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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 March 31, 2000
Commission file number 1-12055
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 500, 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 May 15, 2000, there were outstanding 58,967,721 shares of the Registrant's
Common Stock, no stated value.
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<PAGE> 1
PARACELSUS HEALTHCARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page Reference
Form 10-Q
Forward-Looking Statements 3
- --------------------------
PART I. FINANCIAL INFORMATION
- ------
Item 1. Financial Statements-- (Unaudited)
Condensed Consolidated Balance Sheets--
March 31, 2000 and December 31, 1999 4
Consolidated Statements of Operations--
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows--
Three Months Ended March 31, 2000 and 1999 6
Notes to Interim Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market 15
Risks
PART II. OTHER INFORMATION 15
- -------
SIGNATURE 18
</TABLE>
<PAGE> 2
Forward-Looking Statements
Certain statements in this Form 10-K 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. All statements regarding the Company's expected future financial
position, results of operations, cash flows, liquidity, financing plans,
business strategy, budgets, projected costs and capital expenditures,
competitive position, growth opportunities, plans and objectives of management
for future operations and words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "may" and other similar expressions are
forward-looking statements. Such forward-looking statements are inherently
uncertain, and stockholders must recognize that actual results may differ
materially from the Company's expectations as a result of a variety of factors,
including, without limitation, those discussed below.
Factors which may cause the Company's actual results in future periods
to differ materially from forecast results include, but are not limited to:
o Competition and general economic, demographic and business conditions, both
nationally and in the regions in which the Company operates;
o Existing government regulations and changes in legislative proposals
for healthcare reform, including changes in Medicare and Medicaid
reimbursement levels;
o The ability to enter into managed care provider arrangements on acceptable
terms;
o Liabilities and other claims asserted against the Company;
o The loss of any significant customer, including but not limited to
managed care contracts;
o The ability to attract and retain qualified personnel, including
physicians;
o The continued listing of the Company's common stock on the New
York Stock Exchange;
o The Company's ability to develop and consummate an acceptable and
sustainable alternative financial structure, considering the
Company's liquidity and limited financial resources;
o The Company's ability to consummate acceptable financial arrangements,
under reasonable terms, to replace its existing interim credit facility
and off-balance-sheet receivable financing arrangement;
o The possibility that the Company may be forced to file for
protection under Chapter 11 of the Federal Bankruptcy Code or that
its creditors could file an involuntary petition seeking to place
the Company in bankruptcy.
The Company is generally not required to, and does not undertake to,
update or revise its forward-looking statements.
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in 000's)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
2000 1999
---------------- --------------------
(Unaudited) (Note 1)
Assets
Current assets:
Cash and cash equivalents.............................................. $ 13,650 $ 22,723
Restricted cash........................................................ 14,010 12,991
Accounts receivable, net............................................... 32,194 30,796
Supplies............................................................... 8,836 8,655
Income taxes receivable................................................ 6,867 6,152
Other current assets................................................... 17,492 14,212
---------- ----------
Total current assets............................................... 93,049 95,529
Property and equipment..................................................... 341,043 339,528
Less: Accumulated depreciation and amortization............................ (118,320) (113,052)
---------- ----------
222,723 226,476
Goodwill................................................................... 86,799 87,684
Other assets............................................................... 26,756 27,369
---------- ----------
Total assets....................................................... $ 429,327 $ 437,058
========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable....................................................... $ 33,078 $ 35,563
Accrued interest payable............................................... 20,697 12,598
Accrued liabilities and other.......................................... 17,093 20,426
Long-term debt in default classified as current (Note 2)............... 335,445 335,445
Long-term debt due within one year..................................... 306 654
---------- ----------
Total current liabilities.......................................... 406,619 404,686
Long-term debt............................................................. 3,634 3,685
Other long-term liabilities................................................ 22,380 23,490
Stockholders' equity (deficit):
Common stock........................................................... 216,045 215,761
Additional paid-in capital............................................. 11,821 12,105
Accumulated deficit.................................................... (231,172) (222,669)
---------- ----------
Total stockholders' equity (deficit)............................... (3,306) 5,197
---------- ----------
Total Liabilities and Stockholders' Equity (Deficit)....................... $ 429,327 $ 437,058
======== ==========
See accompanying notes.
</TABLE>
<PAGE> 4
PARACELSUS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended
March 31,
----------------- -- ------------------
2000 1999
----------------- ------------------
Net revenue................................................................ $ 95,084 $ 150,944
Costs and expenses:
Salaries and benefits.................................................... 40,700 58,965
Other operating expenses................................................. 36,159 58,085
Provision for bad debts.................................................. 6,958 12,398
Interest................................................................. 9,010 13,104
Depreciation and amortization............................................ 8,213 9,815
Restructuring costs (Note 3)............................................. 2,547 -
Unusual charges.......................................................... 1,123
----------- ----------
Total costs and expenses........................................... 103,587 153,490
----------- ----------
Loss before minority interest and income taxes............................. (8,503) (2,546)
Minority interests......................................................... - 63
------------ ----------
Loss before income taxes................................................... (8,503) (2,483)
Income tax benefit (Note 4)................................................ - (897)
------------ ----------
Net loss................................................................... $ (8,503) $ (1,586)
=========== ==========
Net loss per share - basic and assuming dilution........................... $ (0.15) $ (0.03)
=========== ==========
See accompanying notes.
</TABLE>
<PAGE> 5
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000's)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended
March 31,
--------------------------------------
2000 1999
------------------ ------------------
Cash Flows from Operating Activities:
Net loss........................................................ $ (8,503) $ (1,586)
Non-cash expenses and changes in operating assets
and liabilities............................................... 2,791 (3,824)
---------- ----------
Net cash used in operating activities............................ (5,712) (5,410)
---------- ----------
Cash Flows from Investing Activities:
Additions to property and equipment, net......................... (1,733) (5,610)
Increase in other assets, net.................................... (591) (2,644)
---------- ----------
Net cash used in investing activities............................ (2,324) (8,254)
---------- ----------
Cash Flows from Financing Activities:
Borrowings under credit facilities .............................. - 10,000
Repayments under credit facilities............................... - (1,100)
Repayments of debt, net......................................... (399) (1,535)
Deferred financing costs......................................... (638) -
---------- ----------
Net cash provided by (used in) financing activities.............. (1,037) 7,365
---------- ----------
Decrease in cash and cash equivalents............................ (9,073) (6,299)
Cash and cash equivalents at beginning of period................. 22,723 11,944
---------- ----------
Cash and cash equivalents at end of period....................... $ 13,650 $ 5,645
========== ==========
Supplemental Cash Flow Information:
Interest paid................................................. $ 911 $ 20,461
Income taxes paid............................................. $ 715 $ -
Noncash Investing Activities:
Notes receivable from sale of hospital........................ $ - $ 2,269
See accompanying notes.
</TABLE>
<PAGE> 6
PARACELSUS HEALTHCARE CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization - Paracelsus Healthcare Corporation ("PHC") was incorporated in
November 1980 for the principal purpose of owning and operating acute care and
related healthcare businesses in selected markets. PHC and its subsidiaries (the
"Company") presently operate 10 acute care hospitals with 1,287 licensed beds in
seven states, of which eight are owned and two are leased.
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with
generally accepted accounting principles for interim financial 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 a
complete set of financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. The Company's business is seasonal in
nature and subject to general economic conditions and other factors.
Accordingly, operating results for the three months ended March 31, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 1999, included in the Company's 1999 Form 10-K.
The Company incurred operating losses in the first quarter of 2000 and
the year ended December 31, 1999, and had a working capital deficit at March 31,
2000 and December 31, 1999. These matters and certain liquidity issues described
in Note 2 have raised substantial doubt as to the Company's ability to continue
as a going concern. The accompanying unaudited condensed consolidated financial
statements have been prepared assuming the Company will continue as a going
concern and contemplate the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not include further adjustments, if any, reflecting the possible
future effects on the recoverability and classification of assets or the amount
and classification of liabilities that may result from the outcome of
uncertainties discussed herein.
<PAGE> 7
Earnings Per Share - The following table sets forth the computation of basic and
diluted net loss per share (dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
----------------------- ------------------------
Numerator (a):
Net loss................................................. $ (8,503) $ (1,586)
====== ======
Denominator:
Weighted average shares used for basic
earnings per share.................................... 57,668 55,118
Effect of dilutive securities:
Employee stock options................................. - -
------ ------
Dilutive potential common shares.......................... - -
------ ------
Shares used for diluted earnings per share................. 57,668 55,118
====== ======
Net loss per share - basic assuming dilution............. $ (0.15) $ (0.03)
====== ======
</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 2.1 million shares of the Company's common stock at
a weighted average exercise price of $4.05 per share and warrants to purchase
414,906 shares at a weighted average exercise price of $9.00 per share were
outstanding during the quarter ended March 31, 2000, but were not included in
the computation of diluted EPS because the exercise price was greater than the
average market price of the common shares.
Comprehensive Loss - Comprehensive loss for the quarter ended March 31, 2000, of
$8.8 million included $284,000 of deferred compensation costs related to the
issuance of restricted stock grants under an employment agreement. Comprehensive
loss for the quarter ended March 31, 1999 equaled reported net loss.
Restricted Cash - The Company had restricted cash of $14.0 million and $13.0
million at March 31, 2000 and December 31, 1999, respectively, as collateral for
outstanding letters of credit and for payment of fees and interest related to
the commercial paper financing program and other commitments.
NOTE 2 . ISSUES AFFECTING LIQUIDITY
As previously reported in the Company's 1999 Form 10-K, on February 15,
2000, the Company did not make the interest payment of approximately $16.3
million due on the Company's $325.0 million 10% Senior Subordinated Notes (the
"Notes") due 2006, which upon the expiration of a 30-day grace period on March
16, 2000, constituted an event of default under the Note indenture.
<PAGE> 8
The Company has retained an investment banking firm and legal counsel
to review its strategic alternatives and is in discussion with the holders of
the majority of the Notes. Few holders hold the majority of the Notes, and the
Company believes the concentration will facilitate the restructuring process.
Considering the Company's limited financial resources, there can be no assurance
that the Company and the Note holders will succeed in formulating an acceptable
alternative capital structure, in which case the Note holders are entitled, at
their discretion, to accelerate all principal and interest due on the Notes.
Either as a result of successful negotiations with the Note holders or as the
result of the failure of such negotiations, the Company could file for
protection under Chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") or be
subject to an involuntary petition. A reorganization would likely result in a
significant dilution of the ownership interest of the existing holders of the
Company's common stock. There can be no assurance that a bankruptcy proceeding
would result in a reorganization of the Company rather than a liquidation. If a
liquidation or a protracted reorganization were to occur, there is a substantial
risk that there would be insufficient cash or property available for
distribution to the Company's creditors and/or the holders of the Company's
common stock.
Relating to the matters discussed above, on March 15, 2000, a
wholly-owned, second-tier subsidiary of PHC, PHC Finance, Inc., filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court for the Southern District of Texas in Houston.
The subsidiary, whose principal assets are several medical office buildings,
does not own or operate any hospital facilities, and neither PHC nor any of the
Company's hospital operating subsidiaries is a guarantor for any obligations of
PHC Finance, Inc.
Given the Company's default on the Notes and the uncertainty
surrounding the ultimate resolution of the Company's negotiations with its Note
holders, the principal amount of the Notes and certain other debt obligations
have been presented as current liabilities in the Company's condensed
consolidated balance sheet at March 31, 2000, which has resulted in a working
capital deficit of $313.6 million.
As the result of the default of interest payment on the Notes, the
Company was also in default under its interim credit facility, under which the
Company had $11.6 million in outstanding letters of credit, all of which were
fully secured by cash collateral held by the lender, and no outstanding
borrowings.
Additionally, the Company was in default with certain provisions of its
off-balance sheet commercial paper financing program, under which a wholly-owned
subsidiary of the Company had sold $32.3 million of eligible receivables as of
March 31, 2000. As a result of this default, the subsidiary is unable to sell
additional receivables under the commercial paper program. The lender of the
Company's commercial paper financing program has extended the program until May
17, 2000.
As of May 15, 2000, the Company has substantially finalized
negotiations of and expects to shortly enter into a new credit agreement with a
lending group, which will provide for a $62.0 million revolving credit and
letter of credit guaranty facility (the "Credit Facility"), expiring May 15,
2003. The Credit Facility will be used primarily to fund normal working
capital and certain capital expenditures of the Company's hospitals. The Credit
Facility will be an obligation of certain of the Company's subsidiaries and
will be secured by all patient accounts receivable and certain other assets of
the Company's hospitals and a first lien on two of its hospitals. Accordingly,
the Credit Facility will not be not an obligation of PHC. The Credit Facility
will replace the letters of credit outstanding under the interim facility and
the Company's commercial paper financing program. The outstanding letters of
credit under the Credit Facility will be secured by cash collateral held by the
lenders. Borrowings under the Credit Facility will bear interest at prime plus
1.5% or LIBOR plus 3.75% per annum and will be limited to hospitals' eligible
receivables and certain operating measurements, as defined. The Company
recorded deferred financing costs of $638,000 in connection with the
Credit Facility as of March 31, 2000.
<PAGE> 9
The Company is in a highly leveraged financial position. The lending
group's commitment to enter into the Credit Facility expires May 16, 2000.
Should the lending group's commitment expire prior to the consummation of the
Credit Facility, the Company would be required to seek an extension of such
commitment from the lending group. The Company expects it will be able to obtain
such an extension; however, there can be no assurance that the lending group
would grant such an extension. Should the Company fail to receive an extension
of the commitment for the Credit Facility from the lending group or fail to
consummate the Credit Facility, the Company would have no available credit lines
and therefore would be required to finance its cash needs from operations.
Additionally, the Company would be required to seek an extension from its lender
under its commercial paper program, which expires May 16, 2000. In the event the
commercial paper program is not extended beyond May 16, 2000, a wind down of the
program may commence with the Company's current lender retaining a significant
portion of the Company's operating cash flows until all amounts outstanding
under the commercial paper program are repaid in full. In the event of a wind
down, operating cash flows would likely be insufficient to meet the Company's
operational and capital expenditure needs.
NOTE 3 . RESTRUCTURING COSTS AND UNUSUAL CHARGES
In the three months ended March 31, 2000, the Company recorded $2.5
million of restructuring costs for professional fees incurred in connection with
its efforts to restructure the Notes. In the three months ended March 31, 1999,
the Company recorded a net unusual charge of $1.1 million related to an
executive agreement with certain of its former senior executives.
NOTE 4 . INCOME TAXES
During the fourth quarter of 1999, the Company recorded a deferred tax
valuation allowance aggregating $26.8 million to reserve the full amount of the
Company's net deferred tax assets at December 31, 1999, due to issues affecting
liquidity and related uncertainties discussed in Note 2, which, if unfavorably
resolved, would adversely affect the Company's future operations. The Company
recorded no income tax benefit in the first quarter of 2000, as the result of
recording an additional valuation allowance of $3.2 million to reserve all net
deferred tax assets generated during the current quarter. The deferred tax
valuation allowance as of March 31, 2000 totaled $78.3 million.
NOTE 5 . OPERATING SEGMENTS
There has been no material change in the Company's reportable segments
as previously reported in the Company's 1999 Form 10-K. "Same Hospitals," as a
reportable segment, consist of acute care hospitals currently owned and operated
by the Company. "All Other" is comprised of closed/sold facilities and overhead
costs. Selected segment information for the quarters ended March 31, 2000 and
1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Three Months ended
March 31, 2000
---------------------------------------
Same
Hospitals All Other Total
---------- ---------- ---------
Net revenue................................. $ 94,157 $ 927 $ 95,084
Adjusted EBITDA (a).......................... $ 13,818 $ (2,551) $ 11,267
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Three Months ended
March 31, 1999
---------------------------------------
Same
Hospitals All Other Total
---------- ---------- ---------
Net revenue.................................. $ 95,904 $ 55,040 $ 150,944
Adjusted EBITDA (a).......................... $ 17,013 $ 4,546 $ 21,559
- -------------------------------------
</TABLE>
<PAGE> 10
(a) Earnings before extraordinary charge, interest, taxes, depreciation,
amortization, restructuring costs and unusual charges ("Adjusted EBITDA")
has been included because it is a widely used measure of internally
generated cash flow and is frequently used in evaluating a company's
performance. Adjusted EBITDA is not an acceptable measure of liquidity,
cash flow or operating income under generally accepted accounting
principles and may not be comparable to similarly titled measures of other
companies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company incurred operating losses in the first quarter of 2000 and
the year ended December 31, 1999, and had a working capital deficit at March 31,
2000 and December 31, 1999. These matters and certain liquidity issues described
below have raised substantial doubt as to the Company's ability to continue as a
going concern. The accompanying unaudited condensed consolidated financial
statements have been prepared assuming the Company will continue as a going
concern and contemplate the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not include further adjustments, if any, reflecting the possible
future effects on the recoverability and classification of assets or the amount
and classification of liabilities that may result from the outcome of
uncertainties discussed herein.
ISSUES AFFECTING LIQUIDITY
As previously reported in the Company's 1999 Form 10-K, on February 15,
2000, the Company did not make the interest payment of approximately $16.3
million due on the Notes, which upon the expiration of a 30-day grace period on
March 16, 2000, constituted an event of default under the Note indenture.
The Company has retained an investment banking firm and legal counsel
to review its strategic alternatives and is in discussion with the holders of
the majority of the Notes. Few holders hold the majority of the Notes, and the
Company believes the concentration will facilitate the restructuring process.
Considering the Company's limited financial resources, there can be no assurance
that the Company and the Note holders will succeed in formulating an acceptable
alternative capital structure, in which case the Note holders are entitled, at
their discretion, to accelerate all principal and interest due on the Notes.
Either as a result of successful negotiations with the Note holders or as the
result of the failure of such negotiations, the Company could file for
protection under Chapter 11 of the Bankruptcy Code or be subject to an
involuntary petition. A reorganization would likely result in a significant
dilution of the ownership interest of the existing holders of the Company's
common stock. There can be no assurance that a bankruptcy proceeding would
result in a reorganization of the Company rather than a liquidation. If a
liquidation or a protracted reorganization were to occur, there is a substantial
risk that there would be insufficient cash or property available for
distribution to the Company's creditors and/or the holders of the Company's
common stock.
Relating to the matters discussed above, on March 15, 2000, a
wholly-owned, second-tier subsidiary of PHC, PHC Finance, Inc., filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court for the Southern District of Texas in Houston.
The subsidiary, whose principal assets are several medical office buildings,
does not own or operate any hospital facilities, and neither PHC nor any of the
Company's hospital operating subsidiaries is a guarantor for any obligations of
PHC Finance, Inc.
Given the Company's default on the Notes and the uncertainty
surrounding the ultimate resolution of the Company's negotiations with its Note
holders, the principal amount of the Notes and certain other debt obligations
have been presented as current liabilities in the Company's condensed
consolidated balance sheet at March 31, 2000, which has resulted in a working
capital deficit of $313.6 million.
<PAGE> 11
As the result of the default of interest payment on the Notes, the
Company was also in default under its interim credit facility, under which the
Company had $11.6 million in outstanding letters of credit, all of which were
fully secured by cash collateral held by the lender, and no outstanding
borrowings.
Additionally, the Company was in default with certain provisions of its
off-balance sheet commercial paper financing program, under which a wholly-owned
subsidiary of the Company had sold $32.3 million of eligible receivables as of
March 31, 2000. As a result of this default, the subsidiary is unable to sell
additional receivables under the commercial paper program. The lender of the
Company's commercial paper financing program has extended the program until May
17, 2000.
As of May 15, 2000, the Company has substantially finalized
negotiations of and expects to shortly enter into a new credit agreement with a
lending group, which will provide for a $62.0 million revolving credit and
letter of credit guaranty facility, expiring May 15, 2003. The Credit Facility
will be used primarily to fund normal working capital and certain capital
expenditures of the Company's hospitals. The Credit Facility will be an
obligation of certain of the Company's subsidiaries and will be secured by all
patient accounts receivable and certain other assets of the Company's
hospitals and a first lien on two of its hospitals. Accordingly, the
Credit Facility will not be not an obligation of PHC. The Credit Facility
will replace the letters of credit outstanding under the interim facility and
the Company's commercial paper financing program. The outstanding letters of
credit under the Credit Facility will be secured by cash collateral held by
the lenders. Borrowings under the Credit Facility will bear interest at prime
plus 1.5% or LIBOR plus 3.75% per annum and will be limited to hospitals'
eligible receivables and certain operating measurements, as defined. The
Company recorded deferred financing costs of $638,000 in connection with the
Credit Facility as of March 31, 2000.
The Company is in a highly leveraged financial position. The lending
group's commitment to enter into the Credit Facility expires May 16, 2000.
Should the lending group's commitment expire prior to the consummation of the
Credit Facility, the Company would be required to seek an extension of such
commitment from the lending group. The Company expects it will be able to obtain
such an extension; however, there can be no assurance that the lending group
would grant such an extension. Should the Company fail to receive an extension
of the commitment for the Credit Facility from the lending group or fail to
consummate the Credit Facility, the Company would have no available credit lines
and therefore would be required to finance its cash needs from operations.
Additionally, the Company would be required to seek an extension from its lender
under its commercial paper program, which expires May 16, 2000. In the event the
commercial paper program is not extended beyond May 16, 2000, a wind down of the
program may commence with the Company's current lender retaining a significant
portion of the Company's operating cash flows until all amounts outstanding
under the commercial paper program are repaid in full. In the event of a wind
down, operating cash flows would likely be insufficient to meet the Company's
operational and capital expenditure needs.
RESULTS OF OPERATIONS
The comparison of operating results to prior years is difficult given
the number of divestitures in 1999. "Same Hospitals" as used in the following
discussion, where appropriate, consist of acute care hospitals owned throughout
both periods for which comparative operating results are presented.
Results of Operations - Quarter ended March 31, 2000
compared with Quarter ended March 31, 1999
Net revenue for the quarter ended March 31, 2000, was $95.1 million, a
decrease of $55.8 million, or 37.0%, from $150.9 million for the same period in
1999. Net revenue declined by $54.0 million due to the sale of ten hospitals in
1999. The remaining decline in net revenue occurred at the Company's "Same
Hospitals," as discussed below.
<PAGE> 12
Net revenue at "Same Hospitals" for the quarter ended March 31, 2000
was $94.2 million compared to $95.9 million in 1999, a decrease of $1.7 million,
or 1.8%. The decline in net revenue was due in part to a shift in payor mix
from the traditional Medicare, Medicaid and indemnity plans to managed care,
from which the Company generally receives lower reimbursements, and to a
decline in admissions and patient days at certain hospitals as more fully
discussed below.
The Company's "Same Hospitals" experienced a 1.1% decrease in inpatient
admissions from 10,305 in the quarter ended March 31, 1999 to 10,195 in the
comparable period in 2000. Same hospital patient days decreased 4.4% from 52,824
in 1999 to 50,509 in 2000. Excluding home health visits, outpatient visits
increased 3.6% from 76,846 in 1999 to 79,585 in 2000. The decrease in admissions
and patient days was driven largely by the departure of physicians at the
Richmond, Virginia facility as the result of a revision to the licensure
standards of the hospital's medical staff. Home health visits decreased 14.4%
from 74,352 in 1999 to 63,645 in 2000 primarily due to the closure of a home
health office and the cancellation of certain home health contracts at the
Richmond facility and a general slow down of home health operations in
other markets. Excluding the Richmond facility, admissions and outpatient
visits (excluding home health) increased 0.4% and 6.9%, respectively, and home
health visits declined by 2.1%, compared to prior year quarter.
Operating expenses decreased $45.6 million from $129.4 million in the
quarter ended March 31, 1999 to $83.8 million in 2000 primarily from closed/sold
facilities. Excluding sold/closed facilities, operating expenses at Same
Hospitals increased by approximately $1.4 million from (i) an increase of $2.0
million in salaries and benefits from market driven increases in wages at
several facilities and increased overtime and contract labor due to a shortage
of nurses at certain hospitals, (ii) an increase of $700,000 in other operating
costs primarily from increased volume and patient acuity at certain facilities,
which resulted in higher supply costs, offset by (iii) a decrease in provision
for bad debt of $1.3 million due to improved collections and accounts
receivable management at selected hospitals and an increased emphasis on the
segregation of charity care from the bad debt provision.
Operating expenses (salaries and benefits, other operating expenses and
provision for bad debts), expressed as a percentage of net revenue were 88.2%
and 85.8% in 2000 and 1999, respectively. Operating expenses at "Same Hospitals"
increased to 85.3% of net revenue in 2000 from 82.3% in 1999, and operating
margins decreased to 14.7% from 17.7%, respectively. The deterioration in
operating margins resulted from the aforementioned factors.
Interest expense decreased $4.1 million from $13.1 million in the
quarter ended March 31, 1999 to $9.0 million in 2000, primarily due to the
repayment of amounts outstanding under the senior credit facility in October
1999.
Depreciation and amortization expense decreased $1.6 from $9.8 million
in the quarter ended March 31, 1999 to $8.2 million for the same period in 2000
primarily due to the sale of ten hospitals in 1999, partially offset by an
increase from additions to property and equipment.
Loss before income taxes of $8.5 million for the quarter ended March
31, 2000, included restructuring costs of $2.5 million for professional fees
incurred in connection with the Company's efforts to restructure the Notes. Loss
before income taxes of $2.5 million for the quarter ended March 31, 1999,
included a net unusual charge of $1.1 million resulting from the executive
agreement executed in November 1998.
The Company recorded no income tax benefit in the quarter ended March
31, 2000 as the result of recording an additional valuation allowance to reserve
all net deferred tax assets generated during the current quarter. Income tax
benefit of $897,000 in 1999 differed from the statutory rate due to
nondeductible goodwill amortization which was offset by a non-taxable gain
related to an executive agreement with certain of the Company's former senior
executives.
<PAGE> 13
Net loss for the quarter ended March 31, 2000 was $8.5 million, or
$0.15 per diluted share, compared to $1.6 million, or $0.03 per diluted share,
for the same period of 1999. Weighted average common and common equivalent
shares outstanding increased to 57.7 million in 2000 as compared to 55.1 million
as the result of the issuance of common shares in connection with the settlement
of litigation in September 1999.
LIQUIDITY AND CAPITAL RESOURCES
The introductory information to this Item as set forth in "Issues
Affecting Liquidity" discusses the important issues affecting the Company's
liquidity and capital resources.
Net cash used in operating activities was $5.7 million in the quarter
ended March 31, 2000, compared to $5.4 million for the same period of 1999, and
included payments of $2.5 million for professional fees related to the Note
restructuring activities, $1.0 million for the working capital settlement on the
Utah hospitals sold in 1999, $1.0 million of cash collateral on certain letter
of credit commitments, and a federal income tax payment. Net cash used in
investing activities decreased to $2.3 million during 2000, as compared to $8.3
million during 1999, and reflected a decrease in capital expenditures related to
the Year 2000 program and to facility expansion. Net cash used in financing
activities during 2000 was $1.0 million, which reflected payments on capital
lease obligations and deferred financing costs on the Credit Facility, compared
to net cash provided by financing activities of $7.4 million during 1999, which
resulted primarily from net borrowings under the senior credit facilities.
In connection with its efforts to restructure the Notes, the Company
paid $2.5 million of professional fees in the three months ended March 31, 2000.
The Company expects that future restructuring costs will be paid as incurred
from internally generated cash from operations and existing cash balances.
The Company anticipates that internally generated cash from operations,
existing cash balances and borrowings under the Credit Facility will be
sufficient to fund the hospitals' routine capital expenditures and working
capital requirements through 2000. Should the Company fail to consummate the
Credit Facility, the Company would have no available credit lines and there
can be no assurance that the Company will have sufficient resources to
finance its capital expenditure program in 2000.
LITIGATION
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There were no material changes to the information reported in the
Company's 1999 Annual Report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no other material developments in the legal
proceedings.
<PAGE> 14
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As previously reported in the Company's 1999 Form 10-K, on February 15,
2000, the Company did not make the interest payment of approximately $16.3
million due on the Company's $325.0 million 10% Senior Subordinated Notes due
2006, which upon the expiration of a 30-day grace period on March 16, 2000,
constituted an event of default under the Note indenture. The Company is
currently engaged in negotiations with the majority of the Note holders to
develop an alternative, sustainable capital structure for the Company.
As the result of the default of interest payment on the Notes, the
Company was also in default under its interim credit facility, under which the
Company had $11.6 million in outstanding letters of credit, all of which were
fully secured by cash collateral held by the lender, and no outstanding
borrowings. Additionally, the Company was in default with certain provisions of
its off-balance sheet commercial paper financing program, under which a
wholly-owned subsidiary of the Company had sold $32.3 million of eligible
receivables as of March 31, 2000. As a result of this default, the subsidiary
is unable to sell additional receivables under the commercial paper program.
The lender under the Company's commercial paper financing program extended
the program until May 16, 2000.
As of May 15, 2000, the Company has substantially finalized
negotiations of and expects to shortly enter into a new credit agreement with a
lending group, which will provide for a $62.0 million revolving credit and
letter of credit guaranty facility, expiring May 15, 2003. The Credit
Facility will replace the letters of credit outstanding under the interim
facility and the Company's commercial paper financing program.
The Company is in a highly leveraged financial position. The lending
group's commitment to enter into the Credit Facility expires May 16, 2000.
Should the lending group's commitment expire prior to the consummation of the
Credit Facility, the Company would be required to seek an extension of such
commitment from the lending group. The Company expects it will be able to obtain
such an extension; however, there can be no assurance that the lending group
would grant such an extension. Should the Company fail to receive an extension
of the commitment for the Credit Facility from the lending group or fail to
consummate the Credit Facility, the Company would have no available credit lines
and therefore would be required to finance its cash needs from operations.
Additionally, the Company would be required to seek an extension from its lender
under its commercial paper program, which expires May 16, 2000. In the event the
commercial paper program is not extended beyond May 16, 2000, a wind down of the
program may commence with the Company's current lender retaining a significant
portion of the Company's operating cash flows until all amounts outstanding
under the commercial paper program are repaid in full. In the event of a wind
down, operating cash flows would likely be insufficient to meet the Company's
operational and capital expenditure needs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
The New York Stock Exchange ("NYSE") recently notified the Company that
it no longer meets the NYSE's minimum criteria for market capitalization of not
less than $50 million and stockholders' equity of not less than $50 million. The
NYSE has given the Company until June 2, 2000 to submit a plan for bringing the
Company back into compliance with these requirements over an eighteen-month
period that commenced on April 13, 2000. The Company intends to submit such a
plan and to work with the NYSE to continue the Company's listing. The Company's
plan most likely will involve pursuing alternatives that include negotiating
with the Note holders to develop an alternative, sustainable capital structure
that may enable the Company to regain compliance. Although the Company expects
that the plan it will submit will bring the Company into compliance with the
NYSE's criteria, there can be no assurance that the NYSE will accept the
Company's plan.
<PAGE> 15
The NYSE previously informed the Company that it remained below the
NYSE's required minimum share price of $1 over a 30 trading-day period. The
Company's share price remains below the $1 level over a 30 trading-day period.
The Company has until its next annual meeting of shareholders to raise its share
price above $1.
There can be no assurance that the Company's common stock will continue
to be listed on a national securities exchange. If the Company's securities were
delisted, the delisting would have a material adverse effect on the liquidity
and trading price of the Company's securities.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibit
10.83 Employment Agreement effective March 27, 2000 between
Robert L. Smith and Paracelsus Healthcare Corporation.
27 Financial Data Schedule.
(b) Report on Form 8-K
None.
<PAGE> 16
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)
/s/ LAWRENCE A. HUMPHREY
Dated: May 15, 2000 By: ___________________________
Lawrence A. Humphrey
Executive Vice President &
Chief Financial Officer
<PAGE> 17
PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
To: Robert L. Smith
This Agreement establishes the terms of your employment with Paracelsus
Healthcare Corporation, a California corporation (the "Company") and reflects
your employment as the Company's Chief Executive Officer ("CEO").
Employment and Duties You and the Company agree to your employment
by the Company as the Company's 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
your employment under this Agreement, you
agree that you will promptly resign as an
officer and director and from all other
officer and director positions at the
Company and its subsidiaries and affiliates
which you hold at that time.
You represent as a condition to your
employment under this Agreement that you are
not subject to any agreement or understanding
with any other person which might adversely
affect your ability to perform your work as
the Company's CEO under this Agreement.
Term of Employment Your employment under this Agreement shall
begin no later than _________, 2000 (the
"Effective Date") and, unless sooner
terminated or extended, shall end on
December 31, 2001. Your employment term under
this Agreement will be automatically
extended for the period of one additional
year on December 31 of each year, beginning
with December 31, 2001 absent notice on or
before October 1 of that year from either
you or the Company not to extend such term
for an additional year. The period running
from the Effective Date to December 31, 2001
or, if extended, to the last day of the
calendar year of such extension shall be
referred to in this Agreement as your "Term".
Compensation
Base Salary The Company will pay you a monthly base
salary (the "Monthly Base Salary") while
you are employed under this Agreement, and
your initial Monthly Base Salary shall be
$35,420 per month, payable in accordance
with the Company's generally applicable
payroll practices. Future adjustments to
your Monthly Base Salary will be made in
the discretion of the Company's Option
and Compensation Committee. However, no
future adjustments will reduce your Monthly
Base Salary below $35,420 per month.
Benefits While you are employed under this
Agreement, you will be eligible to
participate in the 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. If a participant is required to
make a contribution or pay a premium to
participate in any such plan or program, the
Company will reimburse you for up to $6,000
in such contributions and premiums which
you make or pay each calendar year. In
addition, you will be entitled while
employed to the following life insurance and
disability coverages and fringe benefits:
Life Insurance. The Company will maintain
(whether through individual or group
coverage or both) for your benefit while you
are employed life insurance coverage with a
face amount equal to three times the amount
of your annualized initial Monthly Base
Salary, $1,000,000 or the face amount of
coverage which can be purchased for a
premium of no more than $6,000 a year,
whichever is less. You will have the right
to name and to change from time to time the
beneficiary or beneficiaries under such life
insurance coverage. Such life insurance
coverage 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 qualified or nonqualified deferred
compensation plan in which you may
participate, and such coverage will also be
in addition to any life insurance that you
purchase for yourself.
Health Insurance. You agree to elect COBRA
coverage under your current employer's group
health plan. The Company will reimburse you
for your COBRA premiums while your COBRA
coverage is in effect, and the Company will
provide you, your wife and your children with
a comprehensive medical insurance and dental
insurance which shall be effective when your
COBRA coverage terminates.
Long-Term Disability. lf you become disabled
(as defined in the long-term disability plan
the Company presently maintains) while you
are employed, you will be eligible to
receive disability benefits in an amount
equal to 60% of your then annualized Monthly
Base Salary. Any amount payable under any
salary continuation plan or disability or
other plan maintained by the Company, and
any amount payable to you or to your
immediate family (if timely applied for) 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 your disability
and will continue until you are no longer
disabled or, if earlier, until you reach age
65 or die, whichever comes first.
Liability Coverage. During your employment,
you will be insured under the Company's
general liability insurance policy for all
acts done by you in good faith to the same
extent as the Company insures other senior
officers of the Company.
Vacations and Holidays. You will be entitled
to five (5) weeks paid vacation time each
year, which will vest and accrue on a month
pro rata basis without an accrual limit
while you are employed and which can be
taken as reasonably agreed upon by you and
the Option and Compensation Committee. You
will be entitled to all holidays as listed
annually in the Company's official holiday
schedule.
Tax Return Preparation; Financial Advice.
The Company while you are employed will
provide you with the assistance of its
regular auditors for the preparation of your
federal and state tax returns without charge
to you. In addition, the Company will
reimburse you while you are employed up to
$5,000 per year for the reasonable costs you
actually incur for financial and estate
planning services.
Annual Physical. The Company while you are
employed will reimburse you 100% of the
reasonable costs you actually 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. Your
reimbursement for business expenses,
including travel and entertainment and
monthly country club dues, will be limited
to reasonable and necessary expenses you
actually 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 or the Board's
Audit Committee.
Annual Performance Bonus. You shall have the
opportunity while you are employed to earn
an annual performance bonus of up to 50% of
your annualized Monthly Base Salary for each
year if you achieve the specific performance
goals mutually agreed upon by you and the
Option and Compensation Committee. Your
annual performance bonus will be paid no
later than 30 days after the completion of
the annual audit on which the bonus is
based.
However, if you fail to earn an annual
performance bonus for year 2000 equal to at
least 25% of your Monthly Base Salary
actually payable for calendar year 2000, you
nevertheless shall receive a minimum bonus
for calendar year 2000, provided that your
employment has not terminated before December
31, 2000, equal to 25% of your total Monthly
Base Salary payable for the calendar year
2000.
Long-term Incentive. When your employment
begins you shall receive a restricted stock
grant of 1,300,000 shares of the Company's
common stock .
This grant shall vest either under the
general vesting rule or the special vesting
rule, whichever is more favorable to you.
Under the general vesting rule this grant
shall vest 25% (or 325,000 shares) on
January 1, 2001, 25% (or 325,000 shares) on
January 1, 2002, 25% (or 325,000 shares) on
January 1, 2003 and 25% (or 325,000 shares)
on January 1, 2004. However, under either
the general vesting rule or the special
vesting rule you shall vest on a date only
if you are still the Company's CEO on that
date. Alternatively the option grant shall
vest under the special vesting rule as
follows:
(i) If the stock price hits $ 3.50 at any
time in the first eighteen (18) months of
your employment and closes for at least ten
(10) consecutive trading days at or above $
3.50, 35% (or 455,000) of the shares shall
become vested.
(ii) If the stock price hits $ 4.50 at any
time in the first twenty four (24) months of
your employment and closes for at least ten
(10) consecutive trading days at or above $
4.50, a total of 66% (or 858,000) of the
shares shall become vested.
(iii) If the stock price hits $ 6.00 at any
time in the first thirty-six (36) months of
your employment and closes for at least ten
(10) consecutive trading days at or above $
6.00, 100% of the shares shall become vested.
If your employment is terminated by the
Company without Cause (as defined in this
Agreement) and your right to your restricted
stock is less than 50% vested, your right to
such stock shall automatically increase to
vest 50% (or 650,000 shares).
If your employment is terminated for Cause
(as defined in this Agreement), you will
forfeit all your unvested restricted stock.
If there is a change of control in the
Company as a result of a change in ownership
of thirty percent (30%) or more or a change
of three (3) or more of the members of the
Company's seven (7) member Board of Directors
(or a proportionate number of members if the
total number of members exceeds seven (7)) in
any annual term (other than a change in such
members which was approved by a majority of
the members of the Board of Directors who
were members at the beginning of such term or
which results from the death, voluntary
resignation or mandatory retirement of a
member) and your employment terminates within
the one (1) year period following such change
of control, your right to your restricted
stock will automatically vest 100%.
All of the foregoing stock figures shall be
adjusted up or down to reflect any stock
split or reverse stock split.
Finally, on each anniversary of this
Agreement, beginning on January 1, 2001, you
will be granted an additional stock option
(if you are still the Company's CEO) to
purchase 200,000 shares of the Company's
common stock (or an equivalent of that figure
if there is a stock split or reverse stock
split which increases or decreases the
current number of shares of the Company), no
stated par value, at an exercise price at the
fair market value of a share of such stock at
that time, with a term of ten (10) years.
These options become fully vested three years
after grant (if you are still the Company's
CEO).
Excise Tax. If, as a result of a change of
control, any option vesting or other
payments trigger a "golden parachute excise
tax" for you, such vesting may be delayed or
such payments may be suspended or cut back
to the extent required to avoid that tax.
Car Allowance. You shall be entitled to
receive an annual Car Allowance of $9,600,
payable per the Company's generally
applicable payroll practices.
Termination Subject to the provisions of this section,
you and the Company agree that the Company
may terminate your employment, or you may
resign, at any time with or without good
reason before the end of your Term, except
that, if you resign, you agree to provide the
Company with 90 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) act with willful disregard for the
Company's best interests; provided
however, that such act or action was not
approved by the Board;
(ii) seize an opportunity to enhance or
diversify the Company's business for
yourself instead of offering such
opportunity to the Company;
(iii) are convicted of or plead guilty or no
contest to a 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; or
(iv) violate the Company's code of conduct
or materially breach any provision of this
Agreement.
Your termination for Cause will be effective
immediately upon the Company's mailing or
transmission of notice of such termination.
However, before terminating your employment
for Cause for any reason (except for the
reason described in clause (iii)), the
Company will specify in writing to you the
nature of the act, omission, refusal, or
failure that it deems to constitute Cause and
give you 60 days after you receive such
notice to correct the situation (and thus
avoid a termination for Cause), unless the
Company agrees to extend the time for the
correction. You agree that the Board will
have the reasonable discretion to determine
whether the situation is correctable and
whether your correction is sufficient to
eliminate the basis for a termination for
Cause. If your employment is terminated for
Cause, the Company shall have no further
obligations to you under this Agreement.
Without Cause The Company may terminate your employment
under this Agreement at any time during your
Term without Cause. The termination will
take effect 60 days after the Company gives
you written notice of such termination. If
the Company terminates your employment
without Cause during your Term, the Company
shall pay you your then Monthly Base Salary
for the month in which you terminate and
shall pay you as severance pay an amount
equal to twenty-four (24) months of your
final Monthly Base Salary plus any Bonus
earned but not yet paid in one lump sum. The
Company thereafter shall have no further
obligations to you under this Agreement.
Finally, a failure by the Company to extend
your Term, or a failure by the Company to
renew or replace the surety bond described in
the next paragraph within 30 days prior to
its expiration (unless such deadline is
extended in writing by Robert L. Smith),
shall constitute a termination of your
employment by the Company without Cause.
The Company will establish a surety bond at a
mutually agreeable insurance company for an
amount of $850,000 upon execution of this
agreement to satisfy in whole or in part the
Company's obligations, if any, under this
part of this Agreement.
Resignation If you resign at any time during your Term,
the Company shall have no further
obligations to you under this Agreement.
If your employment is terminated, you shall
return within 3 business days any and all
property to the Company which you have in
your possession when your employment
terminates and any copies of any such
property.
Noncompetition You have disclosed to the Board, in writing,
and Secrecy all healthcare related interests,
investments, and business activities,
whether as proprietor, stockholder, partner,
co-venturer, director, officer, employee,
independent contractor, agent, consultant,
or in any other capacity or manner
whatsoever. You shall promptly
notify the Board, in writing, of any changes
in or additions to such interests, activities
or investments within 15 days of such change
or addition.
Without the written consent of the Board, you
may not engage in any of the following
actions during the period that is (a) prior
to your termination of employment with the
Company and (b) within two (2) years
following the termination of your employment
with the Company (the "Restricted Period"):
(i) own, either directly or indirectly, any
interest in any business that competes with
the "Primary Business" in which the Company
or any subsidiary or affiliate is engaged at
the time your employment terminates, within a
radius of 35 miles from any site, facility,
or location which is owned, managed or
operated by or affiliated with the Company or
any of its subsidiaries or affiliates,
including physician practices of any kind
(except with respect to the Company's
Baytown, Texas, facility, where such radius
shall be 5 miles). For purposes of this
Agreement, the term Primary Business shall
mean the delivery of integrated healthcare
services in markets where the Company or its
subsidiaries or affiliates own hospitals and/
or skilled nursing facilities, with the
hospital serving as the hub of the local
delivery system in conjunction with its
physical medical staff. In addition to
inpatient acute care, these services can
include (a) individual physician practices
and/ or physician based organizations such as
primary care and specialty clinics,
physician-hospital organizations or medical
service organizations, or physician medical
groups and (b) ambulatory surgery,
psychiatric services, occupational and sports
medicine centers, psychiatric after-care and
day care programs, and other diagnostic,
rehabilitative and treatment services. The
Board may modify, from time to time, the
definition of Primary Business to include any
additional business or service activity in
which the Company may engage during your Term
or to exclude any business or service in
which the Company ceases to engage;
(ii) participate or serve, either directly or
indirectly, whether as a proprietor,
stockholder, partner, co-venturer, director,
officer, agent, or in any other capacity or
manner whatsoever in any business or service
activity that competes with the Primary
Business;
(iii) directly or indirectly, solicit or
recruit any individual employed by the
Company, its subsidiaries or affiliates for
the purpose of being employed by you or by
any competitor of the Company on whose behalf
you are acting as an agent, representative or
employee, or convey any confidential
information or trade secrets regarding the
Company, its subsidiaries or affiliates to
any other person; or
(iv) directly or indirectly, influence or
attempt to influence customers of the Company
or any of its subsidiaries or affiliates to
direct their business to any competitor of
the Company.
In the event you violate any of these
noncompetition and secrecy provision, you
agree to repay any severance amount paid
pursuant to this Agreement and agree that you
shall forfeit all your outstanding stock
options held by you, except for those stock
options already vested.
You further expressly agree that the Company
will or would suffer irreparable injury if
you were to compete with the Company or any
subsidiary or affiliate in violation of this
Agreement and that the Company would by
reason of such competition be entitled to
preliminary or permanent injunctive relief in
a court of appropriate jurisdiction, and you
further consent and stipulate to the entry of
such preliminary or permanent injunctive
relief in such a court prohibiting you from
competing with the Company or any subsidiary
or affiliate of the Company in violation of
this Agreement upon an appropriate finding by
such court that you have violated this
Agreement.
You acknowledge and agree that in your
employment under this Agreement you will
occupy and will continue to occupy a position
of trust and confidence. You shall not,
except as may be required to perform your
duties under this Agreement or as required by
applicable law, until the expiration of the
Restricted Period or until such information
shall have become public other than by your
unauthorized disclosure, disclose (or
threaten to disclose) to others or use,
whether directly or indirectly, and any trade
secrets or confidential information regarding
the Company, its subsidiaries and affiliates,
and you agree that the Company would by
reason of such disclose or threatened
disclosure or other failure to comply, be
entitled to preliminary or permanent
injunctive relief in a court of appropriate
jurisdiction, and you further consent and
stipulate to the entry of such preliminary or
permanent injunctive relief in such a court
prohibiting you from disclosing any trade
secrets or confidential information in
violation of this Agreement upon an
appropriate finding by such court that you
have violated this Agreement. You agree never
to copy, and to deliver or return to the
Company, at the Company's request at any time
or upon termination or expiration of your
employment or as soon thereafter as possible,
all documents, computer tapes and disks,
records, lists, data, drawings, prints, notes
and written information furnished by the
Company, its subsidiaries or affiliates or
prepared by you during the term of your
employment by the Company, its subsidiaries
and affiliates.
You agree that you will hold in a fiduciary
capacity for the benefit of the Company and
any subsidiary and affiliate, and will not
directly or indirectly use or disclose, any
trade secret that you may have acquired
during the term of your employment under this
Agreement so long as such information remains
a trade secret. The term "trade secret" shall
mean information, including, but not limited
to, technical or nontechnical data, a
formula, a pattern, a compilation, a program,
a device, a method, a technique, a drawing, a
process, financial data, financial plans,
product plans, or a list of actual or
potential customers or suppliers that (a)
derives economic value, actual or potential,
from not being generally known to, and not
being generally readily ascertainable by
proper means by, other persons who can obtain
economic value from its disclosure or use and
(b) is the subject to reasonable efforts by
the Company and each subsidiary and affiliate
to maintain its secrecy. This provision
regarding trade secrets is intended to
provide rights to the Company which are in
addition to those rights the Company has
under the common law or applicable statutes
for the protection trade secrets.
The term "confidential information" under
this Agreement shall mean any secret,
confidential or proprietary information that
the Company or a subsidiary or an affiliate
(not otherwise included in the definition of
a trade secret under this Agreement) that has
not become generally available to the public
by the act of one who has the right to
disclose such information without violating
any right of the company or a subsidiary or
an affiliate.
You agree that your obligations under this
section are obligations which will continue
beyond the date your employment terminates.
You agree that you were separately and
adequately compensated for the obligations
described in this section, and that they
reasonably reflect the need for the Company
to protect its business interests.
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 subsidiary or affiliate 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 your obligations under
this Agreement or any or all your rights,
duties, or interests under it.
Severability lf 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.
No Other Agreements This Agreement supercedes
and replaces any and all prior agreements
and understandings regarding the terms and
conditions of your employment, and this
Agreement constitutes the entire agreement
between you and the Company with respect to
such terms and conditions.
Withholding The Company will reduce its compensatory
payments to you for withholding and FICA
taxes and any other withholdings and
contributions required by law or elected by
you.
Governing Law The laws of the State of Texas (other than
its conflict of laws provisions) govern this
Agreement.
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.
<PAGE>
lf you accept the terms of this Agreement, please sign in the space indicated
below. We encourage you to consult before signing 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:
- --------------------------------
Robert L. Smith
Dated: December___, 1999
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<RECEIVABLES> 65,882
<ALLOWANCES> 33,688
<INVENTORY> 8,836
<CURRENT-ASSETS> 93,049
<PP&E> 341,043
<DEPRECIATION> 118,320
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<CURRENT-LIABILITIES> 406,619
<BONDS> 3,634
0
0
<COMMON> 216,045
<OTHER-SE> (219,351)
<TOTAL-LIABILITY-AND-EQUITY> 429,327
<SALES> 0
<TOTAL-REVENUES> 95,084
<CGS> 0
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<LOSS-PROVISION> 6,958
<INTEREST-EXPENSE> 9,010
<INCOME-PRETAX> (8,503)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,503)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,503)
<EPS-BASIC> (0.15)
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