, shall be converted into shares of PHC
common stock and then immediately issued by PHC to Park. The
number of shares of PHC common stock that Park shall receive in
such a conversion shall be calculated based on a share value of
Four Dollars ($4.00) per share. On Park's receipt of the
shares, the Note shall terminate and be canceled as fully
discharged and performed.
III. SERVICE AGREEMENT. - The senior and subordinated lenders of PHC
currently permit PHC to pay Two Hundred Fifty Thousand Dollars
($250,000) annually on the Service Agreement dated July 17, 1996
between PHC and Dr. Krukemeyer.
A. PHC shall buy out the obligation currently permitted by the
lenders to pay Two Hundred Fifty Thousand Dollars ($250,000)
annually to Dr. Krukemeyer for the remaining period of the
Service Agreement by making a lump sum payment to Dr.
Krukemeyer of One Million Dollars ($1,000,000) on the Effective
Date.
B. PHC shall buy out its remaining obligations under the Service
Agreement by issuing one million (1,000,000) shares of PHC
common stock to Dr. Krukemeyer on the Effective Date.
C. The Service Agreement shall terminate and have no further
effect on the Effective Date. Prior to the Effective Date, PHC
shall continue to make quarterly payments on the Service
Agreement at the current rate of Two Hundred Fifty Thousand
Dollars ($250,000) annually.
IV. CORPORATE GOVERNANCE.
<PAGE>
A. On the Effective Date, the current Shareholder Agreement and
the Shareholder Protection Rights Agreement shall be
terminated. Between the date of this Agreement and the
Effective Date, PHC agrees not to assert or pursue any rights,
claims, or actions under the Shareholder Protection Rights
Agreement and Shareholder Agreement relating to the terms of
Professor Krukemeyer's will providing for the appointment of
executors, the actual appointment or replacement of co-
executors under Professor Krukemeyer's will, and the disclosure
of such terms and circumstances, and the other transactions and
events disclosed in the 13-D filings made by Park and the co-
executors in December 1997, or as the result of any transaction
contemplated in this Agreement. In the event that PHC does
assert or pursue any such rights, claims, or actions under the
Shareholder Protection Rights Agreement and Shareholder
Agreement prior to the Effective Date or the termination of
this Agreement, Park may terminate this Agreement, which shall
render this entire Agreement null and void.
B. Simultaneous with the execution of this Agreement, PHC and Park
shall execute a new Shareholder Agreement, in the form attached
as Exhibit "C" hereto (the "New Shareholder
Agreement"), which shall become effective on the
Effective Date. The parties agree that, for a period of two
(2) years after the Effective Date, PHC and Park shall not
amend the Shareholder Agreement to grant Park any additional
material rights or to delete any material rights of PHC without
the approval of a majority of the Board taking into account only
the votes of the directors not nominated or designated by Park.
C. On or as soon as practical after the execution of this
Agreement, and for a period of two (2) years following the
Effective Date, the PHC Board of Directors shall include at
least: (i) three (3) designees of Park; (ii) three (3)
designees of the Champion Shareholders; (iii) one member of
management; and (iv) two (2) independent directors ("New
Board"). For purposes of the New Board, a
director is independent if (i) he or she does not have, and has
not had during the two (2) years preceding election as a
director, any business, employment, financial, familial, or
other relationship with PHC (other than being a director), an
affiliate of PHC, Park, a Champion Shareholder, a person owning
three percent (3%) or more of the voting securities of PHC,
director or officer of PHC, or significant supplier or payor of
PHC and (ii) so long as PHC is listed on the New York Stock
Exchange, he or she satisfies the requirements of such Exchange
for independent directors. Upon expiration of such two (2)
year period, the PHC Board of Directors shall be nominated and
elected in accordance with the then-existing Articles of
Incorporation, By-laws, and the New Shareholder Agreement of
PHC. During the period from the date hereof up to and
including the date that the PHC Board of Directors is
reconstituted pursuant to this paragraph, the Champion
Shareholders' and Park's designees to the PHC Board of
Directors shall use their independent business judgment and act
to further the consummation of the transactions contemplated
herein.
<PAGE>
Park, the Champion Shareholders and PHC shall use their
reasonable best efforts to ensure that the PHC Board of
Directors is constituted in this manner. In furtherance of the
foregoing, PHC shall nominate and shall use its reasonable best
efforts to take and cause to be taken all necessary action
(corporate and other) to elect to its Board the individuals
required to be nominated for election as directors in
accordance with the terms hereof. In addition, for a period of
two (2) years after the Effective Date, PHC shall nominate for
shareholder vote only slates of classes of directors, and not
any director on an individual basis, and the slates comprising
each of Class I (with a term expiring in 2000) and Class II
(with a term expiring in 2001) shall include at least one Park
designee and one Champion designee.
D. During the period prior to the Effective Date, Park agrees to
cooperate, to the best of its ability, with PHC and the
Champion Shareholders to ensure that Park's representation on
the PHC Board of Directors shall not exceed one-third (1/3) of
the Board of Directors.
E. Simultaneous with, or prior to, the execution of this
Agreement, the Board of Directors of PHC shall adopt a
Resolution, in substantially the form attached as Exhibit
"D" hereto, (i) adopting new Amended and Restated
Bylaws for PHC, in the form attached as Exhibit
"E" hereto (the "New Bylaws"), which
shall become effective on the Effective Date and (ii) electing
new directors to the Board of Directors, with such directors
taking office upon the complete execution of this Agreement.
V. GLOBAL SETTLEMENT OF CLAIMS AND COURT APPROVAL.
A. PHC shall use its best efforts to obtain an agreement to
compromise the remaining claims and causes of action currently
being asserted against PHC and Dr. Krukemeyer, among others, in
the Class Action, against PHC, Park, and Dr. Krukemeyer, among
others, in the Derivative Actions and against PHC, Park, and/or
Dr. Krukemeyer in the State Court Actions and in any other
pending litigation relating, in any way, to the merger of
Champion and old-Paracelsus. Although PHC may issue shares of
PHC common stock to compromise these remaining claims, in no
event shall PHC issue more than one million five hundred fifty
thousand (1,550,000) shares of new PHC common stock to
compromise these remaining claims in the Class Action,
Derivative Actions, and State Court Actions, without the
express written consent of Park and the Champion Shareholders.
B. Upon PHC's obtaining an agreement to compromise the remaining
claims, PHC, Park, the Champion Shareholders, the Derivative
Action plaintiffs, and the Class Action plaintiffs shall
jointly seek final approval of the proposed settlements from
the District Court having jurisdiction over the PHC Securities
Litigation. If, after proper notice and hearing, the District
Court approves the proposed settlements, PHC, Park, the
Champion Shareholders, the Derivative Action plaintiffs, and
the Class Action plaintiffs shall seek entry of orders and
final judgments that provide, among other things:
<PAGE>
(1) as to the Derivative Actions, entry of a court order,
after notice and hearing, approving the proposed
settlements and their terms pursuant to Federal Rule of
Civil Procedure 23.1, approving the transfer of any
unregistered shares to the Champion Shareholders or Dr.
Krukemeyer pursuant to this Agreement as exempt from
registration under Section 3(a)(10) of the Securities Act
of 1933, and directing the consummation of the settlements
pursuant to their terms;
(2) as to the Class Action, entry of a court order, after
notice and hearing, approving the proposed settlements and
their terms as being fair, reasonable and adequate
settlements as to plaintiffs pursuant to Federal Rule of
Civil Procedure 23 approving the transfer of any
unregistered shares to the members of the class pursuant
to this Agreement as exempt from registration under
Section 3(a)(10) of the Securities Act of 1933, and
directing the consummation of the settlements pursuant to
their terms;
(3) directing that the Class Action and Derivative Actions be
dismissed with prejudice as to the settling defendants,
including Park; and
(4) a bar order that prohibits, except as otherwise expressly
provided in this Agreement or in the settlements of the
Class Action and Derivative Actions, any further claims
against the settling defendants, including Park, arising
from the events that form the basis of the PHC Securities
Litigation.
C. PHC shall use its reasonable best efforts to obtain a release
of all claims being asserted in the State Court Actions against
the settling defendants, including Park.
D. Each of the Champion Shareholders covenants that he, she or it
is a current shareholder of PHC and that he, she or it will
remain a shareholder of PHC through the Effective Date. Each
of the Champion Shareholders further covenants that he, she or
it will not commence any litigation or bring any claims against
Park, Dr. Krukemeyer, PHC, or any other person, arising from or
in any way related to the facts and circumstances forming the
subject matter of the PHC Securities Litigation.
E. If the approvals, orders, judgments, and dismissals described
above are not obtained from the District Court, this Agreement
shall be null and void.
<PAGE>
VI. INDEMNIFICATION. - As of the Effective Date, and upon
consummation of the transactions contemplated in paragraph I hereof,
PHC shall indemnify and hold harmless Park, Dr. Krukemeyer, the
Champion Shareholders, and each of their respective employees and
agents, from any and all claims and causes of action relating, in
any way, to the merger of Champion and old-Paracelsus that may be
asserted by any present or former holder of PHC common stock or
other PHC securities who is neither a party to this Agreement nor a
member of the class certified by the District Court in the Class
Action. PHC shall not, however, indemnify and hold harmless Park or
the Champion Shareholders for any claims which may be asserted,
assessed or otherwise imposed against any such persons or entities
by any governmental agency or tribunal, including, without
limitation, the Securities and Exchange Commission; PROVIDED,
HOWEVER, that PHC shall indemnify Park and its agents and employees
for reasonable legal fees, not to exceed Two Hundred and Fifty
Thousand Dollars ($250,000), incurred in connection with any
investigation or claims relating, in any way, to the merger of
Champion and the old-Paracelsus brought by any governmental agency
or tribunal, including, without limitation, the Securities and
Exchange Commission. Nothing in this Agreement in any way limits or
reduces the indemnity rights, if any, that Dr. Krukemeyer may have
either contractually or as a former director of old-Paracelsus and
PHC.
VII. MUTUAL RELEASE.
A. On the Effective Date, for good and valuable consideration
received, each of the Champion Shareholders, on behalf of
themselves and each of his, her or its current, former, or
future partners, directors, officers, employees, shareholders,
predecessors, successors, affiliates, subsidiaries, agents,
lawyers, representatives, and assigns (collectively, the
"Champion Shareholder Releasing Parties") hereby
fully and finally release and forever discharge Dr. Krukemeyer,
Park, and PHC and each of his or its current, former, or future
trustees, directors, officers, employees, shareholders,
predecessors, successors, affiliates, subsidiaries, family
members, agents, lawyers, representatives and assigns
(collectively, the "Krukemeyer/Park/PHC Released
Parties"), from any and all claims, demands,
obligations, debts, actions, suits, causes of action, whether
class, derivative, individual, or otherwise in nature, damages
whenever incurred, liabilities of any nature whatsoever,
including costs, expenses, penalties and attorneys' fees, known
or unknown, suspected or unsuspected, in law, under statute, or
in equity, that the Champion Shareholder Releasing Parties,
whether directly, representatively, derivatively or in any
other capacity, ever had, now have or hereafter can, shall or
may have against the Krukemeyer/Park/PHC Released Parties
arising from or in any way related to the facts and
circumstances forming the subject matter of the PHC Securities
Litigation.
<PAGE>
B. On the Effective Date, for good and valuable consideration
received, Dr. Krukemeyer, Park, and PHC and each of his or its
current, former, or future trustees, directors, officers,
employees, shareholders, predecessors, successors, affiliates,
subsidiaries, family members, agents, lawyers, representatives,
and assigns (collectively, the "Krukemeyer/Park/PHC Releasing
Parties") hereby fully and finally release and
forever discharge each of the Champion Shareholders, and each
of his, her or its current, former, or future trustees,
partners, directors, officers, employees, shareholders,
predecessors, successors, affiliates, subsidiaries, family
members, agents, lawyers, representatives, and assigns
(collectively, the "Champion Shareholder Released
Parties") from any and all claims, demands,
obligations, debts, actions, suits, causes of action, whether
class, derivative, individual, or otherwise in nature, damages
whenever incurred, liabilities of any nature whatsoever,
including costs, expenses, penalties and attorneys' fees, known
or unknown, suspected or unsuspected, in law, under statute, or
in equity, that the Krukemeyer/Park/PHC Releasing Parties,
whether directly, representatively, derivatively or in any
other capacity, ever had, now have or hereafter can, shall or
may have against the Champion Shareholder Released Parties
arising from or in any way related to the facts and
circumstances forming the subject matter of the PHC Securities
Litigation.
VIII. ASSIGNMENT AND PURSUIT OF CERTAIN CLAIMS.
A. Prior to the Effective Date, PHC shall not settle, compromise,
or assign any claim or cause of action it has or might have
arising from or related to the facts and circumstances forming
the subject matter of the PHC Securities Litigation, including,
without limitation, a claim or cause of action against a
current or former officer or director holding $.01 options
(for, among other things, affirmative recoveries and
cancellation of the $.01 options) and its independent
accountants except as provided in this Agreement, the Class
Action Memorandum of Understanding, and the Derivative Action
Settlement Agreement or except in a document signed by the
Champion Shareholders and Park. This obligation shall
terminate on the Effective Date.
<PAGE>
B. Effective upon the transfer of shares from Park to the
Champion Shareholders pursuant to paragraph I.A., PHC and the
Champion Shareholders hereby assign to Park any and all claims
or causes of action that PHC and the Champion Shareholders may
have against PHC's independent accountants arising from the
work that the independent accountants performed in connection
with the merger of Champion and old-Paracelsus and in
connection with any and all services that the independent
accountants provided to old-Paracelsus. Notwithstanding
anything to the contrary in paragraph VI., PHC shall not
indemnify Park against any counterclaims or other actions
asserted against Park by the independent accountants. Park
shall hold PHC and all other parties who receive releases in
connection with this Agreement, the settlement of the Class
Action, and the Derivative Actions harmless from any liability,
costs, and expenses, including reasonable legal fees, they may
incur as a result of Park's pursuit of such assigned claims and
causes of action against PHC's independent accountants. In
addition, to the extent PHC or any of the other parties held
harmless by Park are required to pay amounts to the independent
accountants in connection with such assigned claims and causes
of action, PHC and such other parties may at their option
require that any recovery due Park from the independent
accountants be reduced by such amounts. Park also covenants
not to commence any litigation against the independent
accountants until such time as a written commitment has been
obtained from another "Big Five" or other
nationally recognized accounting firm, acceptable to PHC and
its Board of Directors in its sole and absolute discretion,
agreeing to serve as PHC's independent accountants. In
connection with this assignment, upon prior written request to
PHC, and provided that such requests are reasonable, PHC shall
make available to Park all documents that are relevant to such
claims; PROVIDED, HOWEVER, that Park shall reimburse PHC for
the costs associated with producing such documents. If for any
reason this assignment is not valid or enforceable, the other
agreements and obligations contained in this Agreement remain
valid and enforceable.
C. From and after the Effective Date, claims and causes of action
of PHC may be pursued or compromised and settled at the
discretion and as determined by the reconstituted PHC Board of
Directors or as provided in settlements reached with respect
to the PHC Securities Litigation.
IX. TERMINATION OF CERTAIN STOCK OPTIONS. - Except as provided in the
Derivative Action Settlement Agreement and Senior Executive
Memorandum of Understanding, PHC shall investigate the feasibility
of canceling certain $.01 PHC stock options that were issued in
connection with the merger of Champion and old-Paracelsus. PHC
shall also investigate the feasibility of reacquiring, at a price
not to exceed the strike price, any PHC shares that have been issued
pursuant to such options or, if the person who obtained shares
pursuant to such options has sold the shares, the proceeds realized
on the sale of those shares.
X. CLASS ACTION MEMORANDUM OF UNDERSTANDING AND DERIVATIVE ACTIONS
SETTLEMENT AGREEMENT. - The obligations set forth in this Agreement
shall be conditioned on the final execution by all parties,
including Park, of a Class Action Memorandum of Understanding and a
Derivative Actions Settlement Agreement. This Agreement and the
Class Action Memorandum of Understanding shall be executed at the
same time.
<PAGE>
XI. COSTS. - Upon execution of this Agreement, the Class Action
Memorandum of Understanding, and the Derivative Actions Settlement
Agreement by the Champion Shareholders, PHC shall pay all reasonable
fees and out-of-pocket expenses of the Champion Shareholders,
including, without limitation, reasonable attorneys' fees, incurred
as of the date thereof; PROVIDED, HOWEVER, that in no event shall
such payment exceed Five Hundred Thousand Dollars ($500,000).
Additionally, during the period from the date hereof up to and
including the Effective Date, PHC shall pay, on a monthly basis,
such additional reasonable fees and out-of-pocket expenses of the
Champion Shareholders, including, without limitation, reasonable
attorneys' fees, incurred subsequent to the execution of this
Agreement; PROVIDED, HOWEVER, that in no event shall PHC's payment
of legal fees incurred by the Champion Shareholders, in the
aggregate, exceed Eight Hundred Thousand Dollars ($800,000). If the
reasonable legal fees incurred by the Champion Shareholders exceed
Eight Hundred Thousand Dollars ($800,000), the Champion Shareholders
may request that such additional fees and expenses be paid by PHC
and PHC's decision on payment of those additional fees and expenses
shall be at the discretion of the New Board of Directors of PHC. In
the event that the PHC Securities Litigation is not globally settled
as contemplated in this Agreement, any amounts paid to the Champion
Shareholders pursuant to this paragraph shall be subtracted from and
offset against any eventual judgment or recovery by the Champion
Shareholders in connection with a claim or demand related in any way
to the merger of old-Paracelsus and Champion or to the events
forming the basis of the PHC Securities Litigation and the judgment
is against or the recovery is from any person with a right of
indemnification or contribution against PHC.
XII. PRESS RELEASE. - Upon the final execution of this Agreement and the
Class Action Memorandum of Understanding, the Parties shall jointly
prepare and the Board of Directors of PHC shall issue a press
release announcing generally the terms of the agreements. Except as
required by applicable law, under no circumstance shall any party to
this Agreement issue a press release, without the consent of all
other Parties to this Agreement, or disclose the salient provisions
contained in this Agreement.
XIII. EFFECTIVE DATE. - The "Effective Date" means the first
business day ten (10) days after the order(s) and judgment(s) of the
District Court approving the settlements of the Class Action and
Derivative Actions and dismissing the Class Action and Derivative
Actions with prejudice become final and no longer subject to appeal.
XIV. TERMINATION OF TOLLING AGREEMENT. - Upon the transfer of shares from
Park to the Champion Shareholders pursuant to paragraph I.A. hereof
and the payment by PHC to the Champion Shareholders of all fees and
out-of-pocket expenses due and owing on the Effective Date pursuant
to paragraph XI. hereof, the August 1997 Tolling Agreement among
PHC, Park, Dr. Krukemeyer, certain of the Champion Shareholders, and
others shall terminate as to PHC, Park, and Dr. Krukemeyer.
XV. DOCUMENTATION AND APPROVAL. - The Parties shall act in good faith
and use their best efforts to further document the transactions
contemplated herein and obtain approval of the respective judicial
and governmental authorities and third parties.
XVI. GENERAL PROVISIONS.
A. The agreements contained herein are in no way intended as an
admission of liability by PHC, Park or Dr. Krukemeyer or that
any reallocation of PHC shares to the Champion Shareholders is
proper, fair, or warranted under the circumstances.
B. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas without regard
to Texas conflict of law rules.
C. Any modifications or amendments to this Agreement must be in
writing and signed by the Parties.
D. This Agreement may be executed in counterparts, and as so
executed shall constitute one agreement.
<PAGE>
Date: ___________ PARK-HOSPITAL GmbH
_________________________________
By: Dr. Heiner Meyer zu L<o">sebeck
Managing Director
<PAGE>
Date: ___________ PARACELSUS HEALTHCARE CORPORATION
_________________________________
By:
Title:
<PAGE>
Date: ___________ DR. MANFRED GEORG KRUKEMEYER
_________________________________
<PAGE>
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
<PAGE>
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
<PAGE>
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
<PAGE>
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
Date: ___________ _________________________________
Number of Shares of PHC Name of Champion Shareholder
Common Stock Continuously
Held from August 16, 1996
through October 10, 1996:
________________ ________________________________
By:
Title:
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
------------------------------------------------------ -----x
IN RE PARACELSUS CORP. : MASTER FILE NO.
SECURITIES LITIGATION : H-96-3464 (EW)
----------------------------------------------------------- x
STIPULATION OF SETTLEMENT
This Stipulation of Settlement (the "Settlement Stipulation") is
entered into this 11th day
of May, 1999, by and among plaintiffs, individually and as representatives
of the Class, as
defined below, Paracelsus Healthcare Corporation, Manfred G. Krukemeyer,
R.J. Messenger,
James T. Rush, Charles R. Miller, James G. VanDevender, the Champion
Shareholders, as
defined below, Park-Hospital GmbH, Donaldson Lufkin & Jenrette Securities
Corporation, Bear
Steams & Co., Inc., Smith Barney, Inc., and ABN AMRO Chicago Corporation,
in connection
with the above-captioned Action.
WHEREAS:
A. Between October and December 1996, eight lawsuits were commenced
as
putative class actions against Defendants in the United States District
Court for the Southern
District of Texas which alleged violations of the federal securities laws.
By Orders dated
February 14, 1997, the Court consolidated these class actions, and
appointed plaintiffs Alan
Gordich, Gary Matzner and J.A. Ziskind as Lead Plaintiffs, and the law firm
of Bernstein
Litowitz Berger & Grossmann LLP as Lead Counsel in these consolidated
actions pursuant to
Section 27 of the Securities Act of 193 3, and Section 2 1 D of the
Securities Exchange Act of
1934.
B. On May 2, 1997, Lead Plaintiffs in these actions filed a
Consolidated Amended
Class Action Complaint, which asserted claims for relief against all
defendants arising under the
Securities Act of 1933, on behalf of a class of persons or entities who
purchased or acquired
Paracelsus common stock or senior subordinated notes during the Class
Period, as defined below, and which Defendants moved to dismiss on June 2,
1997. By Order dated March 8, 1998, the Court granted defendants' motions
to dismiss claims asserted on behalf of note purchasers, but
denied defendants' motions to dismiss claims asserted on behalf of
purchasers of Paracelsus
common stock. Defendants filed answers to the Consolidated Amended Class
Action Complaint in April 1998.
C. On May 13, 1998, Lead Plaintiffs filed a Second Amended
Consolidated Class
Action Complaint, which asserted an additional claim for relief only
against Paracelsus under
Section 10(b) of the Securities Exchange Act of 1934. On June 12, 1998,
Paracelsus moved to
dismiss this additional claim. By Order dated November 3, 1998, the Court
granted Paracelsus'
motion to dismiss this claim, without prejudice and with leave to replead.
D. On November 17, 1998, Lead Plaintiffs filed a Third Amended
Consolidated
Complaint, which amended the claim asserted against Paracelsus for violation
of Section 10(b) of the Securities Exchange Act of 1934. This complaint was
filed under seal. Thereafter, the
parties stipulated to an extension of time to answer or otherwise move with
respect to this
complaint, for the purpose of engaging in settlement discussions.
E. Counsel for the parties herein conducted intense, protracted
arms-length
negotiations from the time that the Court denied defendants' motions to
dismiss the Consolidated
Amended Class Action Complaint, and concluded these negotiations with the
assistance of the
Honorable Frances H. Stacy, United States Magistrate Judge for the Southern
District of Texas.
As a result, on March 24, 1999, the parties herein reached an agreement to
settle the Action in
accordance with the terms set forth in a Memorandum of Understanding
annexed hereto as
Exhibit A.
F. Lead Counsel considered and evaluated the evidence available to
support
plaintiffs' claims and the likelihood of prevailing on those claims; the
ability of defendants to
withstand any judgment entered against them; and the likely appeals and
subsequent proceedings
necessary if the Class did prevail, and concluded that the settlement
negotiated is in the best interest of the Class.
G. Defendants and Park Hospital GmbH, a party to the Settlement,
while denying all
wrongdoing as alleged by plaintiffs in this action, or any wrongdoing
whatsoever, and denying
any liability to Plaintiffs or the Class, and relying on the provisions of
this Settlement Stipulation
that this settlement shall in no event be construed or deemed to be
evidence, or an admission or a
concession on the part of Defendants, or any other party to this Settlement
Stipulation, of any
fault or liability whatsoever, and without conceding any infirmity in any
defenses they have
asserted or intended to assert in the action, consider it desirable that
this action be dismissed on
the terms set forth herein in order to avoid further expense and protracted
litigation.
NOW, THEREFORE, IT IS STIPULATED AND AGREED, by and among the
parties hereto, by their undersigned counsel, subject to the Court's
approval pursuant to Rule
23(e) of the Federal Rules of Civil Procedure. that this Action be settled
and compromised,
according to the following terms and conditions:
1. As used in this Stipulation of Settlement, the following
capitalized terms shall
have the following meanings:
h. "Action" means In re Paracelsus Corp. Securities
Litigation, Master File
No. H-96-3464 (EW).
i. "Bear Stearns" means Bear Stearns & Co., Inc.
j. "Champion" means Champion Healthcare Corporation.
k. "Champion MOU" means that certain Settlement Agreement between
the
Champion Shareholders, Krukemeyer, Park and Paracelsus, dated as of March
24, 1999.
l. "Champion Shareholders" means each person or entity listed on
Exhibit B
to the MOU, as defined below and annexed hereto as Exhibit A, all of whom
have agreed to and
accepted, in writing, the terms of settlement contained in the Champion
MOU.
m. "Chicago" means ABN AMRO Chicago Corporation.
n. "Complaint" means Plaintiffs' Third Amended Consolidated Class
Action
Complaint in the Action, filed on November 17, 1998.
o. "Claimant" means any Class Member who files a Proof of Claim,
as
hereinafter defined, in such form, in such manner and within the time
limitation as set forth in the Proof of Claim form.
p. "Claims Administrator" means a bank, accounting firm or other
entity
selected by Lead Counsel to review claims in accordance with the Plan of
Distribution.
q. "Class" means all persons or entities who purchased or
acquired
Paracelsus common stock: (i) pursuant to the registration statement and
prospectus filed with the
Securities and Exchange Commission in connection with the initial public
offering of Paracelsus
common stock, which was declared effective on August 1). 1996; (ii)
pursuant to the Exchange
Offer, as defined below; or (iii) in the open market during the period
August 16, 1996, up to and
including October 9, 1996; 12rovided, however , that, notwithstanding the
foregoing, expressly
excluded from the Class are: (1) each of the Defendants; (2) Park; (3) each
of the Co-Manager
Underwriters and the Syndicate, as defined below; (4) Scott Barton; (5)
Ronald Patterson; (6)
members of the family of each of the Individual Defendants; (7) each person
who at any time
served as an officer or director of Paracelsus prior to its merger with
Champion and members of
their respective families; (8) any person, firm, trust, corporation,
officer, director or other
individual or entity in which any Defendant, any of the Co-Manager
Underwriters or the
Syndicate, as defined below, or Park has a controlling interest or which is
related to or affiliated
with any of the Defendants, any of the Co-Manager Underwriters or the
Syndicate, or Park, and
the legal representatives, agents, affiliates, heirs, successors-in-
interest or assigns of any such
excluded person or entity; and (9) each of the Champion Shareholders.
r. "Class Member" means any person or entity included within the
Class, and
who has not filed a timely and valid request for exclusion from the Class.
s. "Class Period" means the period from and including August 13,
1996,
through and including October 9, 1996.
t. "Co-Manager Underwriters" means DLJ, Bear Steams, Smith Barney
and Chicago.
u. "Costs of Administration" means all expenses incurred in
connection with
the administration of this Settlement, including the fees and expenses of
the Claims Administrator.
v. "Costs of Notice" means all costs and expenses incurred in
discharging the
obligation to notify potential Class Members of the pending Action against,
and settlement with,
Defendants, either through direct mail or publication, as required by the
Court, but shall not
include attorneys' fees incurred by plaintiffs.
w. "Court" means the United States District Court for the
Southern District of
Texas.
x. "Defendants" means Paracelsus Healthcare Corporation, Manfred
G.
Krukemeyer, R.J. Messenger, James T. Rush, Charles R. Miller and James G.
VanDevender.
y. "Deponents" means the Individual Defendants and Scott Barton.
z. "Derivative Actions" means CAVEN V. MILLER, No. H-96-4291
(S.D. Tex.)
and OROVITZ V. MILLER, No. H-97-2752 (S.D. Tex.).
27. "Derivative Settlement" means the Settlement Agreement, dated
March
24, 1999, setting forth the terms of settlement in the Derivative Actions.
28. "Distribution Order" means an Order of the Court authorizing
the
distribution, on or following the Effective Date, of the Settlement Fund to
Class Members.
29. "DLJ" means Donaldson Lufkin & Jenrette Securities
Corporation.
30. "Effective Date" means the first business day ten (10) days
after the date
by which all of the following have occurred: (1) a Notice Order, as
described in subparagraph
hh, BELOW, and substantively identical to Exhibit B annexed hereto, has
been entered by the
Court; (2) the Settlement has been approved in all respects by the Court;
(3) an Order and Final
Judgment, substantively identical to Exhibit C annexed hereto, as defined
in subparagraph ii
below, has been entered by the Court and not vacated, stayed or modified in
any material way,
upon appeal or otherwise; (4) either (i) the time to appeal, or otherwise
seek review of the Order
and Final Judgment has expired without any appeal having been taken or
review sought, or (ii) if
an appeal is taken or review sought, the expiration of five days after such
an appeal or review
shall have been finally determined by the highest court before which appeal
or review is sought
and is not subject to further judicial review; and (5) entry of an order by
the District Court
approving the Derivative Settlement and such order becoming final and non-
appealable.
31. "Escrow" means the custody accounts established at Citibank on
or about
April 22, 1999.
32. "Exchange Offer" means Paracelsus' issuance of Paracelsus
common
stock in exchange for all issued and outstanding shares of common and
preferred stock of
Champion, as governed by the registration statement, proxy statement and
prospectus dated July 19, 1996.
33. "Fee and Expense Application" means an application or
applications by
Lead Counsel for a collective award of Fees and Out-of-Pocket Expenses on
behalf of all counsel for plaintiffs in the Action.
34. "Fees" means the attorneys' fees to be awarded by the Court to
Plaintiffs'
counsel in connection with the prosecution of the Action.
35. "Individual Defendants" means defendants Manfred G.
Krukemeyer, R.J.
Messenger, James T. Rush, Charles R. Miller and James G. VanDevender.
36. "Lead Counsel" means the law firm of Bernstein Litowitz
Berger & Grossmann LLP.
37. "Lead Plaintiffs" means plaintiffs Alan Gordich, Gary Matzner
and J.A. Ziskind.
38. "MOU" means the Memorandum of Understanding entered into by
the
parties to this Settlement Stipulation on March 24, 1999, a copy of which
is annexed hereto as Exhibit A.
39. "Net Settlement Fund" means the Settlement Fund, less all
Fees, Out-of-
Pocket Expenses, Costs of Notice and Costs of Administration.
40. "Notice" means the Notice of Pendency of Class Action,
Proposed
Settlement of Class Action and Settlement Hearing, which is to be sent to
members of the Class
substantially in the form attached hereto as Exhibit I to Exhibit B.
41. "Notice Order" means the Notice Order referred to in paragraph
5, BELOW,
to be substantially in the form of Exhibit B, annexed hereto, and
substantively identical thereto.
42. "Order and Final Judgment" means the Order and Final Judgment
referred
to in paragraph 10, BELOW, to be substantially in the form of Exhibit C,
annexed hereto, and substantively identical thereto.
43. "Out-of-Pocket Expenses" means all expenses, (but not Fees),
incurred by
Plaintiffs and all counsel for Plaintiffs in connection with the
prosecution of the Action,
including fees and expenses of experts and consultants retained by counsel
in connection with the Action.
44. "Paracelsus" means Paracelsus Healthcare Corporation.
45. "Park" means Park-Hospital GmbH.
46. "Plaintiffs" means plaintiffs Alan Gordich, Gary Matzner. J.A.
Ziskind,
Arthur Doloresco, Norman Gaylis, Albert Kahn, Veronica Ziskind, James
Kramer, Joseph
Lipsky, Barry Garber, Hayley W. Wemer, Lawrence Rice A/C/F Ian Alexander
Rice, Lawrence
Rice A/C/F Jaclyn Stephanie Rice, Joseph Lipsky and Patricia Greenberg.
47. "Plan of Distribution" means the terms and procedures for
allocating the
Net Settlement Fund among, and distributing the Net Settlement Fund to
Claimants with
approved Proofs of Claim, as set forth in the Notice.
48. "Proof of Claim" means the Proof of Claim and Release and
Substitute
Form W-9 substantially in the form annexed hereto as Exhibit 2 to Exhibit
B, which, upon
approval of the Court, will be mailed to Class Members with the Notice.
49. "Released Claims" shall collectively mean all federal. state,
and foreign
claims, including all Unknown Claims, known or unknown, suspected or
unsuspected, contingent or non-contingent, whether or not concealed or
hidden, regardless of who possesses them, which now exist, or heretofore
have existed upon any theory of law or equity now existing or coming into
existence in the future, including, but not limited to, conduct which is
negligent. intentional, with or without malice, or a breach of any duty, law
or rule, based upon or arising out of (i) the allegations and/or claims set
forth in the Action, the Derivative Actions, PRESCOTT V. PARACELSUS
HEALTHCARE CORP., C.A. No. BC158979 (Cal. Super. Ct., Los Angeles Cty.),
GAONKAR V. KRUKEMEYER, ET AL., C.A. No. BC 158899 (Cal. Super. Ct., Los
Angeles Cty.), ESSEX IMPORTS V. PARACELSUS HEALTHCARE CORPORATION. ET AL.,
No. 96-51864 (Tex. Dist. Ct., Harris Cty.), MOLINARI V. MILLER. ET AL., No.
14945 (Del. Ch. Ct.), and the alleged acts, failures to act, omissions,
misrepresentations, facts, events, transactions, statements, occurrences or
other subject matter which were, or could have been, set forth, alleged,
embraced, complained of or otherwise referred to therein, (ii) the merger
of Champion and pre-merger Paracelsus, and (iii) the subsequent restatement
of the Paracelsus annual and quarterly financial statements.
50. "Settlement" means the terms and conditions set forth in this
Settlement Stipulation.
51. "Settlement Fund" means the sum of the following, as described
in paragraph 2, below: (i) the $14 million cash deposited in
Escrow by Paracelsus on behalf of all Defendants, plus all
interest earned, accrued or paid thereon; (ii) the $1 million
cash deposited in Escrow by DLJ, plus all interest earned,
accrued or paid thereon; (iii) 1,549,391 shares of Paracelsus
common stock, to be transferred by Paracelsus in accordance
with the terms of this Settlement Stipulation; and (iv)
1,190,767 shares of Paracelsus common stock, to be transferred
by Park in accordance with the terms of this Settlement
Stipulation.
52. "Settlement Hearing" means a hearing to be held by the Court
on notice to the Class, to consider approval of the
Settlement, Plan of Distribution and Plaintiffs' counsel's
application for Fees and Out-of-Pocket Expenses.
53. "Smith Barney" means Smith Barney, Inc.
54. "Summary Notice" means the Notice of Proposed Settlement of
Class Action and Settlement Hearing, which is to be published
in accordance with the terms of the Notice Order,
substantially in the form attached hereto as Exhibit 3 to
Exhibit B.
55. "Syndicate" means the equity syndicate underwriters listed in
the schedule attached hereto as Exhibit A to Exhibit A.
56. "Unknown Claims" means any claim any person or entity does not
know or suspect to exist in his or her or its favor at the
time of the release of such person or entity which, if known
by him, her or it, might have affected his, her or its
settlement with and release of the said person or entity or
might have affected his, her or its decision not to object to
this Settlement. In releasing any Unknown Claims, a person or
entity expressly waives and relinquishes to the fullest extent
permitted by law all provisions, rights and benefits conferred
by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable or
equivalent to 1542 of the California Civil Code, which
provides: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OR EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST
HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
TERMS AND CONDITIONS
2. In full and complete satisfaction and settlement of the Action
and of all Released Claims, as set forth in paragraph 7, BELOW, DLJ has
agreed to pay a total of $1,000,000 cash, and Paracelsus, (on behalf of
all Defendants), and Park have agreed to pay a total of $14,000,000
cash and 2,749,158 shares of Paracelsus common stock, which for purposes of
this Settlement is assigned a value of $4 per share, for total consideration of
$25,960,631.80, to the Class and into the Settlement Fund as follows:
57. On April 23, 1999, DLJ wire-transferred $1,000,000 cash into
Escrow, to be maintained jointly by Lead Counsel and DLJ. On or
before April 23. 1999. Paracelsus, on behalf of all Defendants,
will pay or cause to be paid $14,000,000 cash into Escrow, to be
maintained jointly by Lead Counsel and Paracelsus. The Escrow shall
earn interest at least at the 90-day United States Treasury Bill
rate from the date of deposit. If any part of the cash portion of
the Settlement Fund contributed by or on behalf of Paracelsus is
not deposited into Escrow on or before April 23, 1999, then
Paracelsus will pay or cause to be paid interest on the portion not
deposited at a rate of 8% per annum from said date until that
portion of the Settlement Fund is deposited into Escrow. Because
Paracelsus was prepared to pay $8.315 million into the Escrow on
May 6, 1999, and another $4 million on May 11, 1999, the interest
due under this provision shall be calculated on the assumption that
those payments into the Escrow occurred on those dates. All
interest earned or accrued on the cash portion of the Settlement
Fund shall become part of the Settlement Fund. Except as otherwise
provided in this Settlement Stipulation, the cash portion of the Settlement
Fund shall remain in Escrow until the Effective Date; however, prior to the
Settlement Hearing, Lead Counsel may draw on the cash portion of the Settlement
Fund in an amount up to $50,000 to pay costs of Notice to the Class and
Settlement Administration; provided, however, that if the Effective Date
does not occur, such amounts shall be subtracted from and offset against
any eventual judgment or recovery by Plaintiffs and the Class in connection
with any claim or demand related in any way to the allegations set forth in
the Complaint and the judgment is or the recovery is from Paracelsus or
DLJ, or any person or entity with a right of indemnification against
Paracelsus or DLJ.
58. The remainder of the Settlement Fund shall be funded by 2,740,158
shares of Paracelsus common stock to be paid by Paracelsus and
Park, and to be valued at $4 per share for purposes of this
Settlement, as follows: Except as otherwise provided in this
Settlement Stipulation, no later than ten (10) days following entry
of the Distribution Order, but not before the Effective Date,
Paracelsus shall transfer or cause to be transferred 1,549,391
shares of Paracelsus common stock, and Park shall transfer or cause
to be transferred 1,190,767 shares of Paracelsus common stock for
the benefit of the Class. Paracelsus may seek reimbursement of its
reasonable costs incurred to effect said transfer from the cash
portion of the Settlement Fund. Said transfers shall be completed
in the manner directed by Lead Counsel. To the extent permitted by
law and the rules of the New York Stock Exchange, Paracelsus and
Park shall ensure, and will take all steps necessary to ensure,
that said stock is either registered or exempt from registration
under the federal securities laws and that said stock is not
subject to any restrictive legend as of the Effective Date and upon
entry of the Distribution Order.
3. In further consideration of the settlement of all claims with
DLJ, Paracelsus shall not be required to employ or retain DLJ for the
purpose of conducting any underwriting or other investment banking
services. and any existing agreement between Paracelsus and DLJ requiring
Paracelsus to employ, retain or compensate DLJ in connection with the
provision of any such services shall be deemed to be null and void, and of
no further force or effect.
4. The Settlement Fund shall be treated as a "qualified settlement
fund" within the meaning of Treasury Regulations Section 1.468B-1. Lead
Counsel shall designate the person or entity (other than Defendants) to
serve as the "administrator" for tax purposes. The Claims Administrator
shall be responsible for making all necessary or advisable elections to
carry out the intent of this provision, including a "relation-back
election" and Defendants shall, as necessary, join in such elections. The
Claims Administrator shall be responsible for timely and properly preparing
and filing all informational and other tax returns required with respect to
the Settlement Fund. All taxes (including any interest or penalties)
arising with respect to the
income earned by the Settlement Fund, including any taxes or charges that
may be imposed upon the Defendants with respect to any income earned by the
Settlement Fund for any period during which the Settlement Fund does not
qualify as a "qualified settlement fund" for Federal or state income tax
purposes and all other expenses and costs incurred in connection with the
implementation of this provision (including, without limitation, expenses
of attorneys and/or accountants incurred in connection with the preparation
of required tax filings and returns) shall be paid out of the cash portion
of the Settlement Fund. Neither Defendants, DLJ, Park. nor their counsel
shall have any liability or responsibility for taxes or tax related
expenses of the Settlement Fund.
5. On or before May 14, 1999, Lead Plaintiffs and Defendants shall
jointly move the Court for entry of the Notice Order, substantially in the
form annexed hereto as Exhibit B. Lead Plaintiffs and Defendants further
agree and stipulate, for purposes of effectuating the Settlement, to
certification of the Class pursuant to Rule 23(a) and Rule 23(b)(3) of the
Federal Rules of Civil Procedure, and to appointment of the Lead Plaintiffs
as Class Representatives.
6. Lead Plaintiffs shall conduct and complete as expeditiously as
possible, and in any event no later than twenty (20) days before the
Settlement Hearing, such additional discovery as Lead Plaintiffs, in their
sole discretion, reasonably determine is appropriate and necessary to
confirm the fairness and reasonableness of the terms of the Settlement.
Defendants, Park and DLJ will fully cooperate in said discovery by making
available such non-privileged documents and witnesses to Lead Plaintiffs
without requiring formal discovery requests or deposition notices. Nothing
herein shall require any witness to waive any privilege or immunity,
Depositions of any of the Deponents shall be conditioned upon entry of an
order by the District
Court providing that the assertion of any privilege or immunity by any
Deponent and/or a refusal
to testify or provide information based thereon shall not be used by any
party to this Settlement
Stipulation against any such Deponent in any other action or proceeding.
Regardless of whether
the District Court enters the order described in the immediately preceding
sentence, Lead
Plaintiffs reserve the right to withdraw from the Settlement in the event
such additional discovery reveals information indicating that the terms of
the Settlement are not fair and reasonable to the Class.
7. As of the Effective Date, (a) all Class Members, Park, all
current or former shareholders, officers, directors, employees, or trustees
of Park, the Champion Shareholders, the Co-Manager Underwriters on their
own behalf and on behalf of the Syndicate, all current and former
shareholders, officers, directors, employees, trustees, predecessors.
successors, insurers,
and attorneys of the Co-Manager Underwriters, and all Defendants fully,
finally, and forever
release, relinquish, and discharge all Released Claims such parties may
have against any and all
Defendants, Park, all current or former shareholders, officers, directors,
employees, or trustees of
Park, the Champion Shareholders, Champion, all former directors, officers,
and employees of
Champion, all former or current directors, officers, and employees of
Paracelsus, including Scott
Barton; the Co-Manager Underwriters and the Syndicate, and all current and
former
shareholders, officers, directors, employees, trustees, predecessors,
successors, insurers, and
attorneys of the Co-Manager Underwriters and of the Syndicate; (b)
Paracelsus, all officers,
directors, employees, and trustees of Paracelsus. Park. all officers,
directors. employees. and
trustees of Park, Champion, all officers, directors, and employees, and
trustees of Champion. and
all Defendants fully, finally, and forever release, relinquish, and
discharge any and all known and
unknown claims or causes of action of any nature, whether in contract or in
tort, that are now
recognized by law or that may be created or recognized in the future by any
law, including,
without limitation, by statute, regulation, or judicial decision, for past,
present, future, known,
and unknown losses, damages, or remedies of any kind, including but not
limited to the Released
Claims, against DLJ and all officers, directors, employees, trustees,
insurers and attorneys of
DLJ, with the exception of any claims or causes of action arising out of
any suits by bondholders
of the public offering of $325 million ten percent senior subordinated
bonds in connection with
the merger of Champion and Paracelsus; and (c) DLJ and all officers,
directors, employees and
trustees of DLJ fully, finally, and forever release, relinquish, and
discharge any and all known or
unknown claims or causes of action of any nature, whether in contract or in
tort, that are now
recognized by law or that may be created or recognized in the future by any
law, including,
without limitation, by statute, regulation, or judicial decision, for past,
present, future, known,
and unknown losses, damages, or remedies of any kind, including but not
limited to the Released
Claims against Paracelsus, all officers, directors, employees, and trustees
of Paracelsus, Park, all
officers, directors, employees, and trustees of Park, Champion, all
officers, directors, employees,
and trustees of Champion, and all Defendants, with the exception of any
claims or causes of
action arising out of any suits by bondholders of the public offering of
$325 million ten percent
senior subordinated bonds in connection with the merger of Champion and
Paracelsus. Nothing
in this paragraph shall impair rights created or preserved in the
Derivative Settlement.
8. On the Effective Date, all persons or entities providing releases
pursuant to this Settlement Stipulation expressly waive and relinquish to
the fullest extent permitted by law all provisions, rights and benefits
conferred by any law of any state or territory of the United States.
or principle of common law, which is similar, comparable or equivalent to
section 1542 of the
California Civil Code, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Although all such persons or entities may hereafter discover facts in
addition to or different from
those which he, she or it now knows or believes to be true with respect to
the subject matter of
any and all claims released in this Settlement Stipulation, all such
persons and entities upon the
Effective Date fully, finally, and forever settle and release any and all
such claims without regard
to the discovery or existence of such different or additional facts.
9. Upon the Effective Date, Lead Plaintiffs and all Class Members
who have not timely filed Requests for Exclusion assign and shall be deemed
to have assigned to Park each of the claims that they possess against
Ernst & Young LLP with respect to this matter. Park shall hold all parties
receiving releases pursuant to this Settlement Stipulation and each and
every member of the Class harmless from any liability, costs and expenses,
including legal fees, they may incur as a result of Park's pursuit of such
assigned claims against Ernst & Young LLP.
10. The parties to this Settlement Stipulation agree to the entry of
an Order and Final Judgment, substantially in the form annexed hereto as
Exhibit C, dismissing with prejudice the
claims of all Class Members who purchased or acquired Paracelsus common
stock in the initial
public offering of Paracelsus common stock. or in the aftermarket during
the Class Period, or
who owned shares of Champion stock which were converted into shares of
Paracelsus common
stock pursuant to the Exchange Offer. Such Order and Final Judgment shall
also: (a) forever bar
and enjoin, except as otherwise provided in this Settlement Stipulation,
the MOU, the Champion
MOU, and the Derivative Settlement, any person or entity from commencing.
instituting, or
prosecuting any action or other adversary proceeding any court of law or
equity, arbitration
tribunal, or administrative or any other forum, directly or
representatively, against any party to
this Settlement Stipulation and their predecessors, successors, and present
and former parents,
subsidiaries, affiliates, insurers, attorneys, directors, officers,
employees, agents, including Park,
with respect to any claims for contribution, indemnification, or other
claims that would result in
such party being required to reimburse any non-settling party for liability
incurred by the non-
settling party in connection with any or all of the Released Claims; (b)
forever bar and enjoin,
except as otherwise provided in this Settlement Stipulation, the MOU, the
Champion MOU, and
the Derivative Settlement, each Class Member, Lead Plaintiffs, and all
other parties to this
Settlement Stipulation from commencing, instituting. or prosecuting any
action or other
adversary proceeding in any court of law or equity, arbitration tribunal,
or administrative or any
other forum, directly or representatively, against any other party to this
Settlement Stipulation
and their predecessors, successors, and present and former parents,
subsidiaries, affiliates,
insurers, attorneys, directors, officers, employees, or agents, in
connection with any and all
Released Claims; and (c) approve the Settlement, including the transfer and
issuance of
Paracelsus common stock by Park and Paracelsus, as fair, reasonable, and
adequate and direct the consummation of the Settlement in accordance with
the terms of this Settlement Stipulation.
11. If, prior to the Settlement Hearing, persons or entities who
would otherwise be Class Members have filed with the Court Requests for
Exclusion. and such persons or entities in
the aggregate own more than 480,012 shares of Paracelsus common stock, then
each Defendant
and Park shall have, in their discretion, the option to terminate this
Settlement Stipulation and the
Settlement. Said option, if applicable, must be exercised in writing no
later than five (5) business
days prior to the Settlement Hearing. Lead Counsel shall deliver copies of
all Requests for
Exclusion, objections and/or statements of opposition as referenced in
Section V and VII of the
Notice to counsel for Defendants and Park no later than ten (10) days
before the Settlement Hearing.
12. If Paracelsus common stock is not continuously listed for trading
on a national stock exchange from March 24, 1999, through and including ten
(10) days prior to the Settlement
Hearing, then Lead Plaintiffs shall have, in their sole and absolute
discretion, the option to
terminate this Settlement Stipulation and the Settlement. Said option, if
applicable, must be
exercised in writing to counsel for Defendants and Park no later than five
(5) business days prior
to the Settlement Hearing.
13. If the Settlement is terminated, canceled, or rejected, or if the
Court enters the
Order and Final Judgment and it is vacated, stayed or modified, upon appeal
or otherwise, in a
material way or if the Effective Date does not otherwise occur: (a) the
Settlement Fund, except
for all amounts incurred up to $50,000 to pay Costs of Notice and
Settlement Administration,
(which shall be allocated between Paracelsus and DLJ pro rata according to
their respective cash
payments into the Settlement Fund), shall be returned to Paracelsus and DLJ
forthwith and Lead
Counsel shall immediately execute any documents necessary to effect such
return; and (b) the
parties hereto shall be deemed to have reverted to their respective status
as of the date and time
immediately prior to the execution of the MOU. and they shall proceed in
all respects as if the
Settlement Stipulation and MOU had not been executed and any related orders
had not been
entered; provided, however, all amounts withdrawn from the Settlement Fund
to pay Costs of
Notice and Settlement Administration and not repaid to Paracelsus and DLJ
pursuant to clause
(a) shall be subtracted from and offset against any eventual judgment or
recovery by Plaintiffs
and the Class in connection with any claim or demand related in any way to
the allegations set
forth in the Complaint and the judgment is or the recovery is from
Paracelsus or DLJ or any
person or entity with a right of indemnification against Paracelsus or DLJ.
14. Neither this Settlement Stipulation, including all exhibits.
orders or other
documents referred to herein; the MOU; any terms or provisions of the
Settlement Stipulation or
the MOU, including the Plan of Distribution; nor any of the negotiations or
proceedings related
to this Settlement Stipulation or the MOU, shall be:
a. construed as an admission of any sort whatsoever. by
Defendants,
Plaintiffs, or any other party to this Settlement Stipulation, relating to
any issue in this Action; or
b. offered or received in evidence in this Action or any other
action or proceeding, Judicial, administrative or otherwise), except
proceedings to enforce the Settlement.
15. On May 14, 1999, or any date thereafter requested by the Court,
Lead Plaintiffs
and Defendants shall jointly move the Court for entry of a Notice Order in
the form annexed as Exhibit B hereto.
16. If the Settlement is approved by the Court, after the Settlement
Hearing on notice, as provided by Rule 23 of the Federal Rules of Civil
Procedure. Lead Plaintiffs shall move the
Court for entry of an Order and Final Judgment in the form annexed as
Exhibit C hereto.
17. At the Settlement Hearing, Lead Plaintiffs will seek approval of
the Court to
distribute, on or after the Effective Date, the Net Settlement Fund to the
Class. in accordance
with the Plan of Distribution, the terms and conditions of which are set
forth in the Notice Order.
18. At or after the Settlement Hearing, Lead Counsel may submit a Fee
and Expense
Application for: (i) a collective award of attorneys' fees to all counsel
for plaintiffs in the Action
in a total amount of twenty-two and one-half (22.5) percent of the
Settlement Fund; plus (ii)
reimbursement of actual Out-of-Pocket Expenses and costs, including the
fees of any experts or
consultants incurred in connection with prosecuting the Action, plus any
interest on such Out-of-
Pocket Expenses and costs at the same rate and for the same periods as
earned by the Settlement
Fund. Lead Counsel reserves the right to make additional applications for
Out-of-Pocket
Expenses and costs incurred in connection with the administration of the
Settlement. Unless
requested by the Court, neither Defendants, Park, DLJ. nor any of the
Champion Shareholders
will take any position with respect to Lead Counsel's application for Fees
and Out-of-Pocket
Expenses. All Fees awarded by the Court will be paid from the Settlement
Fund in cash and
stock, in the same proportions as the cash and stock comprise the
Settlement Fund. Lead
Counsel will seek reimbursement of the Out-of-Pocket Expenses exclusively
from the cash
portion of the Settlement Fund. Any order or proceedings relating to the
Fee and Expense
Application, or any appeal from such an order, is not a material term of
the Settlement and shall
not operate to terminate or cancel the Settlement Stipulation, or affect or
delay the finality of the
Court's Order and Final Judgment approving the Settlement Stipulation and
the settlement set
forth herein. Neither a modification nor reversal on appeal of any award of
Fees and Out-of-
Pocket Expenses shall constitute grounds for cancellation or termination of
the Settlement
Stipulation.
19. The Fees and Out-of-Pocket Expenses that are awarded by the Court
shall be paid
to Lead Counsel from the Settlement Fund, as follows: (i) the cash portion
shall be paid on the
Effective Date; and (ii) the stock portion shall be paid at the same time
as the stock is distributed
to the Class. Lead Counsel shall allocate the Fees among plaintiffs'
counsel in a manner in which
Lead Counsel in good faith believes reflects the contributions of such
counsel to the prosecution
and settlement of the Action.
20. As of the Effective Date, Defendants and DLJ shall cease to have
any interest in,
or responsibility or control over the Settlement Fund. On the Effective
Date, Lead Counsel,
Paracelsus and DLJ or their successors, if applicable, shall execute
written instructions
satisfactory to Citibank to release the Settlement Fund from Escrow, to be
transferred as directed
by Lead Counsel. On and after the Effective Date, Lead Counsel shall have
sole responsibility
and authority for investment of the Settlement Fund, subject to the
supervision of the Court.
21. Lead Counsel may retain a Claims Administrator and such other
persons or organizations as may be necessary to review, assess and process
the Proofs of Claim submitted
by Class Members, subject to the supervision of the Court. None of
Defendants, Park, any
member of the Syndicate, and any of the Champion Shareholders shall have
any role in or
responsibility for review or evaluation of Proofs of Claim. In order to
receive a distribution from
the Settlement Fund, a Class Member must file a Proof of Claim in the form
and manner to be approved by the Court.
22. Neither Defendants, Park, any member of the Syndicate, any of the
Champion
Shareholders, nor counsel to any of the foregoing shall have any role in or
responsibility for the
form, substance, method or manner of administration or distribution of the
Settlement Fund to
Class Members. Each Class Member who is entitled to a distribution from the
Net Settlement
Fund shall receive such distribution in cash and stock in amounts
proportionate to the amounts of
cash and stock remaining in the overall Net Settlement Fund. Distribution
to the Class Members
shall be made in accordance with the Plan of Distribution set forth in the
Notice. All expenses
related thereto, including, without limitation, the costs of the Claims
Administrator, shall be paid
from the cash portion of the Settlement Fund. None of Defendants, Park, any
member of the
Syndicate, any of the Champion Shareholders, and counsel to any of the
foregoing shall have any
responsibility for or liability with respect to the administration or
processing of claims or the
allocation of the Settlement Fund, including, without limitation,
determinations as to the validity
of Proofs of Claim, the amounts of claims, distributions of the Net
Settlement Fund. or any loss
incurred in connection with the Escrow or the activities of the Claims
Administrator.
23. The parties hereto and their attorneys agree to cooperate fully
with one another in
seeking Court approval of this Settlement Stipulation and to use their best
efforts to consummate
the Settlement. No party to this Settlement Stipulation shall seek to evade
its good faith
obligations to seek approval and implementation of this Settlement by
virtue of any rulings,
orders, governmental report, the results of the proof of claim process or
other development,
whether in the Action or in any other litigation, or otherwise, that might
hereinafter occur and
might be deemed to alter the relative strengths of the parties with respect
to any claim or defense
or their relative bargaining power with respect to negotiating a
settlement. The parties deem this
Settlement to be fair and reasonable and have arrived at this Settlement in
arm's-length
negotiations taking into account all relevant factors, present or
potential.
24. This Settlement Stipulation shall be binding upon and inure to
the benefit of the
parties hereto and their respective heirs, executors, administrators,
successors and assigns, and
upon any corporation or other entity into or with which any party hereto
may merge or
consolidate.
25. This Settlement Stipulation shall be construed in accordance with
the laws of the State of Texas.
26. The waiver by one party of any breach of this Settlement
Stipulation by another
party shall not be deemed a waiver of any other prior or subsequent breach
of this Settlement Stipulation.
27. The foregoing, including the documents referred to herein.
constitutes the entire
agreement among the parties hereto with respect to the settlement of the
Action, and may not be
modified or amended, except in writing, signed by all parties hereto, or
their successors in
interest. Counsel may sign this Settlement Stipulation on behalf of the
parties. This Settlement
Stipulation may be executed in counterparts by any of the signatories
hereto, including by
facsimile, and as so executed shall constitute one agreement.
28. Each of the Champion Shareholders represents and warrants that
such shareholder
acquired the shares of Paracelsus common stock identified in Exhibit B to
Exhibit A annexed
hereto in the Exchange Offer and continuously owned such shares through and
including October 9, 1996. Each person executing this Settlement stipulation
represents that he or she is authorized to do so.
29. Paracelsus represents and warrants that it is unaware of any
actual or threatened
claims by noteholders arising from the public offering of $325 million ten
percent senior
subordinated notes in connection with the merger of Champion and Paracelsus
other than those
that have been previously asserted in this Action and in the cases listed
in paragraph pp of this Settlement Stipulation.
30. The Court shall retain jurisdiction with respect to
implementation and
enforcement of the terms of the Settlement Stipulation, including the
allowance, disallowance, or
adjustment on equitable grounds of any claim for payment from the
Settlement Fund.
<PAGE>
31. THIS AGREEMENT has been executed this 11th day of May, 1999.
Dated: May __, 1999 BERNSTEIN LITOWITZ BERGER
& GROSSMAN LLP
By:
Daniel L. Berger, Esq.
Counsel for Lead Plaintiffs and the Class
Dated: May __, 1999 PARACELSUS HEALTHCARE CORPORATION
By:
Andrew B. Weissman, Esq.
WILMER, CUTLER & PICKERING
Counsel for Paracelsus
Dated: May __, 1999 MANFRED G. KRUKEMEYER
By:
Jean Frizzel, Esq.
GIBBS & BRUNS, L.L.P.
Counsel for Krukemeyer
Dated: May, __, 1999 R.J. MESSENGER
By:
Steven M. Pesner, P.C.
AKIN, GUMP, STRAUSS, HAUER
& FELD, L.L.P.
Counsel for Messenger
<PAGE>
Dated: May __, 1999 JAMES T. RUSH
By:
Richard H. Borow, Esq.
IRELL & MANELLA, LLP
Counsel for Rush
Dated: May __, 1999 CHARLES MILLER AND JAMES
VANDEVENDER
By:
Robert F. Watson, Esq.
LAW, SNAKARD & GAMBILL
Counsel for Miller and VanDevender
Dated: May __, 1999 PARK-HOSPITAL, GmbH
By:
L. Joseph Loveland
Donald Harvey
KING & SPALDING
Counsel for Park
Dated: May __, 1999 THE CHAMPION SHAREHOLDERS
By:
Brian S. Rosen, Esq.
WEIL GOTSHAL & MANGES LLP
Counsel for the Champion Shareholders,
As set forth in Exhibit __ annexed hereto
<PAGE>
Dated: May__, 1999 THE CO-MANAGER UNDERWRITERS
By:
Gerard G. Pecht, Esq.
FULBRIGHT & JAWORSKI L.L.P.
Counsel for the Co-Manager Underwriters,
On their own behalf and on behalf of the
Syndicate
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
) Master File No.
IN RE PARACELSUS CORP. )
SECURITIES LITIGATION )
) H-96-3464 (EW)
)
JAMES G. CAVEN, derivatively on behalf of )
Champion Healthcare Corporation, a Delaware )
Corporation, and alternatively on behalf of )
himself and all others similarly situated, )
)
Plaintiff, )
)
vs. )
)
CHARLES R. MILLER, JAMES G. )
VANDEVENDER, RONALD R. )
PATTERSON, MANFRED GEORGE )
KRUKEMEYER, R.J. MESSENGER, )
JAMES T. RUSH, PARACELSUS )
HEALTHCARE CORPORATION, )
a California corporation, PARK-HOSPITAL )
GmbH, a German corporation, )
)
Defendants. )
)
)
And )
)
PARACELSUS HEALTHCARE )
CORPORATION, a California corporation, )
CHAMPION HEALTHCARE )
CORPORATION, a Delaware corporation, )
)
Nominal Defendants. )
)
SETTLEMENT AGREEMENT
<PAGE>
This Settlement Agreement is made and entered into this 17th day of March
1999, by and between James G. Caven and Robert Orovitz, derivatively on
behalf of Champion Healthcare Corporation and double derivatively on behalf
of Paracelsus Healthcare Corporation; Paracelsus Healthcare Corporation;
the former shareholders of Champion Healthcare Corporation identified in
the list attached as Exhibit A (the "Champion Shareholders"); Park-Hospital
GmbH, a German corporation; Donaldson Lufkin and Jenrette Securities
Corporation; Bears Stearns & Co.; Smith Barney, Inc.; and ABN AMRO Chicago
Corporation; Manfred George Krukemeyer; Charles R. Miller; James G.
VanDevender; Ronald R. Patterson; R.J. Messenger; James T. Rush; Robert C.
Joyner; Michael D. Hofmann; Christian A. Lange; and Scott K. Barton, acting
by and through their respective undersigned counsel.
IN CONSIDERATION OF THE PREMISES AND MUTUAL COVENANTS HEREIN
CONTAINED, the parties agree as follows:
1. DEFINITIONS
1.1 "Champion" means Champion Healthcare Corporation, a Delaware
corporation.
1.2 "Paracelsus" means Paracelsus Healthcare Corporation, a California
corporation.
1.3 "Plaintiffs" means James G. Caven and Robert Orovitz, in their
derivative capacity on behalf of Champion.
1.4 "Released Individual" means Manfred George Krukemeyer, Charles R.
Miller, James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T.
Rush, Robert C. Joyner, Michael D. Hofmann, Christian A. Lange, or Scott K.
Barton.
1.5 "Released Individuals" means Manfred George Krukemeyer, Charles R.
Miller, James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T.
Rush, Robert C. Joyner, Michael D. Hofmann, Christian A. Lange, and Scott
K. Barton.
1.6 "Former Champion Management Member" means Charles R. Miller, James G.
VanDevender, or Ronald R. Patterson. "Former Champion Management Member"
shall have the same meaning as the term "Executive" defined in the Senior
Executive MoU.
1.7 "Former Champion Management Members" means Charles R. Miller, James G.
VanDevender, and Ronald R. Patterson. "Former Champion Management Members"
shall have the same meaning as the term "Executives" defined in the Senior
Executive MoU.
1.8 "Former Paracelsus Management Member" means R.J. Messenger, James T.
Rush, or Robert C. Joyner.
1.9 "Former Paracelsus Management Members" means R.J. Messenger, James T.
Rush, and Robert C. Joyner.
1.10 "Park" means Park-Hospital GmbH.
1.11 "DLJ" means Donaldson, Lufkin and Jenrette Securities Corporation;
Bear, Stearns & Co., Inc.; Smith Barney, Inc.; and ABN AMRO Chicago
Corporation, on their own behalf and on behalf of the other members of the
underwriting syndicate for the public offering of Paracelsus stock in
conjunction with the Champion/Paracelsus merger.
1.12 "Settling Party" means Plaintiffs, Champion, Paracelsus, Park, the
Champion Shareholders, DLJ, Manfred George Krukemeyer, Charles R. Miller,
James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T. Rush,
Michael D. Hofmann, Christian A. Lange, Robert C. Joyner, or Scott K.
Barton.
1.13 "Settling Parties" means Plaintiffs, Champion, Paracelsus, Park, the
Champion Shareholders, DLJ, Manfred George Krukemeyer, Charles R. Miller,
James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T. Rush,
Michael D. Hofmann, Christian A. Lange, Robert C. Joyner, and Scott K.
Barton.
1.14 "Related Parties" means a person's or entity's present, former, or
future employees, officers, directors, partners, principals, parents,
subsidiaries, affiliates, agents, attorneys, heirs, personal or legal
representatives, predecessors, successors, or assigns.
1.15 "Litigation" means collectively (i) the shareholder actions filed in
California state court under the captions GAONKAR V. PARACELSUS, ET AL.,
No. BC 158899 (Cal. Super. Ct., Los Angeles Cty.), and PRESCOTT V.
PARACELSUS, ET AL., No. BC 158979 (Cal. Super. Ct., Los Angeles Cty.); (ii)
the shareholder small claims suit filed in South Orange County Municipal
Court in California under the caption HUTCHENS V. PARACELSUS, ET AL., No.
SC38166; (iii) the shareholder action filed in Texas state court under the
caption ESSEX IMPORTS V. PARACELSUS, ET AL., No 96-51864 (Harris Cty. Dist.
Ct.); (iv) the shareholder actions that are pending in the United States
District Court for the Southern District of Texas consolidated under the
caption IN RE PARACELSUS CORP. SEC. LITIG., Master File No. H-96-3464 (EW)
(S.D. Tex.) (the "Consolidated Class Action"); (v) the shareholder
derivative actions that are pending in the United States District Court for
the Southern District of Texas under the captions CAVEN V. MILLER, No. H-
96-CV-4291 (EW) (S.D. Tex.), and OROVITZ V. MILLER, No. H-97-2752 (EW)
(S.D. Tex.) (the "Derivative Actions"); (vi) the shareholder action pending
in the Delaware Chancery Court under the caption MOLINARI V. MILLER, ET
AL., C.A. No. 14945 (Del. Ch. Ct., New Castle Cty.); and (vii) any other
litigation or investigatory proceedings arising from the merger of
Paracelsus and Champion and the related public offerings.
1.16 "Released Claims" shall mean and include any and all claims, causes of
action, suits, demands, rights, liabilities, damages, losses, fees, costs,
or expenses, including, however described or nominated, but not limited to,
claims for negligence, gross negligence, professional negligence, breach of
duty of care, breach of duty of candor, and/or breach of duty of loyalty,
fraud, breach of fiduciary duty, malpractice, breach of contract, negligent
misrepresentation, corporate waste, mismanagement, unjust enrichment,
violations of any state or federal statutes, rules or regulations and any
Unknown Claims as defined below, that have been or could have been asserted
by any Settling Party, directly, derivatively or otherwise, against any
other Settling Party arising out of, relating to, or in connection with any
of the facts, circumstances, allegations, claims, causes of action,
representations, statements, reports, disclosures, transactions, events,
occurrences, acts, omissions, or failures to act, of whatever kind or
character whatsoever, irrespective of the state of mind of the actor
performing or omitting to perform the same, alleged in any pleading,
amended pleading, argument, complaint, amended complaint, brief, motion,
report, or filing in the Litigation except for the Excluded Claims as
defined below. Released Claims also include any and all rights of
Paracelsus to seek repayment of the amounts paid for the benefit of the
Released Individuals for liability, reasonable costs and expenses,
including reasonable attorneys' fees, costs, and expenses incurred through
the Effective Date in connection with the Litigation and related matters.
1.17 "Unknown Claims" means any claim that any Settling Party did not
suspect to exist in his, her, or its favor on the Effective Date that, if
known to him, her, or it, might have affected his, her, or its settlement
with and release of some or all of the Settling Parties, or might have
affected his, her, or its decision not to object to this Settlement
Agreement.
1.18 "Excluded Claims" means (i) any and all claims arising out of breaches
of this Settlement Agreement, including but not limited to those matters
referenced in paragraph 7.1, and the Park/Champion Settlement; (ii) any and
all claims arising after the Effective Date for indemnification or
advancement of costs for any claim brought by Paracelsus against any
Released Individual for which such Released Individual would have been
entitled to indemnification under the insurance policies released in paragraph
7.2 hereof; (iii) any and all claims arising after the Effective Date for
breaches of any joint defense agreement in connection with the Litigation
and related matters; (iv) any and all claims arising from the Senior
Executive MoU, as amended by this Settlement Agreement; and (v) any and all
claims for indemnification of reasonable costs and expenses, including
reasonable attorneys' fees incurred before the Effective Date in connection
with the Litigation and related matters, except for any such claims by or
against DLJ.
1.19 "Effective Date" means the first business day ten (10) days after all
the conditions set forth in paragraph 7.11 of this Settlement Agreement have
been fully satisfied.
1.20 "Class MoU" means the Memorandum of Understanding, dated March __,
1999, setting forth the terms of settlement in the Consolidated Class
Action.
1.21 "Park/Champion Settlement" means that certain settlement agreement
between the Champion Shareholders, Park, Dr. Manfred G. Krukemeyer, and
Paracelsus, dated March __, 1999, a copy of which is attached as Exhibit B.
1.22 "Senior Executive MoU" means the Memorandum of Understanding, dated
November 25, 1998, between Paracelsus Healthcare Corporation and Charles R.
Miller, James G. VanDevender, and Ronald R. Patterson, a copy of which is
attached as Exhibit C.
1.23 "Notice" means the Notice of Pendency of Class and Derivative Actions,
Proposed Settlement of Class and Derivative Actions, Settlement Hearings,
and Right to Appear, in a form to be mutually agreed on by all parties.
1.24 "Record Date" means the date on which the Court enters an order
preliminarily approving the settlement set forth in this Settlement
Agreement.
1.25 "Settlement Hearing" means the hearing to be held by the Court to
consider final approval of the settlement pursuant to Rule 23.1 of the
Federal Rules of Civil Procedure.
1.26 The terms "Additional Payment," "Additional Payment Contribution,"
"Sale of the Company," and "Bonus Payment Date" shall be defined as
provided in the Senior Executive MoU.
2. SETTLEMENT PURPOSES ONLY
This Settlement Agreement is for settlement purposes only, and
notwithstanding anything else in this Agreement, each of the Released
Individuals, Park, Paracelsus, and DLJ denies any wrongdoing, fault,
violation of law, or liability of any kind whatsoever. Neither the fact
of, nor any provision contained in, this Agreement, nor any action taken
hereunder, shall constitute, be construed as, or be admissible in evidence
as an admission in any proceeding (judicial, administrative, or otherwise)
of any claim or any fact of any wrongdoing, fault, violation of law, or
liability of any kind on the part of any Released Individual, Park,
Paracelsus, or DLJ.
3. SETTLEMENT PROVISIONS SPECIFIC TO PARK
AND MANFRED GEORGE KRUKEMEYER
3.1 The Park/Champion Settlement is hereby incorporated by reference. The
Released Individuals who are not parties to the Park/Champion Settlement do
not, by virtue of their agreement hereto, agree to the terms of the
Park/Champion Settlement, even though it is incorporated by reference into
this Settlement Agreement.
3.2 Park's transfer of 9.865 million shares of Paracelsus common stock as
provided in the Park/Champion Settlement is made on behalf and for the
benefit of Park and Dr. Manfred G. Krukemeyer.
3.3 As provided in paragraph VIII.B. of the Park/Champion Settlement,
effective upon the transfer of shares from Park to the Champion
Shareholders pursuant to paragraph I.A. of the Park/Champion Settlement,
Paracelsus and the Champion Shareholders hereby assign to Park any and all
claims or causes of action that Paracelsus and the Champion Shareholders
may have against its independent accountants arising from the work that the
independent accountants performed in connection with the merger of Champion
and pre-merger Paracelsus and in connection with any and all services that
the independent accountants provided to Paracelsus before the merger. In
connection with such assignment, Park shall hold Paracelsus and all other
parties receiving releases in this Agreement (including all Released
Individuals), the Park/Champion Settlement, and the settlement of the
Consolidated Class Action harmless from any liability, costs, and expenses,
including reasonable legal fees, they may incur as a result of Park's
pursuit of such assigned claims and causes of action. In addition, to the
extent Paracelsus or any of the other parties held harmless by Park are
required to pay amounts to the independent accountants in connection with
such assigned claims and causes of action, Paracelsus and such other
parties may at their option require that any recovery due Park from the
independent accountants be reduced by such amounts.
3.4 As of the Effective Date, Paracelsus releases Dr. Manfred G.
Krukemeyer from any and all obligations, contractual or otherwise, arising
out of or in any way related to any undertaking to repay reasonable costs
advanced or to be advanced by or on behalf of Paracelsus in connection with
the Litigation and related matters, and Paracelsus agrees that all
reasonable costs and expenses, including reasonable attorneys' fees, costs
and expenses incurred by Dr. Krukemeyer before the Effective Date (and paid
or to be paid by Paracelsus) in connection with the Litigation and related
matters shall not be subject to a claim for repayment. Such undertakings
specifically include, but are not limited to, any express or implied
undertaking that may be included in: (i) the November 18, 1996 Letter of
Undertaking executed on behalf of Dr. Manfred G. Krukemeyer; (ii) the
Indemnity and Insurance Coverage Agreement, dated August 16, 1996, between
Dr. Manfred G. Krukemeyer and Paracelsus; (iii) Paracelsus's articles of
incorporation or bylaws; (iv) California law; or (v) Texas law.
3.5 Park and Dr. Manfred G. Krukemeyer agree to take no position with
respect to an application by Plaintiffs' counsel for an award of attorneys'
fees not in excess of two million dollars ($2,000,000.00) plus
reimbursement of reasonable and necessary expenses.
4. SETTLEMENT PROVISIONS SPECIFIC TO THE FORMER
PARACELSUS MANAGEMENT MEMBERS, CHRISTIAN A. LANGE,
MICHAEL D. HOFMANN, AND SCOTT K. BARTON
4.1 As of the Effective Date, each Former Paracelsus Management Member and
Paracelsus mutually release each other from any and all obligations,
contractual or otherwise, either party may have now or in the future
arising out of or in any way related to Paracelsus's Supplemental Executive
Retirement Plan, effective January 1, 1996, as amended (the "SERP"), or any
other retirement plan, except that Paracelsus shall make payments to Joyner
of $59,780.84 due April 1, 1999; $58,907.62 due July 1, 1999; and $42,323.
91 due October 1, 1999, arising under paragraph 3 of the Agreement, dated June
12, 1997, between Paracelsus and Robert C. Joyner (the "Joyner Agreement"),
as modified herein.
4.2 As of the Effective Date, R.J. Messenger and Paracelsus mutually
release each other from any and all obligations, contractual or otherwise,
arising out of or in any way related to the Employment Agreement, dated
July 17, 1996, between R.J. Messenger and Paracelsus, including, but not
limited to, Paracelsus's obligation to pay R.J. Messenger a base salary and
annual performance bonuses and to provide him with any long-term incentive
or other benefits and any obligations arising out of the Management Rights
Agreement, and such Employment Agreement shall terminate. R.J. Messenger
shall not exercise, pledge, hypothecate, or otherwise use as security, or
transfer, convey, sell, trade, assign, or otherwise dispose of the Value
Options and Market Options described in paragraph 3(c) of the Employment
Agreement, dated July 17, 1996, between R.J. Messenger and Paracelsus. As
of the Effective Date, the Value Options and Market Options described in
paragraph 3(c) of the Employment Agreement, dated July 17, 1996, between R.J.
Messenger and Paracelsus without further action shall be released and
canceled and such options shall terminate.
4.3 R.J. Messenger and Paracelsus shall not terminate the Letter
Agreement, dated April 11, 1997, between R.J. Messenger and Paracelsus
before the Effective Date. As of the Effective Date, R.J. Messenger and
Paracelsus mutually release each other from any and all obligations,
contractual or otherwise, arising out of or in any way related to such
Letter Agreement and such Letter Agreement shall terminate.
4.4 As of the Effective Date, the Former Paracelsus Management Members,
Christian A. Lange, and Michael D. Hofmann release any and all rights each
of them has or may have arising out of or in any way related to the
Indemnity and Insurance Coverage Agreements, dated August 16, 1996, between
him and Paracelsus and such agreements shall terminate and their provisions
shall be null and void.
4.5 As of the Effective Date, James T. Rush and Paracelsus mutually
release each other from any and all obligations, contractual or otherwise,
arising out of or in any way related to the Consulting Agreement, dated
August 16, 1996, between Paracelsus and James T. Rush, including, but not
limited to, Paracelsus's obligation to pay James T. Rush monthly
compensation pursuant to paragraph 4 of that Consulting Agreement.
4.6 James T. Rush and Paracelsus shall not terminate the Letter Agreement,
dated April 14, 1997, between James T. Rush and Paracelsus before the
Effective Date. As of the Effective Date, James T. Rush and Paracelsus
mutually release each other from any and all obligations, contractual or
otherwise, arising out of or in any way related to such Letter Agreement
and such Letter Agreement shall terminate.
4.7 James T. Rush shall not execute, pledge, hypothecate, or otherwise use
as security, or transfer, convey, sell, trade, assign or otherwise dispose
of the 107,000 options exercisable at a price of $.01 per share he received
pursuant to the Non-Qualified Stock Option Agreement between Rush and
Paracelsus, dated August 9, 1996. As of the Effective Date, such 107,000
options without further action shall be released and canceled and such
options shall terminate.
4.8 As of the Effective Date, Paracelsus releases each Former Paracelsus
Management Member, Christian A. Lange, Michael D. Hofmann, and Scott K.
Barton from any and all obligations, contractual or otherwise, arising out
of or in any way related to any undertaking to repay reasonable costs
advanced or to be advanced by or on behalf of Paracelsus in connection with
the Litigation and related matters, and Paracelsus agrees that all
reasonable costs and expenses, including reasonable attorneys' fees, costs
and expenses incurred by these individuals before the Effective Date (and
paid or to be paid by Paracelsus) in connection with the Litigation and
related matters shall not be subject to a claim for repayment. Such
undertakings specifically include, but are not limited to, any express or
implied undertaking that may be included in: (i) the November 18, 1996
Letter of Undertaking executed on behalf of James T. Rush and Scott K.
Barton; (ii) the Settlement Agreement and Release between Paracelsus and
Scott K. Barton, dated April 14, 1997; (iii) the November 18, 1996 Letter
of Undertaking executed on behalf of R.J. Messenger; (iv) the November 18,
1996 Letter of Undertaking executed on behalf of Michael D. Hofmann; (v)
the November 18, 1996 Letter of Undertaking executed on behalf of Christian
A. Lange; (vi) the April 11, 1997 Letter Agreement between Paracelsus and
R.J. Messenger; (vii) the February 4, 1997 Letter of Undertaking executed
by Robert C. Joyner; (viii) the Indemnity and Insurance Coverage
Agreements, dated August 16, 1996, between Paracelsus and each Former
Paracelsus Management Member, Christian A. Lange, and Michael D. Hofmann;
(ix) Paracelsus's articles of incorporation or bylaws; (x) California law;
or (xi) Texas law.
4.9 Neither any Former Paracelsus Management Member nor Christian A.
Lange, or Michael D. Hofmann shall disclose to any person or entity other
than counsel or an authorized director, officer, employee, or agent of
Paracelsus any confidential business or financial information about
Paracelsus or any of its affiliates unless required by law. Neither any
Former Paracelsus Management Member nor Christian A. Lange or Michael D.
Hofmann shall waive any privilege, immunity, or right of non-disclosure,
including attorney-client privilege, belonging to Paracelsus or its
affiliates or is authorized to do so.
4.10 Except as otherwise expressly provided, this Settlement Agreement
(including any release provided hereunder) does not affect or limit any
rights under the Settlement Agreement and Release between Paracelsus and
Scott K. Barton, dated April 14, 1997.
4.11 As of the Effective Date, Robert C. Joyner and Paracelsus shall
mutually release each other from any and all obligations, contractual or
otherwise, arising out of or in any way related to the Joyner Agreement and
such agreement shall terminate, except that (a) Paracelsus shall make such
payments arising under the Joyner Agreement as provided in paragraph 4.1
hereof and (b) the releases provided in paragraphs 5 and 6 (but not the
provisions of subparagraph 6(a)) of the Joyner Agreement shall remain valid
and enforceable.
4.12 Robert C. Joyner shall not execute, pledge, hypothecate, or otherwise
use as security, or transfer, convey, sell, trade, assign or otherwise
dispose of the remaining 80,933 options exercisable at a price of $.01 per
share described in paragraph3 of the Employment Agreement, dated July 17,
1996, between with Paracelsus and Robert C. Joyner. As of the Effective
Date, such 80,933 options without further action shall be released and
canceled and such options shall terminate.
4.13 Michael D. Hofmann shall not execute, pledge, hypothecate, or
otherwise use as security, or transfer, convey, sell, trade, assign or
otherwise dispose of the 56,000 options exercisable at a price of $.01 per
share he received pursuant to the Non-Qualified Stock Option Agreement
between Hofmann and Paracelsus, dated August 9, 1996. As of the Effective
Date, such 56,000 options without further action shall be released and
canceled and such options shall terminate.
4.14 Christian A. Lange shall not execute, pledge, hypothecate, or
otherwise use as security, or transfer, convey, sell, trade, assign or
otherwise dispose of the 56,000 options exercisable at a price of $.01 per
share he received pursuant to the Non-Qualified Stock Option Agreement
between Lange and Paracelsus, dated August 9, 1996. As of the Effective
Date, such 56,000 options without further action shall be released and
canceled and such options shall terminate.
5. SETTLEMENT PROVISIONS SPECIFIC TO THE FORMER
CHAMPION MANAGEMENT MEMBERS
5.1 The Former Champion Management Members (or Executives) shall abide by
the Senior Executive MoU, which is hereby incorporated by reference, as
amended by the express provisions of this Settlement Agreement. To the
extent that any provisions or terms of the Senior Executive MoU are
inconsistent or conflict with any provisions or terms of this Settlement
Agreement, the terms and provisions of this Settlement Agreement shall
prevail; provided however, nothing in this Agreement shall be construed to
limit the scope of the form of release provided in paragraph 14 of the Senior
Executive MoU. The Released Individuals who are not parties to the Senior
Executive MoU do not, by virtue of their signatures hereto, agree to the
terms of the Senior Executive MoU, even though it is incorporated by
reference into this Settlement Agreement.
5.2 Paragraph 7 of the Senior Executive MoU is deleted. At the same time
each Former Champion Management Member relinquishes and terminates his
Value Options as provided in paragraph 6 of the Senior Executive MoU, such
Former Champion Management Member shall relinquish and terminate any rights
he may have to the Market Options described in paragraph 3(c)(ii) of his
Employment Agreement. Until such time, each Former Champion Management
Member shall not exercise, pledge, hypothecate, or otherwise use as
security or transfer, convey, sell, trade, assign, or otherwise dispose of
any rights he has to such Market Options.
5.3 Paragraph 4 of the Senior Executive MoU is deleted and all references
in the Senior Executive MoU to such paragraph 4, the Additional Payment, or
the Additional Payment Contribution are null and void. In addition, the
first sentence of paragraph 19 of the Senior Executive MoU is deleted.
Paracelsus and the Former Champion Management Members agree to modify the
Escrow Agreement, dated December 29, 1998, ("Escrow Agreement") between
them and Bank One, N.A., ("Escrow Agent"), to provide that the escrow shall
terminate on disbursement to the Former Champion Management Members of the
Salary & Bonus portions of the Deposit (as such terms are defined in Escrow
Agreement) and the delivery of the releases as provided in the Escrow
Agreement, and on such termination all remaining funds in the escrow,
including the Additional Payment Contribution and all interest accrued with
respect to any funds, shall be paid to Paracelsus.
5.4 Paragraph 16 of the Senior Executive MoU is deleted. Each Former
Champion Management Member waives any right or claim he may have to receive
any proceeds (including the distribution of moneys and redistribution of
common stock) arising from or related to settlement of the Litigation or a
settlement between Park and the Champion Shareholders; provided that, each
Former Champion Management Member does not waive any claim for indemnity or
right to be held harmless expressly arising from or not released in such
settlements. Nothing in this paragraph shall affect or limit in any way
the assignment of insurance rights provided in paragraph 7.2 hereof.
5.5 Each Former Champion Management Member waives any right or claim he
may have to receive employment benefits under paragraph 3(b) of his Employment
Agreement. Any references in the Senior Executive MoU to such paragraph 3(b)
are null and void. Nothing in this paragraph shall affect, reduce, or
diminish the amounts contributed to the Escrow Account on behalf of each
Former Champion Management Member referred to in paragraph 3 of the Senior
Executive MoU.
5.6 The first sentence of paragraph 23 of the Senior Executive MoU is
deleted. Each Former Champion Management Member agrees not to terminate
his employment with Paracelsus before the earlier of a Sale of the Company
or June 30, 1999, and, until such time, each Former Champion Management
Member shall perform his duties at the same scope and level of
responsibility as provided in his Employment Agreement, including those
duties, as applicable, described in the Management Rights Agreement.
Notwithstanding the foregoing, each Former Champion Management Member shall
be paid the funds contributed to the Escrow Account allocable to him
referred to in paragraph 3 of the Senior Executive MoU on the earlier of (i)
the Bonus Payment Date as provided in paragraph 18 of the Senior Executive MoU
or (ii) the effective date of a Sale of the Company as provided in paragraph
20 of the Senior Executive MoU. Without waiver of any rights that the
Former Champion Management Members may have under the Senior Executive MoU,
Paracelsus may terminate each Executive's employment for any reason with
effect after the Bonus Payment Date on giving 30 days' advance written
notice to such Executive. Each Executive may terminate his employment for
any reason with effect after June 30, 1999, on giving 30 days' advance
written notice to Paracelsus.
5.7 As of the Effective Date, Paracelsus releases each Former Champion
Management Member from any and all obligations, contractual or otherwise,
arising out of or in any way related to any undertaking to repay reasonable
costs advanced or to be advanced by or on behalf of Paracelsus in
connection with the Litigation and related matters, and Paracelsus agrees
that all reasonable costs and expenses, including reasonable attorneys'
fees, costs and expenses incurred by these individuals before the Effective
Date (and paid or to be paid by Paracelsus) in connection with the
Litigation and related matters shall not be subject to a claim for
repayment. Such undertakings specifically include, but are not limited to,
any express or implied undertaking that may be included in: (i) the
November 18, 1996 Letter of Undertaking executed on behalf of Charles R.
Miller, James G. VanDevender, and Ronald R. Patterson; (ii) the Indemnity
and Insurance Coverage Agreement, dated August 16, 1996, between each
Former Champion Management Member and Paracelsus; (iii) Paracelsus's
articles of incorporation or bylaws; (iv) California law; or (v) Texas law.
6. SETTLEMENT HEARING AND NOTICE
6.1 As soon as practical after the execution of this Settlement Agreement,
Plaintiffs and defendants Paracelsus, R.J. Messenger, James T. Rush,
Charles R. Miller, James G. VanDevender, Ronald R. Patterson, Manfred G.
Krukemeyer, and Park shall jointly submit the Settlement Agreement to the
Court and request the entry of a Hearing Order in a form to be mutually
agreed on by all parties, which shall:
(i) Preliminarily approve the proposed settlement set forth in this
Settlement Agreement and direct that a Settlement Hearing shall be
held to determine finally (a) whether the proposed settlement should
be approved as fair, adequate, and reasonable pursuant to Rule 23.1 of
the Federal Rules of Civil Procedure, (b) whether the terms and
conditions of the transfer of shares from Park to the Champion
Shareholders and from Paracelsus to Dr. Manfred G. Krukemeyer as
provided in the Park/Champion Settlement incorporated by reference
herein are fair as required for the exemption from registration under
Section 3(a)(10) of the Securities Act of 1933 to apply, (c) whether
judgment should be entered dismissing the Derivative Actions with
prejudice in accordance with this Settlement Agreement, (d) whether
the application for attorneys' fees and expenses by Plaintiffs'
counsel should be approved, and (e) whether a Final Order in a form to
be mutually agreed on by all parties should be entered;
(ii) Provide that Plaintiffs shall give notice of this settlement and
the Settlement Hearing (a) to all shareholders of Paracelsus as of the
Record Date by mailing a copy of the Notice by first class United
States mail to the addresses appearing on the records maintained by
Paracelsus's transfer agent for those entitled to receive notice of
this settlement and (b) to all Champion Shareholders to the extent
they are not current shareholders of Paracelsus by mailing a copy of
the Notice to their counsel, Brian S. Rosen of Weil, Gotshal & Manges,
LLP;
(iii) Direct that Plaintiffs shall consolidate mailing of the Notice
to the extent practicable with the provision of notice of the proposed
settlement of the Consolidated Class Action;
(iv) Direct Plaintiffs to cause a Summary Notice in a form to be
mutually agreed on by all parties to be published in the national
edition of THE WALL STREET JOURNAL approximately one week following
the mailing of the Notice; and
(v) Determine that the provision of notice described herein, including
the form of the Notice and the coordination or consolidation with the
provision of notice in the Consolidated Class Action satisfies the
requirements of Rule 23.1 of the Federal Rules of Civil Procedure and
Section 3(a)(10) of the Securities Act of 1933 and constitutes due and
sufficient notice of the Settlement Hearing and proposed settlement to
all persons affected by the settlement.
6.2 Paracelsus shall advance sufficient funds reasonably necessary to
provide for the administration of the preparation, printing, mailing, and
publication required in paragraph 6.1 of this Settlement Agreement; provided
however, that Plaintiffs and Plaintiffs' Counsel shall reimburse such funds
to Paracelsus in the event the conditions of paragraph 7.11 are not satisfied.
7. GENERAL SETTLEMENT PROVISIONS
7.1 Except as otherwise expressly provided, this Settlement Agreement, the
Class MoU, and any bar order entered pursuant to the terms of this
Settlement Agreement or the Class MoU are not intended to and do not create
any obligation on any Settling Party to indemnify Park or any Released
Individual nor do such agreements and orders, except as otherwise expressly
provided, in any way expand, affect, or abrogate any obligation or right
of indemnification or advancement of costs and expenses that may be owed to
Park or any Released Individual under any contract, Paracelsus's articles
of incorporation or bylaws, California law, or Texas law. Paracelsus shall
not indemnify Park, DLJ, or any Released Individual for any consideration
given in connection with this Settlement Agreement. Paracelsus shall
indemnify and hold harmless each Released Individual from and against all
liability, costs and expenses, including claims for contribution and
reasonable attorneys' fees and expenses, incurred in connection with any
claim brought by a current or former Paracelsus securities holder who (i)
either opted out or is not a member of the class in the Consolidated Class
Action and (ii) is not a party to this Settlement Agreement, arising out of
the subject matter of the Litigation or otherwise arising from the merger
of Paracelsus and Champion and the related public offerings. Paracelsus
shall also indemnify and hold harmless all Released Individuals from and
against all reasonable costs and expenses, including reasonable attorneys'
fees and expenses, (which does not include any fines, penalties,
disgorgements, or other monetary sanctions that may be imposed) in
connection with the currently pending and any other investigation or
enforcement actions by the Securities and Exchange Commission ("SEC") or
any other federal or state agency based on the subject matter of the
Litigation or otherwise arising from the merger of Paracelsus and Champion
and the related public offerings. The costs and expenses Paracelsus hereby
agrees to pay in connection with (i) SEC or other investigatory matters and
(ii) any claim brought by a current or former Paracelsus security holder
who is not a party to this Settlement Agreement and either opted out or is
not a member of the class in the Consolidated Class Action shall not be
subject to any undertaking to repay nor shall Paracelsus make any claim for
repayment thereof.
7.2 As of the Effective Date, each Released Individual assigns to
Paracelsus any rights he has arising out of or related to the National
Union Directors, Officers, and Corporate Liability Insurance Policy No.
483-79-23 and the Great American Insurance Policy No. DFX0009397, and each
Former Champion Management Member assigns to Paracelsus any rights he has
under National Union Directors, Officers, and Corporate Liability Insurance
Policy No. 482-23-95 arising out of or related to the Litigation or
otherwise arising from the merger of Paracelsus and Champion and the
related public offerings. Such assignments shall include any rights each
Released Individual may have under such insurance policies -- including any
rights under any settlement, escrow, or other agreement related to such
policies -- for costs of defense and losses incurred in connection with the
Litigation and related matters, including the value of all contract and
option rights released or canceled pursuant to this Settlement Agreement.
Each Released Individual agrees to take all reasonable steps (at
Paracelsus's reasonable request) necessary to permit Paracelsus to collect
amounts due under these polices based upon costs of settlement or losses
suffered by him. Paracelsus shall reimburse each Released Individual for
all costs and expenses, including actual lost wages and reasonable
attorneys' fees, costs and expenses, incurred pursuant to this provision.
Because the costs of settlement or losses suffered by the Released
Individuals and Paracelsus in connection with the defense and settlement of
the Litigation, including all defense costs, all cash settlement payments
in the Consolidated Class Action and the Derivative Actions, the value of
contract and option rights released and canceled, and the value of all
stock transferred, substantially exceeds the coverage amounts available
under National Union Directors, Officers, and Corporate Liability Insurance
Policy No. 483-79-23, National Union Directors, Officers, and Corporate
Liability Insurance Policy No. 482-23-95, and the Great American Insurance
Policy No. DFX0009397, the Released Individuals and Paracelsus intend that
pursuant to this assignment Paracelsus will have the right to obtain from
the insurers amounts equal to the full limits of these policies or such
other amounts as Paracelsus and the insurers may agree. In addition, each
Released Individual represents that, except as specified in this paragraph,
he has not and shall not assign any rights he may have arising out of or
relating to any of the insurance policies referred to in this paragraph.
7.3 Each Released Individual acknowledges that Paracelsus shall use
amounts received pursuant to the insurance rights assigned in paragraph 7.2
in part to fund its cash contribution to the settlement of the Consolidated
Class Action.
7.4 All of the Settling Parties agree that Plaintiffs' counsel is entitled
to, and will be awarded, their reasonable attorneys' fees and expenses in
connection with the litigation. Plaintiffs' counsel will make an
application to the Court for an award of attorneys' fees and expenses and
to establish the time, manner, and form of any such award. Paracelsus and
any party who has standing may oppose such application subject to the
limitation in paragraph 3.5 hereof. Paracelsus shall make payment of the full
amount of the award of attorneys' fees and expenses to Plaintiffs' counsel
awarded by the Court at such time and in the form and manner ordered by the
Court.
7.5 In consideration of the mutual covenants made in this Agreement and in
consideration of the contribution by DLJ of one million dollars
($1,000,000) to the settlement of the Consolidated Class Action, as of the
Effective Date, each Settling Party, as to every other Settling Party and
his, her, or its Related Parties, fully, finally, and forever settles and
releases any and all Released Claims, known or unknown, suspected or
unsuspected, contingent or non-contingent, whether or not concealed or
hidden, that now exist or heretofore have existed upon any theory of law or
equity now existing or coming into existence in the future, including, but
not limited to, conduct that is negligent, intentional, with or without
malice, or a breach of any duty, law, or rule, without regard to the
subsequent discovery or existence of such different or additional facts.
In addition, as of the Effective Date, Plaintiffs in their derivative
capacity on behalf of all Paracelsus shareholders release any and all
Released Claims, as described herein, as to each other Settling Party and
his, her, or its Related Parties. Plaintiffs shall not serve Robert C.
Joyner as a defendant in CAVEN V. ERNST & YOUNG, LLP, ET AL., No. 98-38338
(Harris Cty.) and shall dismiss all claims asserted against Joyner in such
action. In addition, all Settling Parties who are parties to the
Derivative Actions shall jointly seek the entry of a bar order in a form to
be mutually agreed on by the parties prohibiting the assertion of any
Released Claim (including claims for contribution) by any Settling Party,
any other party in the Litigation, or any shareholder in a derivative
capacity, against any other Settling Party and his, her, or its Related
Parties except as expressly provided in this Agreement, the Park/Champion
Settlement, or the Class MoU.
7.6 As of the Effective Date, each Settling Party, with respect to all
Released Claims potentially assertable against any other Settling Party and
his, her, or its Related Parties, expressly waives and relinquishes, to the
fullest extent permitted by law, the provisions, rights, and benefits of
Section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
As of the Effective Date, each Settling Party, with respect to all Released
Claims potentially assertable at any time, past or future, against any
other Settling Party and his, her, or its Related Parties, waives any and
all provisions, rights, and benefits conferred by any law of any state or
territory of the United States, or principle of common law that is similar,
comparable, or equivalent to Section 1542 of the California Civil Code.
7.7 Each Released Individual agrees that he will reasonably cooperate with
Paracelsus in connection with any formal or informal, ongoing, or future
investigation, litigation, or proceeding arising out of the subject matter
of the Litigation or otherwise arising from the merger of Paracelsus and
Champion and the related public offerings. Paracelsus shall reimburse each
Released Individual for all reasonable costs and expenses, including actual
lost wages and reasonable attorneys' fees and expenses, incurred in
connection with such cooperation. This agreement reasonably to cooperate
shall not constitute an agreement to waive any privilege or immunity.
Nothing in this Settlement Agreement shall prevent a Released Individual
from asserting any privilege or immunity. Nothing in this paragraph
prevents any Released Individual from cooperating with others in connection
with any civil, government, or other investigation, proceeding, or
litigation.
7.8 As a material inducement for each Settling Party to enter into this
Settlement Agreement, each Settling Party warrants and represents that, as
of the Effective Date, such Settling Party is not aware of any claims
against any other Settling Party that are not covered by the foregoing
releases. Such warranties and representations shall be enforceable after
the Effective Date. This paragraph shall not be construed to limit any
right of indemnity that may be held by any of the Released Individuals.
7.9 Each Settling Party warrants and represents that he, she, or it has
full authority to enter into this Settlement Agreement, to make the
releases set forth in this Settlement Agreement, and to enter into the
undertakings and obligations set forth in this Settlement Agreement. Each
Settling Party warrants and represents that he, she, or it has not assigned
his, her, or its respective claims to any other person or party. Such
warranties and representations shall be enforceable after the Effective
Date.
7.10 Each Settling Party warrants and represents that the person executing
this Settlement Agreement on his, her, or its behalf is fully authorized to
do so and that the authorized agents of each Settling Party have taken all
steps required by law or the Settling Party's bylaws to grant the signatory
said authority. In addition, each person executing this Settlement
Agreement warrants and represents that he or she is authorized to do so.
Such warranties and representations shall be enforceable after the
Effective Date.
7.11 The following constitute conditions to all obligations and releases
created and/or effected by this Settlement Agreement: (i) entry of a Final
Order in a form to be mutually agreed on by all parties dismissing with
prejudice all claims against the Settling Parties in the Derivative
Actions; (ii) entry of final orders dismissing all claims against the
Settling Parties in all other private civil actions comprising the
Litigation; (iii) receipt of any required court approval of the Settlement
Agreement, including all releases herein; (iv) receipt of any required
court approval of the proposed settlement agreement in the Consolidated
Class Action; (v) entry of final orders dismissing with prejudice all
claims in the Consolidated Class Action; and (vi) expiration of time for
appeal, or affirmance on appeal, of any order or other court action
contemplated by this paragraph 7.11.
7.12 Except as otherwise required under the Senior Executive MoU, all
disputes hereunder shall be subject to the continuing jurisdiction of the
United States District Court in which this matter is pending and which
approves of this Settlement Agreement.
7.13 Except as otherwise required under the Senior Executive MoU, if any
suit or proceeding shall be brought to enforce or interpret any provision
of this Settlement Agreement, any party hereto who prevails as to material
issues in such suit or proceeding shall be awarded that party's reasonable
attorney's fees, costs and expenses incurred in such suit or proceeding to
be paid by any party hereto against whom such prevailing party has
prevailed as to material issues therein.
7.14 Upon consummation of the transactions contemplated by this Settlement
Agreement, the August 1997 Tolling Agreement between Paracelsus, Park,
certain of the Champion Shareholders, the Released Individuals, and others
shall terminate as to Paracelsus, Park, and all Released Individuals.
7.15 All Settling Parties and their respective counsel agree to cooperate
fully and in good faith with one another (a) to complete expeditiously the
notices, forms of order, and all other documents contemplated by this
Agreement in forms mutually acceptable to all parties and (b) to seek Court
approval of this Settlement Agreement and to use their best efforts to
effect consummation of this Settlement Agreement and the settlement
provided for herein.
7.16 This Settlement Agreement shall be binding on and inure to the benefit
of all Settling Parties and their respective agents, executors,
representatives, heirs, successors, and assigns.
7.17 This Settlement Agreement may be executed in one or more counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same agreement.
7.18 This Settlement Agreement shall be construed in accordance with and
governed by the laws of the State of Texas without giving effect to any
conflict of laws provisions.
7.19 The section headings contained in this Settlement Agreement constitute
no substantive part thereof and in no way modify or affect the provisions
of this Settlement Agreement.
<PAGE>
Dated: March __, 1999 JAMES G. CAVEN AND ROBERT OROVITZ
By: ___________________________
Larry R. Veselka
SMYSER KAPLAN & VESELKA, LLP
By: ___________________________
Daniel C. Girard
GIRARD AND GREEN, LLP
By: ____________________________
David Pastor
Peter A. Lagorio
GILMAN & PASTOR
By: ____________________________
Arthur N. Abbey
ABBEY, GARDY & SQUITIERI, LLP
Counsel for Plaintiffs James G. Caven
and Robert Orovitz
Dated: March __, 1999 PARACELSUS HEALTHCARE CORPORATION
By: __________________________
Title: __________________________
<PAGE>
Dated: March __, 1999
DR. MANFRED G. KRUKEMEYER
Dated: March __, 1999
R.J. MESSENGER
Dated: March __, 1999
JAMES T. RUSH
Dated: March __, 1999
SCOTT K. BARTON
Dated: March __, 1999
CHRISTIAN A. LANGE
Dated: March __, 1999
MICHAEL D. HOFMANN
Dated: March __, 1999
ROBERT C. JOYNER
Dated: March __, 1999
CHARLES R. MILLER
Dated: March __, 1999
JAMES G. VANDEVENDER
Dated: March __, 1999
RONALD R. PATTERSON
Dated: March __, 1999 PARK-HOSPITAL GmbH
By: _______________________________
Dr. Heiner Meyer zu Losebeck
Managing Director
Dated: March __, 1999 DONALDSON, LUFKIN AND JENRETTE
SECURITIES CORPORATION,
BEAR STEARNS & CO., INC., SMITH BARNEY, INC., and ABN AMRO
CHICAGO CORPORATION
on their own behalf and on behalf of the other members of
the underwriting syndicate for the public offering of
Paracelsus Healthcare Corporation stock issued in
connection with the August 1996 merger
By: _________________________________
Gerard G. Pecht
FULBRIGHT & JAWORSKI, LLP
nsel for DLJ (as defined in the Agreement)
Dated: March __, 1999 THE CHAMPION SHAREHOLDERS
By: __________________________________
Brian S. Rosen
Weil, Gotshal & Manges LLP
Counsel for and on behalf of each of the Champion
Shareholders
