<PAGE> 1
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _________
Commission file number 000-22766
QUORUM HEALTH GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1406040
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
103 CONTINENTAL PLACE, BRENTWOOD, TENNESSEE 37027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(615) 371-7979
(COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
COMMON STOCK, PAR VALUE $.01
TITLE OF CLASS
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 requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $1,696,789,248 as of September 22, 1997. The number of Shares of
Common Stock outstanding as of such date was 74,269,087.
The following documents are incorporated by reference into Part III,
Items 10, 11, 12 and 13 of this Form 10-K: Registrant's definitive proxy
materials for its 1997 Annual Meeting of Stockholders.
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TABLE OF CONTENTS
Page
ITEM 1. BUSINESS............................................................1
Overview............................................................1
Business Strategy...................................................1
Owned Hospitals.....................................................5
Management Services.................................................8
Government Payment Programs........................................10
Government Regulation..............................................12
Competition........................................................15
National Purchasing Contracts......................................16
Employees and Physicians...........................................17
Professional Liability.............................................18
ITEM 2. PROPERTIES.........................................................18
ITEM 3. LEGAL PROCEEDINGS..................................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................18
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................................18
ITEM 6. SELECTED FINANCIAL DATA............................................20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.................................22
Impact of Acquisitions.............................................22
Results of Operations..............................................22
Liquidity and Capital Resources....................................25
General............................................................29
Inflation..........................................................29
Forward Looking Statements ........................................29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................30
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS...................................30
ITEM 11. EXECUTIVE COMPENSATION.............................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.....................................................30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...........................................................31
SIGNATURES...............................................................Sig-1
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PART I
ITEM 1. BUSINESS
OVERVIEW
Quorum Health Group, Inc., through its subsidiaries, owns and operates
acute care hospitals and local and regional healthcare systems throughout the
United States. At June 30, 1997 Quorum(1) owned, managed under contract or
provided consulting services to acute care hospitals in 44 states. At such date,
the Company owned and operated nineteen acute care hospitals with 4,205 licensed
beds and provided comprehensive management services to 241 hospitals with
approximately 27,641 licensed beds. During fiscal 1997, the Company had
contracts with 96 additional hospitals to provide selected consulting and
support services. Quorum's subsidiary, Quorum Health Resources, Inc., is the
largest contract manager of not-for-profit hospitals in the United States.
As discussed in more detail under "Owned Hospitals" below, Quorum
acquired 5 acute care hospitals during fiscal 1997 and one additional acute care
hospital in September 1997.
During fiscal 1997, Quorum tendered for and repurchased $97.8 million
in principal amount of its $100 million 11 7/8% Senior Subordinated Notes due
2002. Quorum also replaced its secured $600 million revolving credit facility
with an unsecured, revolving credit facility which allows Quorum to borrow,
repay and reborrow up to $850 million. At June 30, 1997 Quorum had available
$487 million under its credit facility.
BUSINESS STRATEGY
The Company's strategy is (i) to operate with integrity and in
compliance with the law, (ii) to continue to improve the financial performance
and the scope and quality of healthcare services of its owned hospitals, (iii)
to acquire additional acute care hospitals, primarily in medium-sized markets,
and to achieve additional market penetration in such markets, (iv) to utilize
the Company's network of hospital management professionals to identify strategic
hospital acquisitions and other opportunities to create networks with other
hospitals and health care providers and (v) to maintain the Company's management
contract business as an important line of business and as a source of market
knowledge and stable cash flow. The Company believes that its experience and
position as a leading provider of management services to acute care hospitals in
the United States affords it a competitive advantage in acquiring and operating
hospitals and in creating healthcare service networks in local markets.
- --------
(1) The term "Quorum" or "the Company" as used herein refers to Quorum
Health Group, Inc. and its direct and indirect subsidiaries, affiliated
partnerships and affiliated limited liability companies, unless otherwise stated
or indicated by context. The term "subsidiaries" as used herein also means
affiliated partnerships and affiliated limited liability companies.
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The Quorum Business Ethics Program
It is the Company's policy that its business be conducted in compliance
with the law. To further this objective, the Company established its Business
Ethics Program in 1995. The Program is managed and implemented on a day-to-day
basis by the Company's Vice President/Ethics & Business Conduct and her staff
who work with the Company's legal department and outside law firms who act as
special counsel to the Company, as well as other health care consultants. The
Program runs under the oversight of a management Compliance Committee made up of
the Company's Chief Executive Officer, Chief Operating Officer, General Counsel,
Vice President/Internal Audit and its Vice President/Ethics and Business
Conduct. The Program is also overseen by the Audit Committee of the Company's
Board of Directors, which reviews with management compliance with the Program,
as well as ways to strengthen the Program. The Business Ethics Program was
adopted to ensure that high standards of conduct are met in the operation of
the Company's business and to ensure that the Company has implemented policies
and procedures so that the Company's employees will act in full compliance with
all applicable laws, regulations and Company policies.
The Company first formally adopted its "Policy on Business Practices"
in 1991 as a statement of the proper standards of behavior for its employees.
Under the Business Ethics Program, the Policy, which has been revised several
times, is distributed annually to all Company employees. The Business Ethics
Program provides initial and periodic legal compliance and ethics training to
every Company employee. Under the Business Ethics Program, the Company also
reviews various areas of the Company's operations and develops and implements,
with management, policies and procedures designed to foster compliance with the
law. All employees are encouraged to report, without fear of retaliation, any
suspected legal or ethical violations to their supervisors, designated
compliance officers in the Company's hospitals and divisions or the Company's
legal department. In addition, employees may report suspected violations to a
toll-free telephone hotline, on an anonymous basis if they desire.
The Company is subject to a complex framework of federal, state and
local laws. Although the Company believes that it is in material compliance with
such laws, a determination that the Company has violated such laws, or even the
public announcement that the Company was being investigated concerning possible
violations, could have a material adverse effect on the Company. See "Government
Regulation" and "Item 3. Legal Proceedings".
Operating Strategy for Owned Hospitals
The Company believes that its management expertise, access to capital,
financial and operating systems, national purchasing strength, and educational
and training programs will enable the Company's owned hospitals to compete
successfully against other hospitals and health care providers. In addition, the
Company believes that its experience in working with physicians, hospital owners
and managed care plans enhances the ability of its owned hospitals to attract
patients and to recruit and retain physicians and other medical personnel, which
are critical to the success of any hospital.
In attempting to improve the financial performance of its owned
hospitals, the Company typically takes a number of steps to lower operating
costs and enhance revenues. Initiatives include application of purchasing
economies, enhancement of payment and accounts receivable practices,
implementation of flexible staffing plans, improved length of stay management,
and increased focus on resource consumption. The Company also generally seeks to
improve the operations of its acquired hospitals by expanding and improving the
quality of the services provided by a hospital to make it more attractive to
physicians, patients and third-party payors. The Company also recruits
additional physicians and markets the hospital's services directly to
businesses, governments, managed care organizations and others. In addition, the
Company seeks opportunities to form networks or alliances with other health care
providers in appropriate markets. These network relationships may be in the form
of purchase, joint venture, lease, management or other contracts.
Acquisition Strategy
The hospital industry continues to experience consolidation in response
to increasing competitive pressure, as well as pressure on payments from
government and private payors. Over the past several years, alternative health
care delivery systems, such as home health services, inpatient and outpatient
rehabilitation facilities, outpatient surgery and emergency and diagnostic
centers, have grown substantially, as health care providers, government agencies
and private insurance companies have sought means of providing quality health
care in a cost efficient manner. Notwithstanding these developments, the Company
believes that patients and physicians will continue to rely on acute care
hospitals as the primary source of sophisticated health care.
Continuing cost containment measures imposed by the Medicare and
Medicaid programs and by private payors over the past several years have placed
economic strains on many hospitals as they have attempted to operate within an
increasingly competitive environment. The Company believes that these pressures
have caused many acute care hospitals to consider other management and ownership
alternatives. Some sponsors of tax-exempt acute care hospitals are reassessing
their ability to provide health care as independent providers and are seeking to
align themselves with larger health systems. The Company anticipates that such
reassessments may lead owners to sell or merge a significant number of hospitals
and will create opportunities for the Company to make strategic acquisitions of
facilities.
A significant element of Quorum's strategy is to actively pursue
acquisitions of acute care hospitals because it believes that well-positioned,
efficiently managed acute care hospitals will continue to be the center of the
health care delivery system in the United States. Acquisition candidates will
typically be hospitals ranging in size from 100 to 400 beds, that are generally
located in markets that will support more than one hospital. The Company's
acquisition efforts are directed at identifying hospitals whose financial and
operating performance would be enhanced by the Company's management expertise
and
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resources. The Company is primarily interested in medium-sized markets with
population bases of between 50,000 and 500,000 people. The Company intends to
make acquisitions that will either enhance the Company's position within its
existing markets or enable it to enter into new markets consistent with its
strategic criteria. The Company's acquisitions of Doctors Hospital of Stark
County (Massillon, Ohio), Barberton Citizens Hospital (Barberton, Ohio) and
Wesley Health System (Hattiesburg, Mississippi) represent entries into such
targeted markets.
The Company intends to enter markets that are large enough to permit
the creation of medical service networks with the ability to effectively and
profitably serve patient and payor needs. The Company is primarily interested in
markets in which the ownership of one or possibly two hospitals would give the
Company sufficient market position to permit the Company to play a significant
role in the health care delivery systems in such communities. The Company's
acquisition strategy is not directed at markets in which ownership of a greater
number of hospitals is required to be an effective competitor in that market.
In certain cases, local market conditions make it desirable for
hospital owners to integrate their operations with physician groups, outpatient
centers or other medical service providers in the community. Integration of
services can enable providers to respond to payor demands for more
cost-effective care through more effective case management and more extensive
use of outpatient services. Integration also allows hospitals and physicians to
work in closer collaboration to enhance the quality of care and expand available
services, in the local market. In two cases, Mary Black Memorial Hospital
(Spartanburg, South Carolina) and ParkView Regional Medical Center (Vicksburg,
Mississippi), the Company and local physicians have consolidated the operations
of the acute care hospital and their respective practices under common
ownership.
Although the Company concentrates its acquisition efforts primarily in
medium-sized markets, attractive acquisition opportunities may also arise in
other smaller markets. These smaller market hospitals may be in proximity to one
of the Company's medium-sized markets or in a separate, independent market. The
Company's acquisition of Carolinas Hospital System-Kingstree (Kingstree, South
Carolina) and Clinton County Hospital (Frankfort, Indiana) are examples of such
smaller market purchases.
The Company believes that its nationwide network of hospital management
employees provides a competitive advantage in identifying suitable hospital
acquisition candidates and in understanding the local markets in which such
hospitals operate. The Company's experience has been that the financial
performance and prospects of hospitals within the size range and in the markets
targeted by the Company vary widely, and the Company believes that acquisition
prices will vary accordingly.
Over time, the Company's results of operations are positively affected
by acquisitions of acute care hospitals. The Company has completed acquisitions
of several acute care hospitals in recent years, and intends to pursue
additional acquisitions. There can be no assurance that the Company will be able
to realize expected operating and economic efficiencies from its recent
acquisitions or from any future acquisitions. In addition, there can be no
assurance that the Company will be able to locate suitable acquisition
candidates in the future, consummate acquisitions on favorable terms or
successfully integrate newly acquired businesses and facilities with the
Company's operations. In particular, some not-for-profit hospitals may be
unwilling to consider selling to a for-profit purchaser. Additionally, sales of
not-for-profit hospitals to for-profit buyers are coming under increasing
scrutiny by state attorneys general in a number of states. Such reviews could
result in lengthening the time required to complete
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acquisitions, and could make not-for-profit hospitals less willing to sell to
for-profit buyers. The Company has not experienced negative effects from such
reviews in prior acquisitions.
Management Services Strategy
The Company's strategy for the growth of its management services
business includes continuing to utilize its national network of hospital
employees for the generation of leads for new contract clients; targeting larger
hospitals for contract relationships; and pursuing network, managed care and
joint venture opportunities with its client hospitals, other healthcare
providers, and insurers. As the hospital industry consolidates, the demand for
the Company's management services may be affected by the reduction in the number
of independent hospitals. To minimize the effects of such consolidation, the
Company's strategy for increasing the revenue and profitability of its
management services business involves providing additional services to existing
managed hospitals, seeking appropriate fee increases, and developing and
marketing new services, in addition to obtaining new contracts.
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OWNED HOSPITALS
Acquisitions
The Company acquired its first acute care hospital in fiscal 1991. The
Company acquired three facilities in fiscal 1992 (one of which has been
divested), eleven facilities in fiscal 1994 (ten of which were acquired in a
single transaction of which five have been divested and two exchanged for two
other hospitals), three facilities in fiscal 1995, two facilities in fiscal
1996, and five facilities during fiscal 1997. In September 1997, the Company
acquired Methodist Hospital, a 211-bed acute care hospital in Hattiesburg,
Mississippi. As of September 15, 1997, the Company owned and operated twenty
hospitals. Of the Company's owned hospitals, seventeen are located in smaller or
medium-sized markets and three are located in the larger markets of Columbus,
Ohio; Las Vegas, Nevada; and Omaha, Nebraska. The Company has agreed to sell
Midlands Hospital (Omaha, Nebraska), and expects the sale will be completed in
the fall of 1997.
Operations
The Company's owned hospitals are general acute care hospitals and, as
such, offer a wide range of facilities and inpatient medical services such as
operating/recovery rooms, intensive care and coronary care units, diagnostic
services and emergency room services, as well as outpatient services such as
same-day surgery, laboratory, pharmacy and rehabilitation services and
respiratory therapy.
The Company's hospitals provide certain specialty services which differ
at each hospital, but which include cancer treatment, open heart surgery,
skilled nursing, treatment for chemical dependency and home health care
services. The Company's owned hospitals are not engaged in extensive medical
research or educational programs.
The following table sets forth certain information with respect to each
of the Company's owned hospitals as of June 30, 1997.
<TABLE>
<CAPTION>
LICENSED BEDS IN DATE OF
HOSPITAL AND LOCATION BEDS(1) SERVICE(2) ACQUISITION
- --------------------- ------- ---------- -----------
<S> <C> <C> <C>
ParkView Regional Medical Center 231 193 November 1990
Vicksburg, Mississippi(3)
Park Medical Center 404 165 February 1992
Columbus, Ohio
Flowers Hospital 400 400 June 1992
Dothan, Alabama
Desert Springs Hospital 241 241 October 1993
Las Vegas, Nevada
Macon Northside Hospital 103 103 October 1993
Macon, Georgia
Middle Georgia Hospital 119 119 October 1993
Macon, Georgia
Gadsden Regional Medical Center 346 257 December 1993
Gadsden, Alabama
Abilene Regional Medical Center 160 160 May 1994
Abilene, Texas
Medical Center Enterprise 135 117 May 1994
Enterprise, Alabama
Midlands Community Hospital 208 160 August 1994
Papillion, Nebraska
Carolinas Hospital System 424 380 February 1995
Florence, South Carolina
Carolinas Hospital System -- Lake City(4) 48 40 June 1995
Lake City, South Carolina
Lutheran Hospital of Indiana 377 357 August 1995
Fort Wayne, Indiana
Jacksonville Hospital 89 56 June 1996
Jacksonville, Alabama
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Mary Black Memorial Hospital 229 193 July 1996
Spartanburg, South Carolina (5)
Carolinas Hospital System -- Kingstree (4) 78 40 August 1996
Kingstree, South Carolina
Doctors Hospital of Stark County 162 162 November 1996
Massillon, Ohio (6)
Barberton Citizens Hospital 363 285 December 1996
Barberton, Ohio (6)
Clinton County Hospital 88 53 June 1997
Frankfort, Indiana (4)
</TABLE>
(1) Licensed beds are the number of beds for which a facility has been
licensed by the appropriate state agency regardless of whether the
beds are actually available for patient use.
(2) Beds in service are the number of beds that are readily available
for patient use.
(3) Owned by a corporation in which a Quorum subsidiary owns a 68%
interest and is the manager.
(4) Held pursuant to operating leases, each of which has an initial
term of ten years and two renewal options of five years each,
except Clinton County Hospital which provides for two renewal
options of ten years each.
(5) Owned by a limited liability company in which a Quorum subsidiary
owns an 89% interest and is the managing partner.
(6) Owned by limited liability companies in which Quorum subsidiaries
own a 95% interest and are the managing members.
Selected Operating Statistics
The following table sets forth certain operating statistics for
the Company's owned hospitals for each of the years presented. The
statistics for the year ended June 30, 1997 include a full year of
operations for fifteen hospitals and partial periods for four hospitals
acquired during such year. The statistics for the year ended June 30,
1996 include a full year of operations for twelve hospitals and partial
periods for two hospitals acquired and one hospital divested during such
year. The statistics for the year ended June 30, 1995 include a full year
of operations for ten hospitals and partial periods for three hospitals
acquired during such year. The results for the year ended June 30, 1994
include a full year of operations for four hospitals and partial periods
for nine hospitals acquired, three of which were divested or exchanged
during such year. The results for the year ended June 30, 1993 include a
full year of operations for all four of the hospitals owned by the
Company in that period.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of hospitals(1) 19 14 13 10 4
Licensed beds(1)(2) 4,205 3,281 2,909 2,229 1,041
Beds in service(1)(3) 3,481 2,691 2,368 1,796 705
Admissions(4) 119,551 94,872 73,338 55,522 26,331
Average length of stay (days) 5.6 5.8 6.2 6.0 6.4
Patient days(5) 666,353 548,772 451,501 335,807 169,669
Adjusted patient days(6) 1,046,657 830,955 665,657 480,098 254,349
Occupancy rate (licensed beds)(7) 46.8% 46.2% 47.6% 47.6% 44.7%
Occupancy rate (beds
in service)(8) 56.5% 56.2% 58.9% 61.5% 65.5%
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Gross inpatient revenue
(in thousands) $1,447,771 $1,115,363 $888,811 $622,037 $239,848
Gross outpatient revenue
(in thousands) $826,279 $ 573,529 $421,582 $267,278 $119,706
</TABLE>
(1) At end of period.
(2) Licensed beds are the number of beds for which a facility has been
licensed by the appropriate state agency regardless of whether the
beds are actually available for patient use.
(3) Beds in service are the number of beds that are readily available
for patient use.
(4) Admissions represent the number of patients admitted for inpatient
treatment.
(5) Patient days represent the total number of days of patient care
provided to inpatients.
(6) Adjusted patient days have been calculated based on an
industry-accepted, revenue-based formula (multiplying actual
patient days by the sum of gross inpatient revenue and gross
outpatient revenue and dividing the result by gross inpatient
revenue) to reflect an approximation of the number of inpatients
and outpatients served.
(7) Percentages are calculated by dividing average daily census by
weighted average licensed beds.
(8) Percentages are calculated by dividing average daily census by
weighted average beds in service.
Sources of Revenue
The sources of the Company's owned hospital revenues are charges
related to the services provided by the hospitals and their staffs, such
as radiology, operating room, pharmacy, physiotherapy and laboratory
procedures, and basic charges for the hospital room and related services
such as general nursing care, meals, maintenance and housekeeping. The
Company's hospitals receive payments for health care services from (i)
the federal Medicare program, (ii) state Medicaid programs, (iii) private
health care insurance carriers, HMOs, PPOs and other managed care
programs, and self-insured employers, (iv) the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS"), and (v) patients
directly.
The following table sets forth the percentage of gross revenue
(revenue before deducting contractual adjustments, policy and charity
discounts) of the Company's owned hospitals from Medicare, Medicaid and
other sources for the periods indicated. The data for the periods
presented are not strictly comparable due to the significant effect that
acquisitions have had on the Company. See "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial
Condition".
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Medicare 47.5% 48.5% 49.8%
Medicaid 7.6% 7.5 7.4
Other sources 44.9% 44.0 42.8
----- ---- ----
Total 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
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Amounts received from certain payors, such as Medicare, Medicaid
and managed care organizations, such as HMOs and PPOs, generally are less
than the hospitals' customary charges for the services provided. Patients
are generally not responsible for any difference between customary
hospital charges and amounts paid under these programs for such services,
but are responsible to the extent of any exclusions, deductibles or
coinsurance features of their coverage. As a result of initiatives to
control health care costs, an increasing number of third-party payors are
negotiating the amounts they will pay for services performed rather than
simply paying health care providers the amounts billed.
The gross revenues of each of the Company's owned hospitals are
affected by a number of factors. Among these are inpatient occupancy
levels, the type of ancillary services and therapy programs ordered by
physicians for their hospital patients, the volume of outpatient
procedures and the charges for the services provided by the hospital.
Payment rates for inpatient routine services vary significantly depending
on the type of service (e.g., acute care, intensive care or psychiatric)
and the geographic location of the hospital. The Company has experienced
an increase in the percentage of patient revenues attributable to
outpatient services in recent years. This increase is primarily the
result of advances in technology (which allow more services to be
provided on an outpatient basis); increased pressures from Medicare,
Medicaid, HMOs, PPOs and insurers to reduce hospital stays and provide
services, where possible, on a less expensive outpatient basis and the
integration of physician practices into certain of the Company's
hospitals. The Company's experience with respect to increased outpatient
volume mirrors the trend in the hospital industry.
All of the Company's hospitals (as do most acute care hospitals)
derive a substantial portion of their revenue from the Medicare and
Medicaid programs, which pay participating health care providers for
covered services rendered and items furnished to qualified beneficiaries.
Both of these are governmental programs which are heavily regulated and
use complex methods for determining payments to providers. These programs
are subject to frequent changes which in recent years have reduced, and
in future years are expected to continue to reduce, payments to
hospitals. In light of its hospitals' high percentage of Medicare and
Medicaid patients, the Company's ability in the future to operate its
business successfully will depend in large measure on its ability to
adapt to changes in these programs. See "Government Payment Programs".
In addition, private payors, especially managed care payors, are
also attempting to reduce payments to hospitals by demanding discounted
fee structures or per diem payment rates, instituting prospective payment
or DRG-based systems or, in some cases, requiring the assumption by
health care providers of all or a portion of the financial risk through
prepaid capitation arrangements. To the extent such efforts are
successful, and to the extent that private payors fail to pay amounts
which are adequate to cover the costs of providing services to their
beneficiaries, such efforts may have a negative impact on the results of
operations of the Company's hospitals.
MANAGEMENT SERVICES
The Company's management services business consists of managing
hospitals owned by others under management contracts. In addition, the
Company offers a variety of operational and strategic consulting services
and related educational and management programs to meet the specific
needs of hospitals that may or may not be part of the Company's contract
management program. The Company attempts to focus such consulting
services on health care providers located in identified strategic
markets. During fiscal 1997, fees received by the Company's management
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services business accounted for approximately 10% of the Company's net
operating revenues.
With 241 managed hospitals as of June 30, 1997, the Company is the
largest provider of management services to acute care hospitals in the
United States. Based on industry data published in 1997, the second and
third ranked contract management organizations managed 52 and 22
hospitals, respectively. The Company believes that its industry
reputation and leading market position provide a competitive advantage in
seeking additional management contracts.
The Company provides hospital owners with a comprehensive range of
management and professional services. Upon entering into a management
contract, the Company assesses the operations of the hospital and, based
on such assessment, develops a management plan tailored to the specific
needs of the hospital. The Company annually reviews the management plan
with the hospital's governing board and prepares an annual progress
report to identify cost savings and achievements.
To implement the management plan adopted for each hospital, the
Company provides the hospital with the services of a hospital
administrator and, typically, a chief financial officer. Although the
hospital administrator and chief financial officer are employees of the
Company, such employees remain under the direction and control of the
client hospital's governing board, and the balance of the hospital staff
remain employees of the hospital, under the control and supervision of
the hospital.
The Company's hospital management team is supported by the
Company's regional and corporate management staff, which has broad
experience in managing hospitals of all sizes in diverse markets
throughout the United States. Such locations also afford the Company a
significant marketing advantage in responding to new business
opportunities because the Company's staff is knowledgeable of the
economic, demographic and regulatory factors affecting local markets. See
"Competition".
The Company's hospital management contracts generally provide for
a term of three to five years. As of the end of each of the last two
fiscal years of the Company, the rate of attrition for the management
contracts at the commencement of such period has averaged approximately
7.5% per year. Over the same period, the Company has generally been able
to offset the effects of such attrition by obtaining additional
management contracts and increasing revenue from other sources.
The Company believes that, generally, the fees paid under its
management contracts are not directly affected by hospital industry
trends. Management contract fees are based on amounts agreed upon by the
Company and the hospital's governing board and are usually not based on
census levels, payment programs, revenue of the hospital or other
variables. As the agent of the hospital's governing board, the Company is
not directly responsible for hospital licensure, liability coverage or
capital expenditures or for other functions normally the responsibility
of the governing board. The Company is not obligated to fund and is not
responsible for paying any hospital expenses. In providing its management
services, the Company is not considered a health care provider for
regulatory purposes. See "Government Regulation".
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GOVERNMENT PAYMENT PROGRAMS
The federal government provides two major health care programs:
(1) the Medicare program for the elderly and disabled, and (2) the
Medicaid program for the poor. Medicare is the health insurance component
of Social Security, while Medicaid is a program that differs considerably
from state to state.
Most hospitals, including the Company's owned hospitals, derive a
substantial portion of their revenue from the Medicare and Medicaid
programs. Both programs were enacted in 1965 and were to pay
participating hospitals for providing covered services to beneficiaries.
Legislative action and related regulations during the past thirty years
have resulted in significant changes in the way these programs pay
hospitals for services provided. In recent years most of these changes
have reduced payments to hospitals.
Medicare
Medicare is a federal health insurance program primarily designed
for individuals entitled to Social Security who are age 65 or older. The
Medicare program consists of Part A and Part B. Part A covers inpatient
hospital services and services furnished by certain others, such as
nursing homes and home health agencies. Part B covers the services of
doctors, suppliers of medical items and outpatient hospital services. The
Health Care Financing Administration ("HCFA") administers the Medicare
program through local intermediaries and carriers.
In 1983, Congress adopted a prospective payment system ("PPS") for
most Medicare routine and ancillary inpatient hospital operating costs.
Under this system, hospital discharges are classified into 495 diagnosis
related group categories (known as "DRG's"), which categorize illnesses
and injuries according to estimated intensity of hospital resources
necessary to furnish care. A hospital's DRG payment is determined by
multiplying a standard federal rate by the weight assigned to the
applicable DRG. Additional add-on payments are made for: (1) hospital
stays that are extremely costly (called outliers), (2) treating a large
number of indigent patients (called disproportionate share), and (3) the
added cost incurred as a result of residency training (called indirect
medical education).
There are two standard federal rates: one for large metropolitan
areas (population over one million) and one for all other areas. The
applicable rate is adjusted by a local "wage index", as provided by HCFA,
prior to being multiplied by the applicable DRG weight. At the beginning
of PPS, Congress intended to increase these standard amounts for
increases in the cost of the mix of goods and services used to provide
hospital care (the "Market Basket"). In practice, the DRG rate increases
have seldom matched increases in the Market Basket. In the current
Federal fiscal year ("FY") 1997, hospitals received an effective DRG rate
increase equal to Market Basket minus .7%.
The Balanced Budget Act of 1997 (the "Budget Act") provides for a
freeze in DRG rates through September 30, 1998. Over the following four
Federal fiscal years, the Budget Act calls for increases in DRG rates
equal to the Market Basket minus 1.9%, 1.8%, 1.1% and 1.1%, respectively.
The Company cannot predict how the Budget Act will affect the
profitability of its health care facilities. See "Owned Hospitals-Sources
of Revenue".
Medicare makes separate payments to hospitals for capital costs,
and since FY 1992 these payments have also been made on a PPS basis.
Capital related costs generally include depreciation, capital interest,
lease and rental expense, property taxes and insurance related to the
plant and equipment. Under this system hospitals are to transition to a
standard federal rate for capital over
10
<PAGE> 13
a ten year period. The standard federal rate for capital is used much
like the standard DRG rate described above in that the federal rate is
multiplied by the DRG weight to arrive at a predetermined payment.
Hospitals whose cost was less than the "base year" federal rate,
transition up to the federal rate over a ten year period. Hospitals whose
cost was over the "base year" federal rate, transition down to the
federal rate over a ten year period. The latter hospitals can transition
to 100% of the federal rate sooner, if they so chose. The Budget Act
provides for Medicare capital rates to be reduced in the aggregate by
approximately 15.3% beginning in FY 1998. Approximately 90% of this
reduction represents a permanent decrease in the capital payment rates.
The Budget Act also eliminates the "formula driven overpayment"
(the "FDO") for services rendered on and after October 1, 1997. The FDO
represents payments for outpatient services which were greater than those
anticipated when Medicare changed the payment methodology for such
services. The Budget Act also made numerous changes to the payment
formulas for other parts of the Medicare program in such areas as
"disproportionate share" and "bad debt" payments and payments for skilled
nursing services, psychiatric and rehabilitation units in acute care
hospitals, and home health agencies.
In general, the Company anticipates that all of the changes
resulting from the Budget Act as described above will result in lower
payments from the Medicare program. The Budget Act projects that Medicare
spending will be reduced by $116 billion over the next five years as part
of an effort to balance the Federal budget by 2002. A substantial portion
of this is achieved by reduced payments to hospitals.
Additional spending reductions may be required to balance the
Federal budget, some of which may come from the Medicare program.
Furthermore, reductions in Medicare spending, or other changes to the
program, may be required to maintain the solvency of the Medicare program
or the Social Security system as a whole. While the Company expects
further reductions in Medicare payments, it cannot predict the timing,
magnitude or effect of such reductions.
Medicaid
Medicaid funding is shared between the state and the federal
government. On the average, Medicaid funding is split evenly between the
state and the Federal government with the Federal government "matching"
state spending. Although each state must meet federal guidelines, the
states have wide latitude as it pertains to additional individuals
covered and additional benefits provided. Hospital payment methodologies
vary from state to state but most pay for inpatient services based on
DRGs and outpatient services based on a fee schedule. Generally, Medicaid
payment is less than the cost of providing the services.
States receive a significant amount of funding from the Federal
government to make payments to hospitals treating a large number of
Medicaid and indigent or low income patients. States vary in how they
distribute these funds. The Budget Act calls for a reduction of
approximately $12 billion in these payments over a five year period. The
federal government and the states continue to look for ways to reduce, or
limit increases in, Medicaid spending. The Company cannot predict what
actions the federal government or the states may take, and therefore is
unable to predict the impact on the Company of changes to the Medicaid
program. See "Owned Hospitals-Sources of Revenue" and "Government Payment
Programs-Medicare".
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<PAGE> 14
Cost Reports
The Company's facilities are required to file cost reports
annually with Medicare and Medicaid. These reports are subject to audit
and often require several years before a final settlement is reached.
Preparation of cost reports is subject to complex regulations,
administrative rulings and fiscal intermediary interpretations, all of
which change frequently. Management believes adequate provision has been
made in its financial statements for any retroactive adjustment resulting
from such final settlement. Until final settlement, however, significant
issues remain unresolved and previously determined allowances could be
more or less than ultimately required. See "Government Regulation-False
Claims."
GOVERNMENT REGULATION
The health care industry is subject to extensive governmental
regulation at the federal, state and local levels. These laws and
regulations require that hospitals meet various detailed standards
relating to the adequacy of medical care, equipment, personnel, operating
policies and procedures, maintenance of adequate records, utilization,
rate setting, compliance with building codes and environmental protection
laws, and numerous other matters. There are also extensive and complex
regulations governing a hospital's participation in government programs
such as Medicare and Medicaid. Failure to comply with applicable laws
and regulations can expose the Company to criminal penalties and civil
sanctions, and jeopardize a hospital's licensure, ability to participate
in the Medicare and Medicaid and other government programs and ability
to operate as a hospital.
In recent years there has been increased scrutiny of the health
care industry, in part due to escalating health care costs, particularly
in the Medicare program, and increasing concern over the Federal budget
deficit. The federal government and a number of states are rapidly
increasing the resources devoted to investigating allegations of fraud
and abuse in the Medicare and Medicaid programs. At the same time,
regulatory and law enforcement authorities are taking an increasingly
strict view of the requirements imposed on providers by the Social
Security Act and Medicare and Medicaid regulations.
False Claims
The Social Security Act imposes criminal and civil penalties for
willfully making false claims to Medicare and Medicaid for services not
rendered or for misrepresenting actual services rendered in order to
obtain higher payment. Careful and accurate coding and billing of claims
for payment is required in order to avoid liability under the federal
false claims statute. At the same time, the complexity of the
regulations, the dependence of hospitals on physician documentation of
medical records and the subjective judgment involved make accurate
billing difficult. Violation of the federal false claims statute may
subject a hospital to treble damages, fines of up to $10,000 per false
claim and exclusion from the Medicare and Medicaid programs. See
"Government Payment Programs-Cost Reports".
Federal and State Fraud and Abuse and Anti-Referral Laws
The Social Security Act also prohibits offering, paying,
soliciting or receiving renumeration intended to induce referrals of
patients whose care is paid for by the Medicare or Medicaid programs.
Thus, financial arrangements between hospitals and persons, such as
physicians, who are in a position to refer patients or induce the
acquisition of any goods or services paid for by the Medicare or Medicaid
programs, must comply with the "fraud and abuse" anti-kickback provisions
of the Social Security Act (the "Antifraud Amendments"). In
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<PAGE> 15
addition to felony criminal penalties (fines of up to $25,000 and
imprisonment for up to five years per referral), the Social Security Act
establishes civil monetary penalties and the sanction of excluding
violators from Medicare and Medicaid participation.
The Antifraud Amendments have been interpreted broadly by the
federal regulators and the courts to prohibit the intentional payment of
anything of value if even one purpose of the payment is to influence the
referral of Medicare or Medicaid business. Many commonplace commercial
arrangements between hospitals and physicians could be considered by the
government to violate this broad interpretation of the Antifraud
Amendments. Many states have also passed laws similar to the Antifraud
Amendments, which apply regardless of the source of payment.
Self-Referral Prohibitions
Portions of the Budget Reconciliation Act of 1993 (the "1993
Act")also affect providers who receive payments under the Medicare and
Medicaid programs. One of the provisions of the 1993 Act is known as
"Stark II", and is an expansion of the previous prohibition on
self-referral by physicians. "Stark I" prohibited physicians from
referring their Medicare patients to any clinical laboratory in which
they or any member of their immediate family had a financial interest.
"Stark II" expanded the prohibited patient base to both Medicare and
Medicaid patients, and expanded the prohibited health care service from
clinical laboratories to add a number of "designated health care
services", including home health and inpatient and outpatient hospital
services. There are certain exceptions in the 1993 Act for, among other
things, prepaid health plans and ownership by a referring physician of an
investment interest in an entire hospital, as opposed to ownership of a
subdivision or department of a hospital. Currently, physicians hold
ownership interests in two of the Company's hospitals. To date, no
regulations have been promulgated interpreting "Stark II". Sanctions for
violating "Stark I" or "Stark II" include civil money penalties up to
$15,000 per prohibited service provided, assessments equal to 200% of the
dollar value on each such service provided and exclusion from the
Medicare and Medicaid programs. In addition to the federal prohibition,
many states have enacted similar anti-self-referral statutes applicable
to all patient referrals, including private pay patients, as well as
Medicare and Medicaid patients.
Although the Company exercises care in an effort to conduct its
business in compliance with all applicable laws and to structure its
arrangements with health care providers to comply with the Antifraud
Amendments and Stark I and II, there can be no assurance that such laws
will ultimately be interpreted in a manner consistent with the practices
of the Company. The Company could be materially adversely affected if it
were to be found in violation of the false claims act, the Antifraud
Amendments or "Stark I/Stark II". See "Business Strategy-The Quorum
Business Ethics Program" and "Item 3. Legal Proceedings".
Health Insurance Portability and Accountability Act of 1996
The Health Insurance Portability and Accountability Act of 1996
("HIPPA") became law in August 1996. The new law includes a number of
amendments or supplements to the Antifraud Amendments. It also contains
provisions relating to portability of health insurance coverage and
limitations on preexisting condition exclusions. Most of the provisions
of HIPPA became effective January 1, 1997.
HIPPA is intended to enhance federal health care law enforcement
by creating and funding three new health care fraud and abuse enforcement
programs: The Fraud and Abuse Control Program, The Medicare Integrity
Program and the Beneficiary Incentive Program. The Fraud and Abuse
Control Program calls for the
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<PAGE> 16
coordination of federal, state and local authorities to control fraud and
abuse with respect to not only Medicare and Medicaid but, for the first
time, with respect to private health insurance plans as well. The
Medicare Integrity Program directs the Department of Health and Human
Services ("HHS") to enter into separate contracts with private entities
to carry out certain fraud and abuse detection activities.
Through the Beneficiary Incentive Program, HIPPA authorizes the
Secretary of HHS to provide payments to individuals who (i) report
information leading to the imposition of civil monetary penalties under
the fraud and abuse laws or (ii) make suggestions that result in Medicare
and Medicaid program savings. Under HIPPA, health care fraud, now defined
as knowingly and willfully executing or attempting to execute a "scheme
or device" to defraud any health care benefit program, is made a federal
criminal offense. In addition, for the first time, federal enforcement
officials will have the ability to exclude from Medicare and Medicaid any
investors, officers and managing employees associated with business
entities that have committed health care fraud, even if the investor,
officer or employee had no knowledge of the fraud. HIPPA also establishes
a new violation for the payment of inducements to Medicare and Medicaid
beneficiaries in order to influence those beneficiaries to order or
receive services from a particular provider or practitioner. HIPPA also
required HHS to establish a national health care fraud and abuse data
collection program. This program will collect reports of final adverse
actions (including civil, criminal, license and certification sanctions
and any other publicly available negative findings) against health care
providers, suppliers or licensed practitioners. Governmental agencies and
private plans will both report and have access to the information
collected by the program. Also, HIPAA requires the Secretary of HHS to
issue advisory opinions with respect to whether particular transactions
violate the Medicare and Medicaid anti-kickback laws.
Certificate of Need Laws
State certificate of need laws, which vary from state to state,
may place limitations on a hospital's ability to expand services, add new
equipment, or construct new facilities. However, the Company has not
experienced, and does not expect to experience, any material adverse
effects from state certificate of need requirements or from the
imposition, elimination or relaxation of such requirements. See
"Competition".
Hospital Licensing
Hospitals are subject to periodic inspection by federal, state and
local authorities in order to determine their compliance with applicable
regulations and standards. Such compliance must be demonstrated to
maintain licensure and to participate as a certified health care provider
in the Medicare and Medicaid programs. All of the Company's owned
hospitals are licensed under appropriate state laws and are certified to
participate in the Medicare program. In addition, it is a policy of the
Company that all its owned hospitals apply for accreditation by the
appropriate accreditation body, such as the Joint Commission on
Accreditation of Healthcare Organizations or the American Osteopathic
Association. All of the Company's owned hospitals are so accredited with
the exception of Carolinas Hospital Systems-Lake City and -Kingstree,
which are in the process of applying for accreditation in early 1998.
Accreditation indicates that a hospital meets certain minimum standards
and generally satisfies the applicable health and administrative
standards for Medicare certification, although accreditation is not
required to obtain Medicare certification.
The Company believes that its owned hospitals are in substantial
compliance with current federal, state, local and independent review body
regulations and
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<PAGE> 17
standards. However, these requirements are subject to administrative and
judicial interpretation and legislative change, and it may be necessary
for the Company to effect changes in its facilities, equipment, personnel
and services in order to remain qualified. Although the Company intends
to continue to maintain its licensure and certifications, there can be no
assurance that its owned hospitals will be able to comply with all future
requirements or that failure to so comply would not adversely affect the
Company.
COMPETITION
Owned Hospitals
The hospital industry is highly competitive. Moreover, competition
among hospitals and other health care providers for patients and
physicians has intensified in recent years as hospital occupancy rates
have declined in the United States as a result of cost containment
pressures from both government and private payors, changing technology,
changes in government regulation, changes in practice patterns (e.g.,
shifting from inpatient to outpatient treatments) and other factors.
These changes have led to significant unused inpatient hospital capacity.
New competitive strategies of hospitals and other health care providers
place increasing emphasis on the use of alternative health care delivery
systems (such as home health services, outpatient surgery and emergency
and diagnostic centers) that eliminate or reduce lengths of hospital
stays. In some cases, these strategies include the use of larger regional
facilities that employ equipment and services more specialized than those
available at the Company's owned hospitals. The Company expects that
these competitive trends will continue, and may intensify.
The areas served by the Company's hospitals are also served by
other hospitals or facilities that provide inpatient or outpatient
services similar to those offered by the Company's hospitals. In some
cases, competing hospitals are more established, better equipped or offer
a wider range of services than those of the Company or have financial
resources greater than those of the Company. In addition, certain
competing hospitals are owned by tax-supported government agencies or by
tax-exempt, not-for-profit corporations that may be supported by
endowments and charitable contributions.
The competitive position of a hospital may also be affected by its
ability to negotiate service contracts with managed care organizations,
including HMOs and PPOs, and employees. These organizations attempt to
direct and control the use of hospital services through managed care
programs and discounts from established charges. The Company's owned
hospitals are generally located in less developed managed care markets,
but all currently have contracts with HMOs and PPOs.
The number and quality of the physicians on a hospital's staff is
an important factor in providing a competitive advantage to a hospital
because physicians direct the majority of hospital admissions and
services. Admitting physicians are usually on the medical staffs of
several hospitals in an area; therefore, the Company attempts to attract
its physicians' patient referrals to the Company's hospital by offering
quality services, current technological capabilities, convenient
location, quality facilities and equipment, and participation in payor
contracts.
The Company believes that its hospitals compete within local
markets on the basis of many factors, including the quality of care,
ability to attract and retain qualified physicians, location, breadth of
services and technology offered
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<PAGE> 18
and prices charged. The Company's competition ranges from large
multi-facility companies to small single-hospital owners and may be
investor-owned or non-profit. The Company's hospitals must also compete
with the services available at outpatient surgery and diagnostic centers,
physicians' offices and other alternative delivery sites.
State certificate of need laws, which place limitations on a
hospital's ability to expand hospital services and to add new equipment
without regulatory approval, may have the effect of restricting
competition. The application process for approval of covered services,
facilities, changes in operations and capital expenditures is, therefore,
highly competitive. In those states that do not have a certificate of
need law or that set relatively high levels of expenditures before such
expenditures become reviewable by state authorities, competition in the
form of new services, facilities and capital spending is more prevalent.
With the exception of Texas and Indiana, each of the states in
which the Company owns hospitals has certificate of need requirements,
and the Company may acquire hospitals in other states having such
requirements. The Company has not experienced, and does not expect to
experience, any material adverse effects from state certificate of need
requirements or from the imposition, elimination or relaxation of such
requirements. See "Government Regulation".
Management Services
In seeking management services, hospitals have various
alternatives to those offered by the Company and other hospital
management companies. Hospitals managed by hospital management companies
represent less than 10% of the total acute care hospitals in the United
States, primarily because most hospitals have their own management staff.
Some hospitals choose to obtain management services from the many large,
tertiary care facilities that create referral networks with smaller
surrounding hospitals.
NATIONAL PURCHASING CONTRACTS
As a result of its management and consulting contracts with
hospitals throughout the United States, the Company has many
opportunities to provide a wide range of national purchasing arrangements
with various vendors of medical supplies, equipment, pharmaceuticals and
certain services. The collective buying power of the Company's managed
hospitals has allowed many of such hospitals to benefit from these
arrangements through volume discounts, rebates and other cost savings.
The Company's owned hospitals also benefit from similar savings. In some
cases the Company has the opportunity to earn administrative fees from
vendors in return for the Company's group purchasing activities. The
Company annually notifies each managed hospital of any administrative
fees the Company receives under its purchasing contracts as a result of
the hospital's purchases.
During fiscal 1996, the Company entered into a five-year
purchasing alliance with Premier, Inc. ("Premier"), formerly APS Health-
care Systems, a for-profit corporation which provides group purchasing
and other services to its clients. The purchasing alliance combines the
purchasing power of the Company's owned and managed facilities with the
purchasing power of the more than 1,700 hospitals affiliated with the
Premier program. The increased purchasing power has created opportunities
for reductions in the prices of hospital supplies, equipment, and
pharmaceuticals to the Company's hospitals. Under the Premier purchasing
alliance, the Company has agreed to use Premier as its exclusive national
group purchasing organization. The Company received $6.9 million in
administrative fees from Premier with respect to calendar year 1996
supply purchases. Pursuant to an amendment entered into in June 1997,
Premier has agreed to pay the Company an annual administrative fee of
$6.4 million if the amount
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<PAGE> 19
paid by the Company's owned and managed hospitals for products purchased
through the purchasing alliance satisfies a minimum threshold. The
minimum threshold is $400 million for 1997 and escalates 10% annually.
The administrative fee is adjusted proportionately for purchases above or
below the threshold.
EMPLOYEES AND PHYSICIANS
As of June 30, 1997, the Company's owned facilities employed
approximately 17,000 employees. As of such date, the Company had 118
employees on its corporate staff and approximately 817 employees
providing hospital management and consulting services. The Company's
employees are not represented by any labor union, with the exception of
approximately 360 registered nurses at Desert Springs Hospital and
approximately 215 employees at Barberton Citizens Hospital who are
covered by union contracts. The Company believes that its relations with
its employees are generally good.
Physicians on the medical staffs of the Company's hospitals are
generally not employees of the Company, however, a small number of
physicians, have been historically employed by, or have contracted with,
the Company primarily to staff emergency rooms, to provide certain
ancillary services and to serve in administrative capacities, such as
directors of special services. Recently, the Company also has employed
physicians, primarily primary care physicians, in selected markets. In
addition, physicians are employees of the entities formed by the
consolidations of two of the Company's hospitals with physician practices
in their respective markets.
Members of the medical staffs of the Company's hospitals often
also are members of the medical staffs of hospitals not owned by the
Company and each may terminate his or her affiliation with a Company
hospital at any time. Generally, a patient is admitted to a hospital only
at the request of a member of the hospital's medical staff. Medical staff
members, including physicians employed by the Company, have sole
discretion over where to admit their patients.
PROFESSIONAL LIABILITY
As part of the business of owning and managing hospitals, the
Company is subject to the assertion of liability for events occurring as
part of the ordinary course of hospital operations. To cover claims
arising out of the operations of both managed and owned hospitals, the
Company generally maintains professional malpractice liability insurance
and general liability insurance on a claims made basis in amounts which
management believes to be sufficient for its operations. The Company also
maintains umbrella coverage. At various times in the past, the cost of
malpractice and other liability insurance has risen significantly.
Therefore, there can be no assurance that such insurance will continue to
be available or will be available at a reasonable price for the Company
to maintain adequate levels of insurance.
Through its typical hospital management contract, the Company
attempts to protect itself from such liability by requiring the hospital
to maintain certain specified limits of insurance coverage, including
professional liability, comprehensive general liability, workers'
compensation and fidelity insurance, and by requiring the hospital to
name the Company as an additional insured party on the hospital's
professional and comprehensive general liability policies.
The Company's management contracts also usually provide for the
indemnification of the Company by the hospital against claims that arise
out of the hospital's activities. The indemnification provisions help
protect the Company against claims not covered by insurance, such as some
medical staff antitrust claims and employment-related claims.
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<PAGE> 20
Although the majority of the Company's management contracts
contain the Company's standard insurance and indemnification provisions,
a small portion do not, for various reasons. In some states, state law
limits a public hospital's ability to indemnify a private company. In
those cases, the Company attempts to negotiate for the maximum protection
permitted by law. In other states, public hospitals still enjoy total or
partial sovereign immunity and, as a result, do not purchase insurance
except to the extent of their limited liability. Although the Company and
its insurer treats the hospitals' insurance and indemnification
obligations as the Company's primary coverage, the Company also maintains
its own insurance as secondary coverage.
ITEM 2. PROPERTIES
The Company currently leases office space in two buildings located
in Brentwood, Tennessee, for its principal corporate offices. The space
is leased for a term of ten years, to expire in 2005. The field offices
of Quorum Health Resources, Inc. are also leased, with terms ranging from
one to five years. For a description of the Company's owned hospital
properties, see "Item 1. Business-Owned Hospitals". The Company believes
that its properties are adequate for its business requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time subject to claims and suits
arising in the ordinary course of business, including claims for damages
for personal injuries, breach of management contracts or for wrongful
restriction of or interference with physicians' staff privileges. In
certain of such actions, plaintiffs request punitive or other damages
that may not be covered by insurance. The Company is not currently a
party to any proceeding which, in management's opinion, would have a
material adverse effect on the Company's financial position or results of
operations.
In June 1993, the OIG requested information from the Company in
connection with an investigation involving the Company's procedures for
preparing Medicare cost reports. In January 1995, the U.S. Department of
Justice issued a Civil Investigative Demand which also requested
information from the Company in connection with that same investigation.
As a part of the government's investigation, several former and current
employees of the Company have been interviewed. The Company is continuing
to provide information and is cooperating fully with the investigation.
The Company cannot predict whether the government will commence
litigation regarding this matter. However, management believes that any
claims likely to be asserted by the government as a result of its
investigation would not have a material adverse effect on the Company's
financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock became listed on the Nasdaq Stock
Market National Market ("Nasdaq") under the symbol "QHGI" on May 26,
1994. On September 22, 1997, the last reported sales price of the Common
Stock on Nasdaq was $24.13.
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As of June 30, 1997, the Company had approximately 1,923 holders of
record and the Company estimated an additional 3,500 beneficial owners.
The following table shows the high and low bid information for the Common
Stock as reported by Nasdaq for each quarter of the fiscal year ended
June 30, 1997 and June 30, 1996 (adjusted for the effect of a 3 for 2
stock dividend paid on or about September 16, 1997):
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter 16 13 1/4
Second Quarter 15 5/64 13 11/64
Third Quarter 19 11/64 14 1/2
Fourth Quarter 18 21/64 15 43/64
1997 HIGH LOW
---- ---- ---
First Quarter 17 53/64 15 1/4
Second Quarter 19 53/64 16 21/64
Third Quarter 23 18 53/64
Fourth Quarter 25 59/64 19 53/64
</TABLE>
Quorum has not paid any cash dividends on its Common Stock since
its inception, presently intends to retain its earnings for use in its
business, and does not anticipate paying any cash dividends in the
foreseeable future. The declaration of dividends is within the discretion
of the Board of Directors, which will review this dividend policy from
time to time; however, the declaration of dividends is currently
prohibited by Quorum's bank credit facility and certain other agreements.
See "Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition" and Note 3 of Notes to Consolidated
Financial Statements.
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<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the
notes thereto included elsewhere in this report.
QUORUM HEALTH GROUP, INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS(1)
Net operating revenue $1,413,946 $1,098,547 $850,167 $641,040 $343,132
Operating expenses 1,153,031 890,203 693,859 524,962 286,873
Depreciation and amortization 75,134 55,901 37,566 28,153 14,809
Interest expense 45,601 36,568 22,209 25,066 13,954
Minority interest 741 109 1,046 1,035 1,174
Net gain on sale of assets -- 787 -- -- --
Income before income taxes and
extraordinary item 139,439 116,553 95,487 61,824 26,322
Provision for income taxes 55,357 47,321 39,532 25,610 10,432
Income before extraordinary item 84,082 69,232 55,955 36,214 15,890
Per common share:
Income before extraordinary item -- 1.11 0.93 0.76 0.64 0.33
primary
Income before extraordinary item -- 1.11 0.93 0.76 0.60 0.31
fully diluted
Cash dividends declared 0 0 0 0 0
FINANCIAL POSITION AT YEAR END(1)
Total assets 1,278,991 $1,020,561 $773,502 $625,802 $275,037
Long-term debt excluding
current maturities 519,940 430,877 287,364 225,444 138,765
Stockholders' equity 518,115 431,864 356,389 294,053 79,561
</TABLE>
- --------------------
(1) The Company's financial statements for the years presented are not
strictly comparable due to the significant effect that acquisitions and
divestitures have had on such statements. Per share amounts are adjusted
to reflect a 3 for 2 stock dividend paid
20
<PAGE> 23
on or about September 16, 1997. See "Item 7. Management's Discussion and
Analysis of Results of Operations and Financial Condition".
21
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
IMPACT OF ACQUISITIONS
The Company was formed in July 1989 to acquire a hospital contract
management business. During fiscal 1997, the Company acquired five
hospitals and affiliated health care entities. The Company also sold a
minority interest in an acute care hospital in Papillon, Nebraska and
agreed to sell its remaining interest in fiscal 1998. During fiscal 1996,
the Company acquired two hospitals and affiliated health care entities
and sold one hospital and a minority interest in another hospital. During
fiscal 1995, the Company acquired three hospitals and affiliated health
care entities.
Because of the financial impact of the Company's recent
acquisitions and divestitures, it is difficult to make meaningful
comparisons between the Company's financial statements for the fiscal
years presented. In addition, due to the current number of owned
hospitals, each additional hospital acquisition can significantly affect
the overall operating margin of the Company. During a one to three year
transition period after the acquisition of a hospital, the Company has
typically taken a number of steps to lower operating costs. The impact of
such actions can be partially offset by cost increases to expand the
hospital's services, strengthen its medical staff and improve its market
position. The benefits of these investments and of other activities to
improve operating margins may not occur immediately. Consequently, the
financial performance of an acquired hospital may adversely affect
overall operating margins in the near-term. As the Company makes
additional hospital acquisitions, the Company expects that this effect
will be mitigated by the expanded financial base of existing hospitals.
RESULTS OF OPERATIONS
The table below reflects the percentage of net operating revenue
represented by various categories in the Consolidated Statements of
Income and the percentage change in the related dollar amounts. The
results of operations for the year ended June 30, 1997 include a full
year of operations for fifteen hospitals and partial periods for four
hospitals acquired during the year. The results of operations for the
year ended June 30, 1996 include a full year of operations for twelve
hospitals and partial periods for two hospitals acquired and one hospital
divested during the year. The results of operations for the year ended
June 30, 1995 include a full year of operations for ten hospitals and
partial periods for three hospitals acquired during the year.
22
<PAGE> 25
<TABLE>
<CAPTION>
Percentage
Increase
(Decrease) of
Dollar Amounts
--------------
1997 1996
Fiscal Year vs. vs.
1997 1996 1995 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net operating revenue 100.0% 100.0% 100.0% 28.7% 29.2%
Operating expenses (1) 81.5 81.0 81.6 29.5 28.3
----- ----- ----- ----- -----
EBITDA (2) 18.5 19.0 18.4 25.2 33.8
Depreciation and amortization 5.3 5.1 4.5 34.4 48.8
Interest 3.2 3.3 2.6 24.7 64.7
Minority interest 0.1 0.0 0.1 579.8 (89.6)
----- ----- ----- ----- -----
Income before income taxes
and extraordinary item 9.9 10.6 11.2 19.6 22.1
Provision for income taxes 3.9 4.3 4.6 17.0 19.7
----- ----- ----- ----- -----
Income before extraordinary item 6.0 6.3 6.6 21.4 23.7
Extraordinary charges .6 -- -- 100.0 --
----- ----- ----- ----- -----
Net income 5.4% 6.3% 6.6% 9.6% 23.7%
===== ===== ===== ===== ======
</TABLE>
- --------------------
(1) Operating expenses represent expenses before interest, minority interest,
income taxes, depreciation and amortization expense.
(2) EBITDA represents earnings before interest, minority interest, income taxes,
depreciation and amortization expense, net gain on sale of assets and
extraordinary charges. The Company has included EBITDA data because such data is
used by certain investors to measure a company's ability to service debt. EBITDA
is not a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of operating performance or to cash flows from operating activities as a
measure of liquidity.
Fiscal 1997 Compared to Fiscal 1996
The Company's net operating revenue was $1,413.9 million in fiscal 1997,
compared to $1,098.5 million in fiscal 1996, an increase of $315.4 million or
29%. This increase was attributable to, among other things, five hospital
acquisitions, a full year of revenue from two hospitals acquired during fiscal
1996, a 10% increase in revenue generated by hospitals owned during both periods
(calculated by comparing the same periods in both fiscal periods for hospitals
owned for one year or more) and a 3% increase in management services revenue.
Operating expenses as a percent of net operating revenue increased to
81.5% in fiscal 1997 from 81.0% for fiscal 1996 which was primarily attributable
to the fiscal 1997 acquisitions of owned hospitals. Operating expenses as a
percent of net operating revenue for the Company's owned hospitals increased to
82.0% in fiscal 1997 from 81.7% for fiscal 1996. For the Company's hospitals
owned during both periods, operating expenses as a percent of net operating
revenue decreased to 80.8% in fiscal 1997 from 81.5% for fiscal 1996 which was
primarily attributable to a reduction in salaries and benefits, fees and
supplies expense as a percent of net operating revenue.
EBITDA as a percent of net operating revenue was 18.5% in fiscal 1997
compared to 19.0% in fiscal 1996. EBITDA as a percent of net operating revenue
for the Company's owned hospitals was 18.0% in fiscal 1997 compared to 18.3% in
fiscal 1996. EBITDA as a percent of net operating revenue for the Company's
23
<PAGE> 26
hospitals owned during both periods was 19.2% in fiscal 1997 compared to 18.5%
in fiscal 1996. EBITDA as a percent of net operating revenue for the Company's
management services business was 22.7% in fiscal 1997 compared to 23.9% in
fiscal 1996.
Depreciation and amortization expense as a percent of net operating
revenue increased to 5.3% in fiscal 1997 from 5.1% in fiscal 1996 primarily due
to the fiscal 1996 and 1997 acquisitions and the Company's investment in
management information systems. Interest expense as a percent of net operating
revenue decreased to 3.2% in fiscal 1997 from 3.3% in fiscal 1996 due to the
replacement of subordinated debt with bank debt (as discussed below), a
reduction in interest rates and repayments of bank debt with cash flow generated
from operations. The provision for income taxes as a percent of net operating
revenue decreased to 3.9% in fiscal 1997 from 4.3% in fiscal 1996 primarily
attributable to a lower effective tax rate and a relative change in pretax
income.
Income before extraordinary item as a percent of net operating revenue
was 6.0% in fiscal 1997 compared to 6.3% in fiscal 1996. This decrease was
primarily attributable to the fiscal 1997 acquisitions and was partially offset
by the increased profitability of the Company's hospitals owned during both
periods, as discussed above.
During the fourth quarter of fiscal 1997, the Company incurred
extraordinary charges of $8.2 million (net of applicable income taxes of $5.1
million). The charges consist of the premium associated with the purchase of the
11.875% Senior Subordinated Notes, transaction costs, the write-off of
unamortized loan costs of the Notes and the write-off of unamortized loan costs
of the $600 million secured revolving credit facility. The Notes were purchased
through a tender offer and the revolving credit facility was replaced with the
new unsecured revolving credit facility.
Fiscal 1996 Compared to Fiscal 1995
The Company's net operating revenue was $1,098.5 million in fiscal 1996,
compared to $850.2 million in fiscal 1995, an increase of $248.3 million or 29%.
This increase was attributable to, among other things, two hospital
acquisitions, a full year of revenue from three hospital acquisitions during
fiscal 1995, a 4% increase in revenue generated by hospitals owned during both
periods and a 7% increase in management services revenue.
Operating expenses as a percent of net operating revenue decreased to
81.0% in fiscal 1996 from 81.6% in fiscal 1995. Operating expenses as a percent
of net operating revenue for the Company's owned hospitals decreased to 81.7% in
fiscal 1996 from 82.6% in fiscal 1995. For the Company's hospitals owned during
both periods, operating expenses as a percent of net operating revenue decreased
to 81.3% in fiscal 1996 from 81.8% in fiscal 1995 which was primarily
attributable to relative reductions in supplies expense. Operating expenses as a
percent of net operating revenue for the Company's management services business
increased to 76.1% in fiscal 1996 from 75.7% in fiscal 1995 which was primarily
attributable to the costs of new services.
EBITDA as a percent of net operating revenue was 19.0% for fiscal 1996
compared to 18.4% in fiscal 1995. EBITDA as a percent of net operating revenue
for the Company's owned hospitals was 18.3% compared to 17.4% in fiscal 1995.
EBITDA as a percent of net operating revenue for the Company's owned hospitals
during both periods was 18.7% compared to 18.2% in fiscal 1995. EBITDA as a
24
<PAGE> 27
percent of net operating revenue for the Company's management services business
was 23.9% compared to 24.3% in fiscal 1995 which was primarily attributable to
the costs of new services.
Depreciation and amortization expense as a percent of net operating
revenue increased to 5.1% in fiscal 1996 from 4.5% in fiscal 1995 primarily due
to the fiscal 1995 and 1996 acquisitions and the Company's investment in
hospital management information systems. Interest expense as a percent of net
operating revenue increased to 3.3% in fiscal 1996 from 2.6% in fiscal 1995 due
to the fiscal 1995 and 1996 acquisitions and the issuance of the Senior
Subordinated Notes in November 1995. The provision for income taxes as a percent
of net revenue decreased to 4.3% in fiscal 1996 from 4.6% in fiscal 1995 which
is primarily attributable to a lower effective tax rate and a relative change in
pretax income.
Net income as a percent of net operating revenue was 6.3% in fiscal 1996
compared to 6.6% in fiscal 1995. This decrease was primarily attributable to the
fiscal 1995 and fiscal 1996 acquisitions and was partially offset by the
increased profitability of the Company's hospitals owned during both periods, as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $180.5 million,
including cash and cash equivalents of $19.0 million. The ratio of current
assets to current liabilities was 2.2 to 1.0 at June 30, 1997 compared to 2.6 to
1.0 at June 30, 1996.
The Company's cash requirements excluding acquisitions have historically
been funded by cash generated from operations. Cash generated from operations
was $173.4 million, $114.2 million and $88.2 million for the years ended June
30, 1997, 1996 and 1995, respectively. The increase is primarily due to the
fiscal 1996 and 1997 acquisitions.
Capital expenditures excluding acquisitions for the years ended June 30,
1997, 1996 and 1995, were $83.0 million, $62.1 million, and $58.3 million,
respectively. The management services business does not require significant
capital expenditures. Capital expenditures for owned hospitals may vary from
year to year depending on facility improvements and service enhancements
undertaken by the hospitals. The Company has begun construction of a replacement
hospital in Florence, South Carolina with fiscal 1998 capital expenditures of up
to $60 million and a total project cost of approximately $85 million. In fiscal
1998, the Company expects to make capital expenditures from $80 million to $100
million, excluding acquisitions and the replacement hospital.
During fiscal 1997, the Company acquired five hospitals and affiliated
health care entities for approximately $184.6 million. The Company also sold a
minority interest in an acute care hospital in Papillon, Nebraska and agreed to
sell its remaining interest in fiscal 1998. During fiscal 1996, the Company
acquired two hospitals and affiliated health care entities for approximately
$205.3 million. Also, during fiscal 1996, the Company sold one hospital and a
minority interest in another hospital. During fiscal 1995, the Company acquired
three hospitals and affiliated health care entities for approximately $99.7
million.
25
<PAGE> 28
Effective September 1, 1997, the Company acquired a hospital in
Hattiesburg, Mississippi.
The Company intends to acquire additional acute care facilities, and the
Company is actively seeking out such acquisitions. There can be no assurance
that the Company will not require additional debt or equity financing for any
particular acquisition. Also, the Company continually reviews its capital needs
and financing opportunities and may seek additional equity or debt financing for
its acquisition program or other needs. At June 30, 1997, the Company had $363.9
million outstanding under its Revolving Line of Credit.
During fiscal 1997, the Company replaced its secured $600.0 million
revolving credit facility with a new unsecured five-year revolving credit
facility in the amount of $850.0 million. The credit agreement provides for two
consecutive one-year extensions subject to approval of 100% of the lenders. The
loan bears interest, at the Company's option, at generally the lender's base
rate or a fluctuating rate ranging from .25 to .75 percentage points above
LIBOR. The Company pays a facility fee ranging from .18 to .25 percentage points
on the commitment. The interest rate margins and facility fee rates are based on
the Company's leverage ratio. The Company may prepay the amount outstanding at
any time. The added capacity may be used to fund acquisitions and for other
general corporate purposes.
During fiscal 1996, the Company issued $150.0 million in Senior
Subordinated Notes maturing on November 1, 2005 and bearing interest at 8.75%.
The Notes are subject to redemption at the option of the Company at a price of
104.375% on or after November 1, 2000, 102.188% on or after November 1, 2001 and
at par on or after November 1, 2002. The Notes are unsecured obligations and are
subordinated in right of payment to all existing and future senior indebtedness.
During fiscal 1997, the Company purchased for cash $97.8 million of its
11.875% Senior Subordinated Notes through a tender offer at a price of $1,087
per $1,000 principal amount. The Notes were repurchased with borrowings under
the Company's revolving line of credit. The Company also amended its related
Indenture to eliminate certain restrictive covenants. The remaining Notes
outstanding are subject to redemption at the option of the Company at 105.875%
at December 15, 1997.
The credit facilities contain certain financial covenants including but
not limited to the prohibition of dividend payments and other distributions and
repurchases of common stock, restrictions on investments, asset dispositions,
borrowings and the ability to merge or consolidate with or transfer assets to
another entity, the maintenance of net worth and various financial ratios,
including a fixed charge ratio and a leverage ratio. The Company is required to
repurchase all Senior Subordinated Notes at 101% upon a change in control.
Interest rate swap agreements are used on a limited basis to manage the
Company's interest rate exposure. The agreements are contracts to periodically
exchange fixed and floating interest rate payments over the life of the
agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement is
consummated. In fiscal 1997, the Company amended its 1993 interest rate swap
agreements to effectively convert two borrowings of $50.0 million each from
fixed-rate to floating-rate through September 16, 2001 and December 1, 2001. In
addition, the Company entered into interest rate swap agreements which
effectively convert $100.0 million and $200.0 million of floating-rate
borrowings
26
<PAGE> 29
to fixed-rate borrowings through December 12, 2001 and March 20, 2002,
respectively. For the years ended June 30, 1997, 1996 and 1995, the Company
received a weighted average rate of 5.8%, 5.8% and 5.6%, respectively and paid a
weighted average rate of 5.9%, 4.8% and 4.2%, respectively.
On August 19, 1997, the Board of Directors approved a three-for-two stock
split effected in the form of a stock dividend payable on or about September 16,
1997 to shareholders of record on September 2, 1997. The shares of common stock,
price per share, the number of shares subject to options and the exercise prices
have been retroactively restated to give effect to the stock dividend for all
periods presented.
In fiscal 1997, the Company adopted a Stockholder Rights Plan and
declared a dividend of one right for each share of common stock held as of the
close of business on April 28, 1997. Each right entitles stockholders to acquire
one-third of a share of common stock at an exercise price of $100, subject to
adjustment. Such rights become exercisable only if a person or group acquires
beneficial ownership of 15 percent or more of the Company's common stock or
commences a tender or exchange offer which would result in that person or group
owning 15 percent or more of the Company's common stock. After any person has
acquired 15 percent or more of the Company's common stock, each right not owned
by such person or certain related parties will entitle its holder to purchase a
number of shares of the Company's common stock (or any combination of common
stock, preferred stock, debt securities and cash, as determined by the Board of
Directors) having a market value of two times the then-current exercise price of
the right. In the event the Company is involved in a merger or other business
combination transaction with another person or sells 50 percent or more of its
assets or earning power to another person, each right will entitle its holder to
purchase a number of shares of the Company's common stock or the acquiring
company's common stock having a market value of two times the then-current
exercise price of the right. The rights may be redeemed at $.01 per right at any
time until the tenth day following public announcement that a 15 percent
position has been acquired. The rights expire on April 28, 2007.
The Internal Revenue Service (IRS) is in the process of conducting
examinations of the Company's federal income tax returns for the years 1993
through 1995. During fiscal 1996, the IRS proposed certain adjustments in
connection with its examination of the Company's federal income tax returns for
the fiscal years ending June 30, 1990 through 1992. The most significant
adjustment involves the amortization deductions claimed on certain acquired
intangible assets in conjunction with the acquisition of Quorum Health
Resources, Inc. The Company is currently protesting all of the proposed
adjustments through the appeals process of the IRS and does not expect the
resolution of this contingency to materially affect the Company's results of
operations or financial position.
In June 1993, the Office of the Inspector General (OIG) of the Department
of Health and Human Services requested information from the Company in
connection with an investigation involving the Company's procedures for
preparing Medicare cost reports. In January 1995, the U.S. Department of Justice
issued a Civil Investigative Demand which also requested information from the
Company in connection with that same investigation. As a part of the
government's investigation, several former and current employees of the Company
have been interviewed. The Company has provided information and is cooperating
fully with the investigation. The Company cannot predict whether the government
will commence litigation regarding this matter. Management believes that any
claims
27
<PAGE> 30
likely to be asserted by the government as a result of its investigation
would not have a material effect on the Company's results of operations or
financial position.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. Basic earnings per share
before extraordinary loss for the years ended June 30, 1997 and June 30, 1996
will be $.04 and $.03, respectively, more than primary earnings per share. Basic
earnings per share for the years ended June 30, 1997 and June 30, 1996 will be
$.03 per share more than primary earnings per share. The amount of dilutive
earnings per share will be the same as the amount of fully diluted earnings per
share for all periods.
GENERAL
The federal Medicare program and state Medicaid programs accounted for
approximately 55%, 56%, and 57% of gross patient service revenue for the years
ended June 30, 1997, 1996 and 1995, respectively. The payment rates under the
Medicare program for inpatients are prospective, based upon the diagnosis of a
patient. The payment rate increases have historically been less than actual
inflation.
Both federal and state legislators are continuing to scrutinize the
health care industry for the purpose of reducing health care costs. While the
Company is unable to predict what, if any, future health reform legislation may
be enacted at the federal or state level, the Company expects continuing
pressure to limit expenditures by governmental health care programs. Under the
Balanced Budget Act of 1997 (the 1997 Act), there will be no increases in the
rates paid to acute care hospitals for inpatient care through September 30,
1998. Payments for Medicare outpatient services provided at acute care hospitals
and home health services historically have been paid based on costs, subject to
certain limits. The 1997 Act requires that the payment for those services be
converted to a prospective payment system, which will be phased in over time.
Further changes in the Medicare or Medicaid programs and other proposals to
limit health care spending could have a material adverse impact upon the health
care industry and the Company.
The 1997 Act also contains various provisions that create new
opportunities for the Company. Certain of those provisions, such as those
allowing for creation of Provider Service Organizations, allow providers such as
the Company to contract directly with the federal government for the provision
of medical care to Medicare beneficiaries on a fully capitated basis. Under
capitation, the Company receives a certain amount from the federal government
for each Medicare beneficiary enrolled in its plans and assumes the risks and
rewards of meeting the health care needs of those enrolled in its plans. The
Company may purchase insurance to cover all or a portion of the cost of meeting
the health care needs of those covered. The Company cannot predict at this time
what the ultimate effect of these opportunities will be.
In addition, states, insurance companies and employers are actively
negotiating amounts paid to hospitals, which are typically lower than their
standard rates. The trend toward managed care, including health maintenance
organizations, preferred provider organizations and various other forms of
28
<PAGE> 31
managed care, may adversely affect hospitals' ability to maintain their current
rate of net revenue growth and operating margins.
The Company's acute care hospitals, like most acute care hospitals in the
United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company expects increased competition and
admission constraints to continue in the future. The ability to successfully
respond to these trends, as well as spending reductions in governmental health
care programs, will play a significant role in determining hospitals' ability to
maintain their current rate of net revenue growth and operating margins.
The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's owned hospitals for the years
ended June 30, 1997, 1996 and 1995, was approximately 36.3%, 34.0% and 32.2% of
gross patient service revenue, respectively.
The Company's results of operations are also significantly affected in a
positive manner over time by the Company's ability to acquire acute care
hospitals at acceptable prices. While the Company believes that trends in the
health care industry described above may create possible future acquisition
opportunities, it can give no assurances that it can continue to purchase acute
care hospitals.
The Company's owned hospitals accounted for 90% of the Company's net
operating revenue in fiscal 1997 compared to 88% in fiscal 1996 and 85% in
fiscal 1995. Carolinas Hospital System, Desert Springs Hospital, Flowers
Hospital, Gadsden Regional Medical Center and Lutheran Hospital of Indiana
accounted for approximately 50% of the Company's net operating revenue in fiscal
1997.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase during periods of inflation and when shortages in marketplaces occur.
In addition, suppliers pass along rising costs to the Company in the form of
higher prices. The Company has generally been able to offset increases in
operating costs by increasing charges, expanding services and implementing cost
control measures to curb increases in operating costs and expenses. The Company
cannot predict its ability to offset or control future cost increases.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report, including, without
limitation, statements containing the words "believes", "anticipates",
"intends", "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in the
regions in which the Company operates; industry capacity; demographic changes;
existing government regulations
29
<PAGE> 32
and changes in, or the failure to comply with, governmental regulations;
legislative proposals for health care reform; the ability to enter into managed
care provider arrangements on acceptable terms; changes in Medicare and Medicaid
payment levels; liability and other claims asserted against the Company;
competition; the loss of any significant customers; changes in business strategy
or development plans; the ability to attract and retain qualified personnel,
including physicians; the availability and terms of capital to fund the
expansion of the Company's business, including the acquisition of additional
facilities. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are submitted in a
separate section of this report. See pages F-1, F-2, and F-4 through F-24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning this Item is incorporated by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this Item is incorporated by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning this Item is incorporated by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning this Item is incorporated by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
Stockholders.
30
<PAGE> 33
PART IV
EXHIBIT INDEX
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2). Financial statements and schedules of the Company
and its subsidiaries required to be included in Part II, Item 8 are indexed on
Page F-1 and submitted as a separate section of this report.
(a)(3) Exhibits.
3.1 Certificate of Incorporation of the Company filed with Secretary of
State of Delaware July 14, 1989, as amended by Certificate of
Amendment of Certificate of Incorporation filed with Secretary of
State of Delaware on July 28, 1989. (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement No. 33-31717-A
on Form S-18.)
3.2 Certificate of Amendment of Certificate of Incorporation effective
with the Secretary of State of Delaware on June 1, 1990.
(Incorporated by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1990.)
3.3 Certificate of Amendment of Certificate of Incorporation effective
with the Secretary of State of Delaware on November 1, 1990.
(Incorporated by reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1991.)
3.4 Certificate of Amendment of Certificate of Incorporation effective
with the Secretary of State of Delaware on December 17, 1991.
(Incorporated by reference to Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992.)
3.5 Form of Certificate of Amendment of Certificate of Incorporation
effective with the Secretary of State of Delaware on April 12, 1994.
(Incorporated by reference to Exhibit 3.1.5 to the Company's
Registration Statement No. 33-77674 on Form S-1.)
3.6 Bylaws of the Company as amended April 12, 1994. (Incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement No.
33-77674 on Form S-1.)
3.7 Bylaws of the Company as amended April 16, 1997. (Incorporated by
reference to Exhibit 3(ii) to the Company's Report on Form 8-K dated
April 16, 1997.)
4.1.1 Indenture, dated as of December 15, 1992, between Quorum Health
Group, Inc. and United States Trust Company of New York, as Trustee
relating to the Company's $100,000,000 11-7/8% Senior Subordinated
Notes due December 15, 2002. (Incorporated by reference to Exhibit 4
to the Company's Amendment to Application or Report on Form 8 dated
February 17, 1993, amending the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1992.)
31
<PAGE> 34
4.1.2 Indenture, dated as of November 1, 1995, between Quorum Health
Group, Inc. and United States Trust Company of New York, as Trustee
relating to the Company's $150,000,000 8-3/4% Senior Subordinated
Notes due November 1, 2005. (Incorporated by reference to Exhibit
4.1.2 to the Company's Registration Statement No. 33-98274 on Form
S-3.)
4.1.3 First Supplemental Indenture, dated as of May 7, 1997, between
Quorum Health Group, Inc. and United States Trust Company of New
York, as Trustee relating to the Company's $100,000,000 11-7/8%
Senior Subordinated Notes due December 1, 2005.
4.3.1 Form of Subscription Agreement dated July 31, 1989 between the
Company and its Original Stockholders. (Incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement No. 33-31717-A
on Form S-18.)
4.3.2 Form of Subscription Agreement dated as of July 25, 1990 among the
Company and its Subsequent Stockholders. (Incorporated by reference
to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1990.)
4.4.1 Form of Registration Rights Agreement dated July 31, 1989 between
the Company and its Original Stockholders. (Incorporated by
reference to Exhibit 4.6 to the Company's Registration Statement No.
33-31717-A on Form S-18.)
4.4.2 Amendment dated as of July 25, 1990 to Registration Rights Agreement
dated July 31, 1989 among the Company and its Original Stockholders.
(Incorporated by reference to Exhibit 4.8 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1990.)
4.4.3 Amendment dated as of February 25, 1991 to Registration Rights
Agreement dated July 31, 1989 among the Company and its Original
Stockholders. (Incorporated by reference to Exhibit 10.7.3 to the
Company's Registration Statement No. 33-77674 on Form S-1.)
4.4.4 Amendment dated as of April 23, 1991 to Registration Rights
Agreement dated July 31, 1989 among the Company and its Original
Stockholders. (Incorporated by reference to Exhibit 10.7.4 to the
Company's Registration Statement No. 33-77674 on Form S-1.)
4.4.5 Amendment and Restatement dated as of December 20, 1991 to
Registration Rights Agreement dated July 31, 1989 among the Company
and its Original Stockholders. (Incorporated by reference to Exhibit
10.7.5 to the Company's Registration Statement No. 33-77674 on Form
S-1.)
4.4.6 Amendment and Restatement dated as of January 15, 1992 to
Registration Rights Agreement dated July 31, 1989 among the Company
and its Original Stockholders. (Incorporated by reference to Exhibit
10.7.6 to the Company's Registration Statement No. 33-77674 on Form
S-1.)
4.4.7 Amendment and Restatement dated as of May 7, 1992 to Registration
Rights Agreement dated July 31, 1989 among the Company and its
32
<PAGE> 35
Original Stockholders. (Incorporated by reference to Exhibit 10.7.7
to the Company's Registration Statement No. 33-77674 on Form S-1.)
4.4.8 Amendment and Restatement dated as of June 1, 1992 to Registration
Rights Agreement dated July 31, 1989 among the Company and its
Original Stockholders. (Incorporated by reference to Exhibit 10.7.8
to the Company's Registration Statement No. 33-77674 on Form S-1.)
4.4.9 Amendment and Restatement dated as of July 1, 1992 to Registration
Rights Agreement dated July 31, 1989 among the Company and its
Original Stockholders. (Incorporated by reference to Exhibit 4.12 to
the Company's Annual Report on Form 10-K for the year ended June 30,
1992.)
4.4.10 Amendment and Restatement dated as of September 29, 1992 to
Registration Rights Agreement dated July 31, 1989 among the Company
and its Original Stockholders. (Incorporated by reference to Exhibit
10.75 to the Company's Registration Statement No. 33-52910 on Form
S-1.)
4.4.11 Amendment and Restatement dated as of September 30, 1992 to
Registration Rights Agreement dated July 31, 1989 among the Company
and its Original Stockholders. (Incorporated by reference to Exhibit
10.74 to the Company's Registration Statement No. 33-52910 on Form
S-1.)
4.4.12 Form of Amendment and Restatement dated as of January 28, 1993 to
Registration Rights Agreement dated July 31, 1989 among the Company
and its Original Stockholders. (Incorporated by reference to Exhibit
10.7.12 to the Company's Registration Statement No. 33-77674 on Form
S-1.)
4.4.13 Amendment No. 1 dated as of September 28, 1993 to the Amendment and
Restatement of Registration Rights Agreement dated as of September
30, 1992. (Incorporated by reference to Exhibit 10.7.13 to the
Company's Registration Statement No. 33-77674 on Form S-1.)
4.4.14 Amendment No. 2 dated as of October 15, 1993 to the Amendment and
Restatement of Registration Rights Agreement dated as of September
30, 1992 as amended. (Incorporated by reference to Exhibit 10.7.14
to the Company's Registration Statement No. 33-77674 on Form S-1.)
4.4.15 Amendment No. 3 dated as of November 5, 1993 to the Amendment and
Restatement of Registration Rights Agreement dated as of September
30, 1992 as amended. (Incorporated by reference to Exhibit 10.7.15
to the Company's Registration Statement No. 33-77674 on Form S-1.)
4.4.16 Form of Rights Agreement dated as of April 16, 1997, between Quorum
Health Group, Inc. and First Union National Bank of North Carolina,
including the form of Rights Certificate as Exhibit A and the form
of Summary of Rights to Purchase Common Stock as Exhibit B.
(Incorporated by reference to Exhibit 4 to the Company's Report on
Form 8-K dated April 16, 1997.)
4.4.17 Form of Letter to Stockholders of Quorum Health Group, Inc.
regarding the adoption of the Rights Plan pursuant to the Rights
33
<PAGE> 36
Agreement. (Incorporated by reference to the Company's Report on
Form 8-K dated April 16, 1997.)
4.4.18 Credit Agreement dated as of April 22, 1997, by and among Quorum
Health Group, Inc., as Borrower, certain banks as Lenders, and First
Union National Bank of North Carolina, as agent.
4.4.19 First Amendment to Credit Agreement effective as of June 30, 1997,
by and among Quorum Health Group, Inc., as Borrower, certain banks
as Lenders, and First Union National Bank of North Carolina, as
agent.
10.1 Compensation Plans and Arrangements
A. Restated Stock Option Plan, as amended. (Incorporated by
reference to Exhibit B to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders held
November 15, 1994.)
B. Directors Stock Option Plan, as amended. (Incorporated
by reference to Exhibit A to the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders
held November 15, 1994.)
C. Letter dated February 23, 1990 regarding employment of
James E. Dalton, Jr. (Incorporated by reference to
Exhibit 10.1.D to the Company's Annual Report on Form
10-K for the year ended June 30, 1993.)
D. Employee Stock Purchase Plan, as amended. (Incorporated
by reference to Exhibit C to the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders
held November 15, 1994.)
E. Quorum Health Group, Inc. 401(k) Savings and Retirement
Plan. (Incorporated by reference to Exhibit 10.1.6 to
the Company's Registration Statement No. 33-77674 on
Form S-1.)
F. Form of Quorum Health Group, Inc. Non-qualified Deferred
Compensation Plan. (Incorporated by reference to Exhibit
10.1.7 to the Company's Registration Statement No.
33-77674 on Form S-1.)
G. Form of Severance Agreement with certain executive
officers of the Company. (Incorporated by reference to
Exhibit 10.1 (G) to the Company's Annual Report on Form
10-K for the year ended June 30, 1995.)
H. Employment Agreement between the Company and Eugene C.
Fleming. (Incorporated by reference to Exhibit 10.1(H)
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996.)
I. Severance Agreement and General Release between the
Company and Robert A. Yeager. (Incorporated by
reference to Exhibit 10.1(I) to the Company's Report on
Form 10-K for the year ended June 30, 1996.)
J. Letter Agreement between the Company and Robert D.
Huseby. (Incorporated by reference to Exhibit 10.1(J)
to the Company's Report on Form 10-K for the year ended
June 30, 1996.)
34
<PAGE> 37
10.2 Baxter Supply Agreement dated as of December 1, 1989 by and among
Baxter Health care Corporation, HCA, HealthTrust, Inc. and Quorum
Health Resources, Inc. (Incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the year ended June
30, 1990.)
10.3 Amendment to Supply Agreement effective January 1, 1991 by and among
Baxter Health care Corporation, HCA, HealthTrust, Inc., and Quorum
Health Resources, Inc. (Incorporated by reference to Exhibit 10.51
to the Company's Annual Report on Form 10-K for the year ended June
30, 1992.)
10.4 Pharmacy Products Group Agreement dated as of January 1, 1990
between Quorum Health Resources, Inc. and Baxter Health care
Corporation. (Incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1990.)
10.5 Foodservice Distribution Agreement dated September 1, 1989 by and
between Baxter Health care Corporation, HCA, Quorum Health
Resources, Inc. and HealthTrust. (Incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1990.)
10.6 Quorum Health Resources, Inc. Model Hospital Management Agreement.
10.7 Incorporation, Conveyance and Stock Purchase Agreement dated as of
August 16, 1993, as amended September 30, 1993, by and among Quorum,
Inc. as Purchaser, Charter Medical Corporation ("Charter"), a
Delaware corporation; Charter Northside Hospital, Inc. ("CNH"), a
Georgia corporation; Middle Georgia Hospital, Inc. ("MGH"), a
Georgia corporation; Shallowford Community Hospital, Inc. ("SCHI"),
a Georgia corporation; Metropolitan Hospital, Inc. ("MHI"), a
Georgia corporation; Physicians & Surgeons Hospital, Inc. ("PSH"), a
Louisiana corporation; Charter Regional Medical Center, Inc.
("CMRC"), a Texas corporation; Desert Springs Hospital, Inc.
("DSH"), a Nevada corporation; Charter Suburban Hospital, Inc.
("CSH"), a California corporation; Charter Community Hospital of Des
Moines, Inc. ("CCH"), an Iowa corporation; and Stuart Circle
Hospital Corporation ("SCHC"), a Virginia corporation. (Incorporated
by reference to Exhibit 2.1 to the Company's Report on Form 8-K
dated October 13, 1993.)
10.8 Asset Purchase Agreement dated as of December 1993 among Mercy
Health Center of Central Iowa, as Buyer, and NC-CCH, Inc., as
Seller, and Quorum Health Group, Inc. (Incorporated by reference to
Exhibit 10.28 to the Company's Registration Statement No. 33-77674
on Form S-1.)
10.9 Asset Purchase Agreement dated as of October 7, 1993 as amended
November 30, 1993, among Baptist Health Services, Inc. and Baptist
35
<PAGE> 38
Hospital of Gadsden, Inc. as Sellers and QHG of Gadsden, Inc. as
Buyer. (Incorporated by reference to Exhibit 2 to the Company's
Report on Form 8-K dated December 14, 1993.)
10.10 Asset Purchase Agreement dated as of December 31, 1993 among
Cleveland Regional Medical Center, L.P., as Buyer, and Dynamic
Health, Inc., and NC-CRMC, Inc., as Seller, and Quorum Health Group,
Inc. (Incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement No. 33-77674 on Form S-1.)
10.11 Lease dated September 21, 1989 by and between DJ Investments which
subsequently assigned its interest to A.G. Dorsey, Capricon II 1989
Trust and J. Cutler Roberts, Trustee, and Desert Springs Hospital,
Inc. (Incorporated by reference to Exhibit 10.39 to the Company's
Registration Statement No. 33-77674 on Form S-1.)
10.12 Lease dated January 21, 1994 by and between QB Partners I and Quorum
Health Resources, Inc. (Incorporated by reference to Exhibit 10.42
to the Company's Registration Statement No. 33-77674 on Form S-1.)
10.13 Asset Purchase Agreement dated April 29, 1994 by and between NC-PSH,
Inc., and Sisters of Charity of the Incarnate Word, Shreveport,
Louisiana, doing business as Schumpert Medical Center (Incorporated
by reference to Exhibit 10.45.1 to the Company's Registration
Statement No. 33-77674 on Form S-1.)
10.14 Lease Agreement dated December 8, 1994 by and between QB Partners I
and Quorum Health Group, Inc., as amended by Addendum dated March
25, 1995. (Incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1995.)
10.15 Asset Purchase Agreement dated November 1, 1990 by and between Mercy
Regional Medical Center, Sisters of Mercy Health Systems, St. Louis,
Inc. and ParkView Medical Associates, L.P. (Incorporated by
reference to the Company's Report on Form 8-K filed November 15,
1990.)
10.16 Asset Purchase and Sale Agreement dated as of September 20, 1991, by
and between Quorum Health Group, Inc., as buyer, and St. John's
Hospital & Health Center, Inc. and Incarnate Word Health Services,
as seller. (Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K dated September 30, 1991.)
10.17 Asset Purchase Agreement dated as of January 31, 1992 between QHG of
Ohio, Inc. and St. Anthony Medical Center, Inc. and its members
regarding Park Medical Center. (Incorporated by reference to Exhibit
2.3 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1992.)
10.18 Asset Purchase Agreement dated as of May 31, 1992, by and between
QHG of Alabama, Inc., as buyer, its ultimate parent, Quorum Health
Group, Inc. and Flowers Hospital, Incorporated, as seller.
(Incorporated by reference to Exhibit 2.1 to the Company's Report on
Form 8-K dated June 1, 1992.)
36
<PAGE> 39
10.19 Agreement and Plan of Share Exchange dated June 19, 1992 among
Hospital Management Professionals, Inc., Robert D. Huseby, Sheldon
L. Krizelman and Thomas W. Singleton and Quorum Health Resources,
Inc. (Incorporated by reference to Exhibit 2.1 to the Company's
Report on Form 8-K dated July 14, 1992.)
10.20 Asset Purchase Agreement dated as of January 4, 1995, by and between
QHG of South Carolina, Inc., as buyer and Carolinas Hospital System,
Inc., as seller. (Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K dated February 1, 1995).
10.21 Asset Purchase Agreement dated April 21, 1995, as amended by
Amendment No. 1, Amendment No. 2, and Amendment No. 3, by and
between QHG of Indiana, Inc., et al., as buyers, and The Lutheran
Hospital of Indiana, Inc., et al., as sellers. (Incorporated by
reference to Exhibit 2.1 to the Company's Report on Form 8-K dated
August 1, 1995.)
10.22 Purchase Agreement dated as of January 28, 1993 between the Company
and HCA, Inc. (Incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement No. 33-77674 on Form S-1.)
10.23 Purchase Agreement dated as of September 28, 1993 among the Company
and Certain Shareholders. (Incorporated by reference to Exhibit 10.9
to the Company's Registration Statement No. 33-77674 on Form S-1.)
10.24 Purchase Agreement dated as of October 15, 1993 among the Company
and Certain Shareholders. (Incorporated by reference to Exhibit
10.10 to the Company's Registration Statement No. 33-77674 on Form
S-1.)
10.25 Purchase Agreement dated as of October 26, 1993 between the Company
and HCA, Inc. (Incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement No. 33-77674 on Form S-1.)
10.26 Purchase Agreement dated as of November 5, 1993 between the Company
and HCA, Inc. (Incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement No. 33-77674 on Form S-1.)
10.27 Asset Purchase Agreement dated as of April 6, 1994 by and between
Quorum, Inc. and Bon Secours Health System, Inc. for the purchase of
the capital stock of NC-SCHC, Inc. and Stuart Circle MOB, Inc.
(Incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement No. 33-77674 on Form S-1.)
10.28 Asset Exchange Agreement dated as of April 8, 1994 by and among
NC-SCHI, Inc., Dunwoody MOB, Inc., NC-MHI, Inc., Quorum Health
Group, Inc., Galen Hospitals of Texas, Inc., Galen Medical
Corporation, American Medicorp Development Co. and Columbia/HCA
Health care Corporation for the like kind exchange of Abilene
Regional Medical Center and Medical Center Enterprise for Dunwoody
Medical Center and Metropolitan Hospital. (Incorporated by reference
to Exhibit 10.14 to the Company's Registration Statement No.
33-77674 on Form S-1.)
37
<PAGE> 40
10.30 Group Purchasing Organization Participating Agreement between APS
Healthcare Purchasing Partners, L.P. and Quorum Health Group, Inc.
dated November 30, 1995. (Incorporated by reference to Exhibit
10.30 to the Company's Report on Form 10-K for the year ended June
30, 1996.)
10.31 First Amendment effective as of June 1, 1997, to Group Purchasing
Organization Participating Agreement between Premier Purchasing
Partners, L.P., f/k/a APS Healthcare Purchasing Partners, L.P. dated
November 30, 1995.
10.32 Lease Agreement by and between QHG of South Carolina, Inc., a
subsidiary of the Company, and C. Edward Floyd, M.D., a Director of
the Company. (Incorporated by reference to Exhibit 10.31 to the
Company's Report on Form 10-K for the year ended June 30, 1996.)
11 Computation of Earnings per Share.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. A Report on Form 8-K was filed with the
Commission on April 17, 1997, to inform the market of the declaration of a
distribution of one common share purchase right for each outstanding share of
the Company's Common Stock, $0.01 par value.
38
<PAGE> 41
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
QUORUM HEALTH GROUP, INC.
BRENTWOOD, TENNESSEE
JUNE 30, 1997
F-1
<PAGE> 42
Quorum Health Group, Inc. and Subsidiaries
Form 10-K -- Item 8 and Item 14(a) (1) and (2) and (d)
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Quorum Health Group, Inc. and
subsidiaries are included in Item 8:
Page No.
Consolidated Statements of Income-- Years Ended
June 30, 1997, 1996 and 1995 F- 4
Consolidated Balance Sheets-- June 30, 1997 and 1996 F- 5
Consolidated Statements of Stockholders' Equity--
Years Ended June 30, 1997, 1996 and 1995 F- 7
Consolidated Statements of Cash Flows-- Years Ended
June 30, 1997, 1996 and 1995 F- 8
Notes to Consolidated Financial Statements--
June 30, 1997 F- 9
The following consolidated financial statement schedule of Quorum Health Group,
Inc. And subsidiaries is included in Item 14(d):
Schedule II-- Valuation and Qualifying Accounts S- 1
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
F-2
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Quorum Health Group, Inc.
We have audited the accompanying consolidated balance sheets of Quorum Health
Group, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quorum Health
Group, Inc. and subsidiaries at June 30, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Nashville, Tennessee
August 4, 1997
except for Note 12, as to which the date is
August 19, 1997
F-3
<PAGE> 44
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Net patient service revenue $ 1,274,498 $ 963,485 $ 724,287
Hospital management/professional services 78,708 78,409 73,913
Reimbursable expenses 60,740 56,653 51,967
----------- ----------- -----------
Net operating revenue 1,413,946 1,098,547 850,167
Expenses:
Salaries and benefits 561,327 420,904 319,736
Reimbursable expenses 60,740 56,653 51,967
Supplies 198,469 160,849 121,869
Fees 125,720 102,690 83,443
Other operating expenses 116,856 92,624 68,064
Provision for doubtful accounts 89,919 56,483 48,780
Depreciation and amortization 75,134 55,901 37,566
Interest 45,601 36,568 22,209
Minority interest 741 109 1,046
Net gain on sale of assets -- (787) --
----------- ----------- -----------
1,274,507 981,994 754,680
----------- ----------- -----------
Income before income taxes and extraordinary
item 139,439 116,553 95,487
Provision for income taxes 55,357 47,321 39,532
----------- ----------- -----------
Income before extraordinary item 84,082 69,232 55,955
Extraordinary charges from retirement of debt (8,197) -- --
----------- ----------- -----------
Net income $ 75,885 $ 69,232 $ 55,955
=========== =========== ===========
Net income per common share:
Income before extraordinary item $ 1.11 $ 0.93 $ 0.76
Extraordinary charges from retirement of debt (0.11) -- --
----------- ----------- -----------
Net income $ 1.00 $ 0.93 $ 0.76
=========== =========== ===========
Weighted average common shares 75,926 74,639 73,737
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 45
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,008 $ 20,382
Accounts receivable, less allowance for
doubtful accounts of $55,360 at June 30,
1997 and $39,752 at June 30, 1996 248,732 185,743
Supplies 31,622 27,170
Other 31,739 25,772
---------- ----------
Total current assets 331,101 259,067
Property, plant and equipment, at cost:
Land 62,109 53,273
Buildings and improvements 324,450 237,359
Equipment 462,726 362,007
Construction in progress 21,192 17,796
---------- ----------
870,477 670,435
Less accumulated depreciation 183,705 119,740
---------- ----------
686,772 550,695
Cost in excess of net assets acquired, net 185,932 142,708
Other 75,186 68,091
---------- ----------
Total assets $1,278,991 $1,020,561
========== ==========
</TABLE>
F-5
<PAGE> 46
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30
------------------------
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 77,225 $ 47,049
Accrued salaries and benefits 61,936 42,694
Deferred revenue 6,198 4,965
Other current liabilities 3,391 1,509
Current maturities of long-term debt 1,869 2,441
---------- ----------
Total current liabilities 150,619 98,658
Long-term debt, less current maturities 519,940 430,877
Deferred income taxes 38,249 33,343
Other liabilities and deferrals 25,450 19,855
Minority interests in consolidated entities 26,618 5,964
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 100,000
shares authorized; 74,137 issued
and outstanding at June 30, 1997
and 72,969 at June 30, 1996 741 730
Additional paid-in capital 272,692 262,337
Retained earnings 244,682 168,797
---------- ----------
518,115 431,864
---------- ----------
Total liabilities and stockholders' equity $1,278,991 $1,020,561
========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 47
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1994 70,364 $ 704 $249,739 $ 43,610 $294,053
Options exercised and
related tax benefits 892 9 3,223 -- 3,232
Stock issued under employee
stock purchase plan 420 4 3,145 -- 3,149
Net income -- -- -- 55,955 55,955
-------- -------- -------- -------- --------
Balance at June 30, 1995 71,676 717 256,107 99,565 356,389
Options exercised and
related tax benefits,
net of shares tendered
in payment 969 10 2,764 -- 2,774
Stock issued under employee
stock purchase plan 324 3 3,466 -- 3,469
Net income -- -- -- 69,232 69,232
-------- -------- -------- -------- --------
Balance at June 30, 1996 72,969 730 262,337 168,797 431,864
Options exercised and
related tax benefits,
net of shares tendered
in payment 888 9 6,430 -- 6,439
Stock issued under employee
stock purchase plan 280 2 3,925 -- 3,927
Net income -- -- -- 75,885 75,885
-------- -------- -------- -------- --------
Balance at June 30, 1997 74,137 $ 741 $272,692 $244,682 $518,115
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 48
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 75,885 $ 69,232 $ 55,955
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 66,907 51,191 33,630
Amortization of intangible assets 8,227 4,710 3,936
Extraordinary charges from retirement of debt 13,307 -- --
Provision for doubtful accounts 89,919 56,483 48,780
Provision for deferred taxes 5,106 13,893 11,369
Other 5,032 2,304 3,150
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (114,589) (71,219) (56,790)
Supplies and other current assets (93) (4,736) (3,232)
Other assets (8,646) (13,790) (5,174)
Accounts payable, accrued expenses
and income taxes 27,630 2,005 (3,983)
Other current liabilities 1,143 102 (2,846)
Other liabilities 3,558 3,996 3,409
--------- --------- ---------
Net cash provided by operating activities 173,386 114,171 88,204
INVESTING ACTIVITIES:
Purchase of acquired companies (184,575) (205,326) (99,721)
Purchase of property, plant and equipment (82,977) (62,122) (58,298)
Other 8,104 1,018 6,610
--------- --------- ---------
Net cash used in investing activities (259,448) (266,430) (151,409)
FINANCING ACTIVITIES:
Borrowings under bank debt 691,700 363,750 269,083
Repayments of bank debt (504,800) (368,000) (212,275)
Repurchase of Senior Subordinated Notes (106,380) -- --
Proceeds from issuance of Senior Subordinated Notes -- 150,000 --
Loan origination costs (1,217) (5,194) (2,137)
Proceeds from issuance of common stock, net 10,366 6,243 6,381
Other (4,981) (1,633) (681)
--------- --------- ---------
Net cash provided by financing activities 84,688 145,166 60,371
--------- --------- ---------
Decrease in cash and cash equivalents (1,374) (7,093) (2,834)
Cash and cash equivalents at beginning of year 20,382 27,475 30,309
--------- --------- ---------
Cash and cash equivalents at end of year $ 19,008 $ 20,382 $ 27,475
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ (42,601) $ (32,198) $ (21,877)
========= ========= =========
Income taxes paid $ (44,489) $ (34,483) $ (30,398)
========= ========= =========
</TABLE>
F-8
<PAGE> 49
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Quorum Health Group, Inc. (the Company) owns and operates acute care hospitals
and local and regional health care systems nationwide through its affiliates. At
June 30, 1997, the Company owned 19 hospitals and managed over 240 hospitals.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable consist primarily of amounts due from (i) the federal
government and state governments under Medicare, Medicaid and other government
programs and (ii) other payors including commercial insurance companies, health
maintenance organizations, preferred provider organizations, self-insured
employers and individual patients. The concentration of net accounts receivable
from government programs as a percent of total net accounts receivable is 35%
and 33% for the years ended June 30, 1997 and 1996, respectively. Concentration
of credit risk relating to accounts receivable is limited to some extent by the
diversity and number of patients and payors and the geographic dispersion of the
Company's operations.
Supplies
Supplies are stated at the lower of cost (first-in, first-out method) or market.
F-9
<PAGE> 50
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property, Plant and Equipment
Depreciation is computed on a straight-line basis principally with a range of
depreciable lives from 20-40 years for buildings and improvements and 3-20 years
for equipment, or over the lives of leases if shorter.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired (or goodwill) consists of the excess
purchase price over the fair value of acquired tangible and identifiable
intangible assets. Goodwill is amortized on a straight-line basis primarily over
15 to 40 years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable based on the undiscounted cash flows of the
entity acquired over the remaining amortization period, the Company's carrying
value of the goodwill will be reduced to estimated fair value. Accumulated
amortization of cost in excess of net assets acquired was $15.7 million and
$10.1 million at June 30, 1997 and 1996, respectively.
Deferred Loan Costs
Deferred loan costs are included in other non-current assets and are amortized
over the term of the related debt by the interest method. Deferred loan costs
are net of accumulated amortization of $.9 million and $3.5 million at June 30,
1997 and 1996, respectively.
Risk Management
The Company maintains self-insured medical plans for certain employees and has
entered into reinsurance agreements with independent insurance companies to
limit its losses. Unpaid claims are accrued based on the estimated ultimate cost
of settlement, including claim settlement expenses, in accordance with past
experience.
The Company generally is insured for professional liability based on a
claims-made policy purchased in the commercial market. The provision for
professional liability and comprehensive general liability claims include
estimates of the ultimate costs for claims incurred but not reported, in
accordance with actuarial projections based on past experience. Management is
aware of no potential professional liability claims whose settlement would have
a material adverse effect on the Company's consolidated financial position or
results of operations.
F-10
<PAGE> 51
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Operating Revenue
Net patient service revenue is received primarily from the federal Medicare and
state Medicaid programs and from commercial insurance carriers. Net patient
service revenue is reported at the estimated net realizable amounts from
patients, third-party payors, and others for services rendered, including
estimated retroactive adjustments under agreements with third-party payors.
Retroactive adjustments are accrued on an estimated basis in the period the
related services are rendered and adjusted in future periods as final
settlements are determined.
Net patient service revenue is net of contractual adjustments and policy
discounts of $1,026.3 million, $746.8 million and $602.2 million for the years
ended 1997, 1996 and 1995, respectively. Approximately 55%, 56% and 57% of gross
patient service revenue was from Medicare and Medicaid for the years ended 1997,
1996 and 1995, respectively.
Financial Instruments
The Company enters into interest rate swap agreements as a means of managing its
interest rate exposure. The differential to be paid or received is recognized
over the life of the agreement as an adjustment to interest expense.
Stock Based Compensation
The Company generally grants stock options for a fixed number of shares to
employees with an exercise price which approximates the fair value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, recognizes no compensation expense for the stock option grants.
Income Per Common Share
Income per common share is based on the weighted average number of shares of
common stock outstanding, and common stock equivalents consisting of dilutive
stock options. Fully diluted earnings per share is not presented because such
amounts approximate earnings per share.
Newly Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to
F-11
<PAGE> 52
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be excluded. Basic
earnings per share before extraordinary item for the years ended June 30, 1997
and June 30, 1996 will be $.04 and $.03, respectively, more than primary
earnings per share. Basic earnings per share for the years ended June 30, 1997
and June 30, 1996 will be $.03 per share, more than primary earnings per share.
The amount of dilutive earnings per share will be the same as the amount of
fully diluted earnings per share for all periods.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. ACQUISITIONS AND DIVESTITURES
During fiscal 1997, the Company acquired certain assets and the business of five
hospitals and affiliated health care entities. The Company also sold a minority
interest in an acute care hospital in Papillion, Nebraska and agreed to sell its
remaining interest in fiscal 1998. During fiscal 1996, the Company acquired
certain assets and the business of two hospitals and affiliated health care
entities and sold one hospital and a minority interest in another hospital for
approximately $6.3 million in cash and notes receivable. During fiscal 1995, the
Company acquired certain assets and the business of three hospitals and
affiliated health care entities.
Hospital and affiliated business acquisitions are summarized as follows (in
thousands):
F-12
<PAGE> 53
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Fair value of assets acquired $ 233,582 $ 210,099 $ 118,910
Fair value of liabilities assumed (29,943) (4,773) (19,189)
Contributions from minority investors (19,064) -- --
--------- --------- ---------
Net cash used for acquisitions $ 184,575 $ 205,326 $ 99,721
========= ========= =========
</TABLE>
All of the foregoing acquisitions were accounted for using the purchase method
of accounting. The allocation of the purchase price associated with certain of
the acquisitions has been determined by the Company based upon available
information and is subject to further refinement. Included in the acquisitions
were costs in excess of net assets acquired of approximately $48.5 million,
$37.6 million, and $3.0 million for the years ended June 30, 1997, 1996, and
1995 respectively. The operating results of the acquired companies have been
included in the accompanying consolidated statements of income from the
respective dates of acquisition.
The following unaudited pro forma results of operations give effect to the
operations of the entities acquired and divested in fiscal 1997, 1996 and 1995
as if the respective transactions had occurred as of the first day of the fiscal
year immediately preceding the year of the transactions (in thousands, except
per share data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997(1) 1996(2) 1995(3)
---------- ---------- ----------
<S> <C> <C> <C>
Net operating revenue $1,481,821 $1,358,293 $1,061,350
Income before extraordinary item 83,551 64,459 62,307
Net income 75,354 64,459 62,307
Income per common share before
extraordinary item 1.10 .86 .84
Net income per common share .99 .86 .84
</TABLE>
- ----------
(1) Includes Kingstree Hospital, Doctors Hospital of Stark County,
Barberton Citizens Hospital and Clinton County Hospital.
(2) Includes The Lutheran Hospital of Indiana, Inc., Jacksonville Hospital,
Mary Black Health System, Kingstree Hospital, Doctors Hospital of Stark
County, Barberton Citizens Hospital, Clinton County Hospital and
excludes the hospital divested in fiscal 1996.
(3) Includes Midlands Community Hospital, Carolinas Hospital System, Lake
City Community Hospital, The Lutheran Hospital of Indiana,
F-13
<PAGE> 54
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inc. and Jacksonville Hospital and excludes the hospital divested in
fiscal 1996.
The pro forma results of operations do not purport to represent what the
Company's results of operations would have been had such transactions in fact
occurred at the beginning of the years presented or to project the Company's
results of operations in any future period.
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30
-------
1997 1996
--------- ---------
<S> <C> <C>
Revolving Line of Credit $ 363,900 $ 177,000
8.75% Senior Subordinated Notes 150,000 150,000
11.875% Senior Subordinated Notes 2,224 100,000
Other debt 5,685 6,318
--------- ---------
521,809 433,318
Less current maturities (1,869) (2,441)
--------- ---------
$ 519,940 $ 430,877
========= =========
</TABLE>
Revolving Line of Credit
During fiscal 1997, the Company replaced its secured $600.0 million revolving
credit facility with a new unsecured five-year revolving credit facility in the
amount of $850.0 million. The credit agreement provides for two consecutive
one-year extensions subject to approval of 100% of the lenders. The loan bears
interest, at the Company's option, at generally the lender's base rate or a
fluctuating rate ranging from .25 to .75 percentage points above LIBOR. The
Company pays a facility fee ranging from .18 to .25 percentage points on the
commitment. The interest rate margins and facility fee rates are based on the
Company's leverage ratio. The Company may prepay the amount outstanding at any
time. The interest rate in effect at June 30, 1997 was 6.3%.
8.75% Senior Subordinated Notes
During fiscal 1996, the Company issued $150.0 million in Senior Subordinated
Notes maturing on November 1, 2005 and bearing interest at 8.75%. The Notes are
subject to redemption at the option of the Company at 104.375% on or after
November 1, 2000, 102.188% on or after November 1, 2001 and at par on or after
November 1, 2002. The Notes are unsecured obligations and are subordinated in
right of payment to all existing and future senior indebtedness.
F-14
<PAGE> 55
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11.875% Senior Subordinated Notes
During fiscal 1997, the Company purchased for cash $97.8 million of its 11.875%
Senior Subordinated Notes (Notes) through a tender offer at a price of $1,087
per $1,000 principal amount. The Notes were repurchased with borrowings under
the Company's Revolving Line of Credit. The Company also amended the related
Indenture to eliminate certain restrictive covenants. The remaining Notes
outstanding are subject to redemption at the option of the Company at prices
declining from 105.875% at December 15, 1997 to par on December 15, 1999.
Other Debt
Other debt consists primarily of subsidiary secured debt, capital leases and
various notes payable. Principal and interest payments are paid in periodic
installments through 2008. Interest rates are fixed and range from 6.3% to
10.5%.
Other Long-Term Debt Information
The credit facilities contain certain financial covenants including but not
limited to the prohibition of dividend payments and other distributions,
repurchase of common stock, investments, asset dispositions, restrictions on
borrowings, the ability to merge or consolidate with or transfer assets to
another entity, the maintenance of net worth and various financial ratios,
including a fixed charge ratio and a leverage ratio. The Company is required to
repurchase all Senior Subordinated Notes at 101% upon a change in control.
Maturities of long-term debt for the fiscal years subsequent to June 30, 1997
are as follows: 1998 - $1.9 million; 1999 - $1.1 million; 2000 - $.5 million;
2001 - $.4 million; 2002 - $366.3 million and thereafter - $151.7 million.
Extraordinary Charges from Retirement of Debt
During the fourth quarter of fiscal 1997, the Company incurred extraordinary
charges of $8.2 million (net of applicable income taxes of $5.1 million). The
charges consist of the premium associated with the purchase of the Notes,
transaction costs, the write-off of unamortized loan costs of the Notes and the
write-off of unamortized loan costs of the $600.0 million secured revolving
credit facility. The Notes were repurchased through a tender offer and the
revolving credit facility was replaced with the new unsecured revolving credit
facility.
F-15
<PAGE> 56
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $43,580 $28,379 $24,609
State and local 6,671 5,049 3,554
------- ------- -------
50,251 33,428 28,163
Deferred:
Federal 4,451 12,680 9,966
State and local 655 1,213 1,403
------- ------- -------
5,106 13,893 11,369
------- ------- -------
$55,357 $47,321 $39,532
======= ======= =======
</TABLE>
A reconciliation of the actual income tax expense and income taxes computed by
applying the statutory federal income tax rate to income before income taxes is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State and local income
taxes, net of federal
income tax benefit 3.4 3.5 3.4
Nondeductible amortization
of cost in excess of net
assets acquired .3 .1 .2
Other 1.0 2.0 2.8
---- ---- ----
39.7% 40.6% 41.4%
==== ==== ====
</TABLE>
Deferred income taxes result from temporary differences in the recognition of
assets, liabilities, revenues and expenses for financial accounting and tax
purposes. Sources of these differences and the related tax effects are as
follows (in thousands):
F-16
<PAGE> 57
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30
-------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $(42,932) $(34,697)
Provision for doubtful accounts (6,579) (5,867)
Other (756) (951)
-------- --------
Total deferred tax liabilities (50,267) (41,515)
-------- --------
Deferred tax assets:
Accrued expenses 5,907 6,016
Employee compensation 5,928 4,300
Other 961 362
-------- --------
Total deferred tax assets 12,796 10,678
-------- --------
Net deferred tax liabilities $(37,471) $(30,837)
======== ========
</TABLE>
The balance sheet classification of deferred income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30
-------
1997 1996
-------- --------
<S> <C> <C>
Current $ 778 $ 2,506
Long-term (38,249) (33,343)
-------- --------
Total $(37,471) $(30,837)
======== ========
</TABLE>
5. STOCKHOLDERS' EQUITY AND STOCK BENEFIT PLANS
Stock Option Plan
The Company accounts for its stock option plans in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees." In 1995, the Financial
Accounting Standards Board issued Statement No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123) which, if fully adopted, changes the method for
recognition of costs in an entity's financial statements. The Company has
adopted the disclosure-only provisions of SFAS 123 and accordingly, recognizes
no compensation expense for the Company's stock option plans. Had compensation
expense for the stock option plan been determined consistent with the provisions
of SFAS 123, the Company's net earnings and earnings per share would have been
as follows (in thousands, except per share data):
F-17
<PAGE> 58
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996
------------------------ ------------------------
As Pro As Pro
Reported Forma Reported Forma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income before extraordinary item $ 84,082 $ 81,432 $ 69,232 $ 68,050
Net income 75,885 73,235 69,232 68,050
Income per common share before
extraordinary item 1.11 1.07 .93 .91
Net income per common share 1.00 .96 .93 .91
</TABLE>
Stock-based compensation costs on a pro forma basis would have reduced pretax
income by $3.4 million and $1.3 million in fiscal 1997 and 1996, respectively.
Because the SFAS 123 method of accounting has not been applied to options
granted prior to July 1, 1995, the resulting pro forma disclosures may not be
representative of that to be expected in future years.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following range of assumptions used
for the option grants which occurred during 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------
1997 1996
---- ----
<S> <C> <C>
Volatility .172 .176
Interest rate 6.3%-6.5% 6.4%-6.5%
Expected life (years) 4.4 4.6
Forfeiture rate 5.6% 5.6%
</TABLE>
Under the Company's stock option plans, non-qualified and incentive stock
options to purchase common stock may be granted to officers, employees and
directors. Under these plans, options are generally granted at an exercise price
equal to the fair market value on the date of grant. Stock options are
exercisable over a period determined by the Board of Directors, but no longer
than ten years after the date of the grant. The Company has reserved 9,632,667
shares of common stock under these plans.
Information regarding the option plans for fiscal 1997, 1996, and 1995 are
summarized below (share amounts in thousands):
F-18
<PAGE> 59
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
STOCK OPTION PRICE WEIGHTED AVERAGE
OPTIONS PER SHARE EXERCISE PRICE
------ ------------- ----------------
<S> <C> <C> <C>
Balances, July 1, 1994 4,136 $ 1.00-$ 7.50 $ 2.90
Granted 1,043 .67- 13.83 11.62
Exercised (893) 1.00- 5.00 2.11
Cancelled (126) 1.00- 12.09 5.11
------
Balances, June 30, 1995 4,160 .67- 13.83 5.19
Granted 3,200 10.13- 17.33 15.06
Exercised (1,101) 1.00- 13.67 2.86
Cancelled (323) 1.00- 15.67 10.65
------
Balances, June 30, 1996 5,936 .67- 17.33 10.65
Granted 1,776 .67- 23.83 17.66
Exercised (926) 1.00- 16.59 5.85
Cancelled (304) 1.00- 16.59 12.18
------
Balances, June 30, 1997 6,482 .67- 23.83 13.18
======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Weighted average fair value for options
granted during the year $5.07 $4.19
Options exercisable 1,692 1,190
Options available for grant 3,747 1,359
</TABLE>
The following table summarizes information regarding the options outstanding at
June 30, 1997 (share amounts in thousands):
F-19
<PAGE> 60
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING RANGE OF AVERAGE AVERAGE
CONTRACT EXERCISE NUMBER EXERCISE NUMBER EXERCISABLE
LIFE (YRS) PRICES OUTSTANDING PRICE EXERCISABLE PRICE
---------- ------ ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
1 $ 4.00 189 $ 4.00 185 $ 4.00
2 5.00- 7.50 233 5.27 157 5.26
3 1.00-13.67 970 8.91 586 6.71
4 13.33-17.50 966 14.46 194 14.31
5 21.00 20 21.00 -- --
7 4.00- 5.00 542 4.25 87 4.26
8 .67-10.13 63 1.05 33 1.41
9 .67-17.50 2,397 15.14 336 14.56
10 12.63-23.84 1,102 19.81 114 12.63
----- -----
6,482 1,692
===== =====
</TABLE>
Employee Stock Purchase Plan
The Company has a qualified and nonqualified employee stock purchase plan. The
purchase price of the shares under the qualified plan is 85% of the lesser of
the fair market value on the first day (March 1) or the last day (February 28)
of the plan year. The purchase price of the shares under the nonqualified plan
is the fair market value on the last day (February 28) of the plan year.
Employees may designate up to 10% of their compensation (not to exceed $25,000
in any calendar year) for the purchase of stock. During fiscal 1997, 281,837
shares were issued yielding net proceeds of approximately $3.9 million. During
fiscal 1996, 324,123 shares were issued yielding net proceeds of approximately
$3.5 million. During fiscal 1995, 419,514 shares were issued yielding net
proceeds of approximately $3.1 million. The Company has reserved 2,250,000
shares of common stock under the plan.
Stockholder Rights Plan
In fiscal 1997, the Company adopted a Stockholder Rights Plan and declared a
dividend of one right for each share of common stock held as of the close of
business on April 28, 1997. Each right entitles stockholders to acquire
one-third of a share of common stock at an exercise price of $100, subject to
adjustment. Such rights become exercisable only if a person or group acquires
beneficial ownership of 15 percent or more of the Company's common stock or
commences a tender or exchange offer which would result in that person or group
owning 15 percent or more of the Company's common stock. After any person has
acquired 15 percent or more of the Company's common stock, each right
F-20
<PAGE> 61
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
not owned by such person or certain related parties will entitle its holder to
purchase a number of shares of the Company's common stock (or any combination of
common stock, preferred stock, debt securities and cash, as determined by the
Board of Directors) having a market value of two times the then-current exercise
price of the right. In the event the Company is involved in a merger or other
business combination transaction with another person or sells 50 percent or more
of its assets or earning power to another person, each right will entitle its
holder to purchase a number of shares of the Company's common stock or the
acquiring company's common stock having a market value of two times the
then-current exercise price of the right. The rights may be redeemed at $.01 per
right at any time until the tenth day following public announcement that a 15
percent position has been acquired. The rights expire on April 28, 2007.
6. EMPLOYEE BENEFIT PLANS
The Company sponsors defined contribution employee benefit plans which cover
substantially all employees. Employees may contribute up to 15% of eligible
compensation subject to Internal Revenue Service (IRS) limits. The plans permit
the Company to make a discretionary base contribution and a discretionary match
to employee deferrals. The Company's contribution to the plans is determined
annually by the Board of Directors. Base contributions under the plans vest at
the end of each plan year and matching contributions vest after five years of
qualifying service. Benefit plan expense for the years ended June 30, 1997, 1996
and 1995 totaled approximately $13.0 million, $9.2 million and $8.2 million,
respectively.
7. LEASES
The Company leases hospitals, medical office buildings and equipment under
agreements that generally require the Company to pay all maintenance, property
taxes and insurance costs and that expire on various dates extending to the year
2007. Certain leases include options to purchase the leased property during or
at the end of the lease term at fair market value.
Rental expense for all operating leases totaled $22.2 million, $17.1 million,
and $12.8 million for the years ended June 30, 1997, 1996 and 1995,
respectively.
Future minimum rental commitments under noncancelable operating leases at June
30, 1997 are as follows: 1998 - $15.4 million; 1999 - $12.9 million; 2000 -
$10.8 million; 2001 - $9.4 million; 2002 - $7.9 million and thereafter - $21.1
million.
F-21
<PAGE> 62
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS
The Company has entered into a $60 million commitment to construct a hospital
and medical office building in Florence, South Carolina. The facilities are to
be completed in fiscal 1999.
9. CONTINGENCIES
Management continually evaluates contingencies based on the best available
evidence and believes that provision for losses has been provided to the extent
necessary. In the opinion of management, the ultimate resolution of the
following contingencies will not have a material effect on the Company's results
of operations or financial position.
Litigation
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business.
Net Patient Service Revenue
Final determination of amounts earned under the Medicare and Medicaid programs
often occurs in subsequent years because of audits by the programs, rights of
appeal and the application of numerous technical provisions.
Financial Instruments
Interest rate swap agreements are used on a limited basis to manage the
Company's interest rate exposure. The agreements are contracts to periodically
exchange fixed and floating interest rate payments over the life of the
agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement was
consummated. In fiscal 1997, the Company amended its 1993 interest rate swap
agreements to effectively convert two borrowings of $50.0 million each from
fixed-rate to floating-rate through September 16, 2001 and December 1, 2001. In
addition, the Company entered into interest rate swap agreements which
effectively convert $100.0 million and $200.0 million of floating-rate
borrowings to fixed-rate borrowings through December 12, 2001 and March 20,
2002, respectively. For the years ended June 30, 1997, 1996 and 1995, the
Company received a weighted average rate of 5.8%, 5.8% and 5.6%, respectively
and paid a weighted average rate of 5.9%, 4.8% and 4.2%, respectively.
The Company is exposed to credit losses in the event of nonperformance
F-22
<PAGE> 63
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
by the counterparty to its financial instruments. The Company anticipates that
the counterparty will be able to fully satisfy its obligations under the
contracts.
Income Taxes
The IRS is in the process of conducting examinations of the Company's federal
income tax returns for the years ended 1993 through 1995. During fiscal 1996,
the IRS proposed certain adjustments in connection with its examination of the
Company's federal income tax returns for the fiscal years ending June 30, 1990
through 1992. The most significant adjustment involves the amortization
deductions claimed on certain acquired intangible assets in conjunction with the
acquisition of Quorum Health Resources, Inc. The Company is currently protesting
the proposed adjustments through the appeals process of the IRS.
Other
In June 1993, the Office of the Inspector General (OIG) of the Department of
Health and Human Services requested information from the Company in connection
with an investigation involving the Company's procedures for preparing Medicare
cost reports. In January 1995, the U.S. Department of Justice issued a Civil
Investigative Demand which also requested information from the Company in
connection with that same investigation. As a part of the government's
investigation, several former and current employees of the Company have been
interviewed. The Company has provided information and is cooperating fully with
the investigation. The Company cannot predict whether the government will
commence litigation regarding this matter.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments, with the
exception of long-term debt, approximate their carrying amounts in the
consolidated balance sheets.
The carrying value of long-term debt (including current portion) was $521.8 and
$433.3 million for the years ended June 30, 1997 and 1996, respectively. The
fair value of long-term debt was $521.1 million and $443.5 million for the years
ended June 30, 1997 and 1996, respectively. The fair value of publicly traded
notes has been determined using the quoted market price at June 30, 1997 and
1996. The fair values of the remaining long-term debt are estimated using
discounted cash flows, based on the Company's incremental borrowing rates. The
estimates of fair value include the effect of the interest rate swap agreements.
F-23
<PAGE> 64
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended June 30, 1997 and 1996 is
summarized below (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
-------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
- ----
Net operating revenue $316,001 $342,137 $377,096 $378,712
Income before income taxes
and extraordinary item 29,065 33,346 39,941 37,087
Net income 17,526 20,108 24,084 14,167
Income per common share
before extraordinary item .23 .27 .32 .29
Net income per common share .23 .27 .32 .18
1996
- ----
Net operating revenue $253,712 $273,244 $286,007 $285,584
Income before income taxes 24,546 28,406 33,543 30,058
Net income 14,580 16,873 19,925 17,854
Net income per common share .19 .23 .27 .24
</TABLE>
12. SUBSEQUENT EVENT
On July 10, 1997, the Company signed an Asset Purchase Agreement to acquire
certain assets and businesses of Wesley Health System, Inc. in Hattiesburg,
Mississippi. The proposed transaction is subject to the completion of customary
closing conditions and obtaining certain regulatory approvals.
On August 19, 1997, the Board of Directors approved a three-for-two stock split
effected in the form of a dividend payable to shareholders of record on
September 2, 1997. The shares of common stock, price per share, the number of
shares subject to options and the exercise prices in the consolidated financial
statements have been retroactively restated to give effect to the stock dividend
for all periods presented.
F-24
<PAGE> 65
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
(1) (2) (3)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997:
Allowance for doubtful accounts $39,752 $89,919 $18,424(a) $92,735(b) $55,360
Year ended June 30, 1996:
Allowance for doubtful accounts $44,828 $56,483 $ 9,210(a) $70,769(b) $39,752
Year ended June 30, 1995:
Allowance for doubtful accounts $31,384 $48,780 $12,803(c) $48,139(b) $44,828
</TABLE>
(a) Allowance for doubtful accounts of acquired companies.
(b) Accounts written off, net of recoveries.
(c) Allowance for doubtful accounts of acquired hospitals and allowance for
doubtful accounts not sold in connection with the divestiture of a
hospital identified at the date of acquisition as being held for sale.
S-1
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Brentwood, State of Tennessee on September 26, 1997.
QUORUM HEALTH GROUP, INC.
By: /s/ Steve B. Hewett
-------------------------------
Steve B. Hewett
Title: Vice President (Chief
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated below:
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
/s/ James E. Dalton, Jr. President, Chief Executive Sept. 26, 1997
- ------------------------
James E. Dalton, Jr. Officer and Director (Principal
Executive Officer)
/s/ Steve B. Hewett Vice President (Chief Sept. 26, 1997
- ------------------------
Steve B. Hewett Financial Officer)
/s/ Terry E. Allison Vice President and Assistant Sept. 26, 1997
- ------------------------
Terry E. Allison Treasurer (Chief Accounting Officer)
/s/ Russell L. Carson Chairman of the Board Sept. 26, 1997
- ------------------------
Russell L. Carson
/s/ Sam A. Brooks, Jr. Director Sept. 26, 1997
- ------------------------
Sam A. Brooks, Jr.
/s/ Dr. C. Edward Floyd Director Sept. 26, 1997
- ------------------------
Dr. C. Edward Floyd
/s/ Joseph C. Hutts Director Sept. 26, 1997
- ------------------------
Joseph C. Hutts
/s/ Kenneth J. Melkus Director Sept. 26, 1997
- ------------------------
Kenneth J. Melkus
/s/ Thomas S. Murphy,Jr. Director Sept. 26, 1997
- ------------------------
Thomas S. Murphy, Jr.
</TABLE>
Sig-1
<PAGE> 67
<TABLE>
<S> <C> <C>
/s/ Rocco A. Ortenzio Director Sept. 26, 1997
- ---------------------
Rocco A. Ortenzio
/s/ S. Douglas Smith Director Sept. 26, 1997
- -----------------------
S. Douglas Smith
/s/ Colleen Conway Welch Director Sept. 26, 1997
- ------------------------
Colleen Conway Welch
</TABLE>
Sig-2
<PAGE> 1
EXHIBIT 4.1.3
QUORUM HEALTH GROUP, INC.
Issuer
TO
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
First Supplemental Indenture
Dated as of May 7, 1997
$100,000,000
11 7/8% Senior Subordinated Notes due December 15, 2002
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE dated as of May 7, 1997, between QUORUM
HEALTH GROUP, INC., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company"), and United States Trust Company of New
York, as Trustee (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee are parties to that certain Indenture
dated as of December 15, 1992 (the "Indenture"), regarding the Company's 117/8%
Senior Subordinated Notes due December 15, 2002 (the "Notes");
WHEREAS, the Company has commenced an offer to purchase (the "Offer") for
cash all of its outstanding Notes from all Holders, upon the terms and subject
to the conditions set forth in the Offer to Purchase and Consent Solicitation
Statement dated as of April 24, 1997 and in the related Consent and Letter of
Transmittal dated April 24, 1997;
WHEREAS, in connection with the Offer and forming a part thereof, the
Company has solicited consents (the "Consents") of the Holders of the Notes to
effect certain amendments ("the Amendments") to the Indenture (the
"Solicitation");
WHEREAS, there have been validly delivered Consents of Holders of a
majority in principal amount of the Notes outstanding that are owned by Holders
other than the Company, any subsidiary or any person directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
the Company or any subsidiary;
WHEREAS, Section 902 of the Indenture permits the Company and the
Trustee to enter into a Supplemental Indenture; and
WHEREAS, in accordance with the terms of the Offer and Solicitation, the
Company has determined that it is necessary or required to supplement the
Indenture to reflect the Amendments.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual premises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby supplement
and amend the Indenture (such amendments not to become operative until validly
tendered Notes are accepted for payment by the Company) as follows:
<PAGE> 3
1. The covenant entitled "Limitation on Consolidated Debt" (Section 1008
of the Indenture) is hereby deleted in its entirety.
2. The covenant entitled "Limitation on Layered and Junior Debt" (Section
1009 of the Indenture) is hereby deleted in its entirety.
3. The covenant entitled "Limitation on Restricted Payments" (Section 1010
of the Indenture) is hereby deleted in its entirety.
4. The covenant entitled "Limitation on Investments" (Section 1011 of the
Indenture) is hereby deleted in its entirety.
5. The covenant entitled "Limitations Concerning Distributions by
Subsidiaries, etc." (Section 1012 of the Indenture) is hereby deleted in its
entirety.
6. The covenant entitled "Limitation on Liens" (Section 1013 of the
Indenture) is hereby deleted in its entirety.
7. The covenant entitled "Limitation on Certain Sales of Capital Stock of
Subsidiaries and Certain Assets" (Section 1015 of the Indenture) is hereby
deleted in its entirety.
8. The covenant entitled "Change of Control" (Section 1016 of the
Indenture) is hereby deleted in its entirety.
9. The covenant entitled "Unrestricted Subsidiaries" (Section 1018 of the
Indenture) is hereby deleted in its entirety.
10. The covenant entitled "Mergers, Consolidations and Certain Sales and
Purchases of Assets" (Section 801 of the Indenture) is hereby amended in full to
be and read as follows:
SECTION 801. Mergers, Consolidations and Certain Sales and Purchases of
Assets.
The Company (a) shall not consolidate with or merge into any other Person;
(b) shall not permit any other Person to consolidate with or merge into (i) the
Company or (ii) any Restricted Subsidiary in a transaction in which such
Subsidiary remains a Restricted Subsidiary; (c) shall not, directly or
indirectly, transfer, convey, sell, lease or otherwise dispose of all or
substantially all of its proper ties and assets as an entirety; and (d) shall
not, and shall not permit any Restricted Subsidiary to (i) directly or
indirectly, acquire Capital Stock of or other ownership interests in any other
Person such that such other Person becomes a Subsidiary of the Company or
(ii) directly or
3
<PAGE> 4
indirectly, purchase, lease or otherwise acquire all or substantially all of
the properties and assets of any Person as an entirety or any existing
business (whether existing as a separate entity, subsidiary, division, unit
or otherwise) of any Person; unless, in any such transaction:
(1) immediately before and after giving effect to such transaction
and treating any Debt Incurred by the Company or a Subsidiary of the
Company as a result of such transaction as having been Incurred by the
Company or such Subsidiary at the time of such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
(2) in the case the Company shall consolidate with or merge into
another Person or shall directly or indirectly transfer, convey, sell,
lease or otherwise dispose of all or substantially all of its properties
and assets as an entirety, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by transfer,
conveyance, sale, lease or other disposition all or substantially all of
the properties and assets of the Company as an entirety (for purposes of
this Article Eight, a "Successor Company") shall be a corporation,
partnership, limited liability company or trust, shall be organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume by an
indenture supplemental hereto executed and delivered to the Trustee, in
form satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Securities and
the performance of every covenant of this Indenture on the part of the
Company to be performed or observed; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer, lease, other disposition,
acquisition or purchase, and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, complies
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with, and, with respect to
such Officers' Certificate, setting forth the manner of determination of
the Consolidated Net Worth and the Consolidated Cash Flow Ratio of the
Company or, if applicable, of the Successor Company as required pursuant
to the foregoing.
4
<PAGE> 5
11. The covenant entitled "Limitation on Transactions with Affiliates and
Related Persons" (Section 1014 of the Indenture) is hereby amended in full to be
and read as follows:
SECTION 1014. Limitation on Transactions with Affiliates and
Related Persons.
The Company shall not, and shall not permit any Subsidiary of the
Company to, directly or indirectly, enter into any transaction (including the
purchase, sale, lease or exchange of property, the rendering of any service or
the making of any loan or advance) with any Affiliate or Related Person, unless
(1) such Affiliate or Related Person is (both before and after such
transaction) (a) a Wholly Owned Subsidiary of the Company or (b) another
Subsidiary of the Company the minority interests in which are not held by
any Affiliate or Related Person;
(2) the Board of Directors shall determine (in its good faith
judgment and evidenced by a Board Resolution) that:
(i) the terms of such transaction are in the best interests of
the Company or such Subsidiary; and
(ii) such transaction is on terms no less favorable to the
Company or such Subsidiary than those that could be obtained in a
comparable arm's length transaction with an entity that is not an
Affiliate or a Related Person; or
(3) the transaction is in the ordinary course of business of the
Company or such Subsidiary consistent with past practice and the total
consideration given by the Company or such Subsidiary in such transaction
or series of transactions of which it is a part (including cash, the fair
value of non-cash property and the assumption of Debt, as evidenced by an
Officer's Certificate) does not exceed $2,000,000.
12. Clause (3) of Section 5.01 of the Indenture entitled "Events of
Default" is hereby deleted in its entirety.
13. In executing this First Supplemental Indenture, the Trustee
acknowledges that it has received, as permitted by Section 903 of the Indenture,
an opinion prepared by the Company's special counsel, Reboul, MacMurray, Hewitt,
Maynard & Kristol, dated as of the date hereof, a copy of which is attached
hereto as Exhibit A.
5
<PAGE> 6
14. Capitalized terms used herein without definition shall have the
meanings set forth in the Indenture.
15. This First Supplemental Indenture may be executed in any number of
counterparts with the same effect as if the signature to each counterpart were
upon a single instrument, and all such counter parts together will be deemed an
original of this First Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the date first written above.
Quorum Health Group, Inc.
By:_____________________________________
Name:
Title:
Attest:
_______________________________
United States Trust Company
of New York
By:_____________________________________
Name:
Title:
Attest:
_______________________________
6
<PAGE> 1
EXHIBIT 4.4.18
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
DATED AS OF APRIL 22, 1997,
BY AND AMONG
QUORUM HEALTH GROUP, INC.,
AS BORROWER,
THE LENDERS REFERRED TO HEREIN,
AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS AGENT
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS............................................................................. 1
SECTION 1.1 Definitions............................................................... 1
SECTION 1.2 General................................................................... 17
SECTION 1.3 Other Definitions and Provisions.......................................... 18
ARTICLE II CREDIT FACILITY........................................................................ 18
SECTION 2.1 Revolving Credit and Competitive Bid Loans................................ 18
SECTION 2.2 Swingline Loans........................................................... 19
SECTION 2.3 Procedure for Advances of Revolving Credit and
Swingline Loans........................................................... 20
SECTION 2.4 Procedure for Advances of Competitive Bid Loans........................... 21
SECTION 2.5 Repayment of Loans........................................................ 23
SECTION 2.6 Notes..................................................................... 24
SECTION 2.7 Permanent Reduction of the Aggregate Commitment........................... 24
SECTION 2.8 Termination and Extension of Credit Agreement............................. 25
SECTION 2.9 Use of Proceeds........................................................... 25
SECTION 2.10 Guaranty Agreement........................................................ 26
ARTICLE III LETTER OF CREDIT FACILITY............................................................. 26
SECTION 3.1 L/C Commitment............................................................ 26
SECTION 3.2 Procedure for Issuance of Letters of Credit............................... 26
SECTION 3.3 Commissions and Other Charges............................................. 27
SECTION 3.4 L/C Participations........................................................ 27
SECTION 3.5 Reimbursement Obligation of the Borrower.................................. 28
SECTION 3.6 Obligations Absolute...................................................... 28
SECTION 3.7 Effect of Application..................................................... 29
ARTICLE IV GENERAL LOAN PROVISIONS................................................................ 29
SECTION 4.1 Interest.................................................................. 29
SECTION 4.2 Notice and Manner of Conversion or Continuation of
Revolving Credit Loans.................................................... 31
SECTION 4.3 Fees...................................................................... 32
SECTION 4.4 Manner of Payment......................................................... 33
SECTION 4.5 Crediting of Payments and Proceeds........................................ 33
SECTION 4.6 Adjustments............................................................... 33
SECTION 4.7 Nature of Obligations of Lenders Regarding Extensions
of Credit; Assumption by the Agent........................................ 34
SECTION 4.8 Changed Circumstances..................................................... 34
SECTION 4.9 Indemnity................................................................. 36
SECTION 4.10 Capital Requirements...................................................... 37
SECTION 4.11 Taxes..................................................................... 37
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.12 Replacement of Lenders.................................................... 38
ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING............................................ 39
SECTION 5.1 Closing................................................................... 39
SECTION 5.2 Conditions to Closing and Initial Extensions of Credit.................... 39
SECTION 5.3 Conditions to All Loans and Letters of Credit............................. 42
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER......................................... 43
SECTION 6.1 Representations and Warranties............................................ 43
SECTION 6.2 Survival of Representations and Warranties, Etc........................... 50
ARTICLE VII FINANCIAL INFORMATION AND NOTICES..................................................... 51
SECTION 7.1 Financial Statements...................................................... 51
SECTION 7.2 Notice of Litigation and Other Matters.................................... 52
SECTION 7.3 Loss of Accreditation, Etc................................................ 53
SECTION 7.4 Accuracy of Information................................................... 54
ARTICLE VIII AFFIRMATIVE COVENANTS................................................................ 54
SECTION 8.1 Preservation of Existence and Related Matters............................. 54
SECTION 8.2 Maintenance of Property................................................... 54
SECTION 8.3 Insurance................................................................. 54
SECTION 8.4 Accounting Methods and Financial Records.................................. 55
SECTION 8.5 Payment and Performance of Obligations.................................... 55
SECTION 8.6 Compliance With Laws and Approvals........................................ 55
SECTION 8.7 Environmental Laws........................................................ 55
SECTION 8.8 Compliance with ERISA..................................................... 56
SECTION 8.9 Compliance With Agreements................................................ 56
SECTION 8.10 Visits and Inspections.................................................... 56
SECTION 8.11 Wholly-Owned Entities..................................................... 56
SECTION 8.12 Further Assurances........................................................ 56
ARTICLE IX FINANCIAL COVENANTS.................................................................... 56
SECTION 9.1 Total Leverage Ratio...................................................... 57
SECTION 9.2 Senior Leverage Ratio..................................................... 57
SECTION 9.3 Fixed Charge Coverage Ratio............................................... 57
SECTION 9.4 Debt to Capital Ratio..................................................... 57
SECTION 9.5 Consolidated Net Worth.................................................... 57
ARTICLE X NEGATIVE COVENANTS...................................................................... 57
SECTION 10.1 Limitations on Debt....................................................... 57
SECTION 10.2 Limitations on Contingent Obligations..................................... 58
SECTION 10.3 Limitations on Liens...................................................... 58
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 10.4 .......................................................................... 59
SECTION 10.5 Limitations on Mergers and Liquidation.................................... 62
SECTION 10.6 .......................................................................... 62
SECTION 10.7 Limitations on Dividends, Distributions and Changes in
Capital Structure......................................................... 63
SECTION 10.8 Limitations on Exchange and Issuance of Capital Stock..................... 64
SECTION 10.9 Transactions with Affiliates.............................................. 64
SECTION 10.10 Certain Accounting Changes................................................ 64
SECTION 10.11 Amendments; Payments and Prepayments of Subordinated Debt................. 64
SECTION 10.12 Restrictive Agreements.................................................... 64
SECTION 10.13 Amendments and Prepayments of Other Debt.................................. 64
SECTION 10.14 Continuation of Current Business.......................................... 65
ARTICLE XI DEFAULT AND REMEDIES................................................................... 65
SECTION 11.1 Events of Default......................................................... 65
SECTION 11.2 Remedies.................................................................. 68
SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc........................... 68
ARTICLE XII THE AGENT............................................................................. 69
SECTION 12.1 Appointment............................................................... 69
SECTION 12.2 Delegation of Duties...................................................... 69
SECTION 12.3 Exculpatory Provisions.................................................... 69
SECTION 12.4 Reliance by the Agent..................................................... 70
SECTION 12.5 Notice of Default......................................................... 70
SECTION 12.6 Non-Reliance on the Agent and Other Lenders............................... 70
SECTION 12.7 Indemnification........................................................... 71
SECTION 12.8 The Agent in Its Individual Capacity...................................... 71
SECTION 12.9 Resignation of the Agent; Successor Agent................................. 72
ARTICLE XIII MISCELLANEOUS........................................................................ 72
SECTION 13.1 Notices................................................................... 72
SECTION 13.2 Expenses; Indemnity....................................................... 74
SECTION 13.3 Set-off................................................................... 74
SECTION 13.4 Governing Law............................................................. 74
SECTION 13.5 Consent to Jurisdiction................................................... 75
SECTION 13.6 Binding Arbitration; Waiver of Jury Trial................................. 75
SECTION 13.7 Reversal of Payments...................................................... 76
SECTION 13.8 Injunctive Relief......................................................... 76
SECTION 13.9 Accounting Matters........................................................ 76
SECTION 13.10 Successors and Assigns; Participations.................................... 77
SECTION 13.11 Amendments, Waivers and Consents.......................................... 80
SECTION 13.12 Performance of Duties..................................................... 80
SECTION 13.13 All Powers Coupled with Interest.......................................... 80
SECTION 13.14 Survival of Indemnities................................................... 80
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
SECTION 13.15 Titles and Captions....................................................... 80
SECTION 13.16 Severability of Provisions................................................ 80
SECTION 13.17 Counterparts.............................................................. 81
SECTION 13.18 Term of Agreement......................................................... 81
</TABLE>
EXHIBITS
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Competitive Bid Note
Exhibit A-3 - Form of Swingline Note
Exhibit B - Form of Notice of Borrowing
Exhibit C-1 - Form of Competitive Bid Request
Exhibit C-2 - Form of Competitive Bid Invitation
Exhibit C-3 - Form of Competitive Bid
Exhibit C-4 - Form of Competitive Bid Accept/Reject Letter
Exhibit D - Form of Notice of Conversion/Continuation
Exhibit E - Form of Compliance Certificate
Exhibit F - Form of Assignment and Acceptance
Exhibit G - Form of Notice of Account Designation
Exhibit H - Form of Guaranty Agreement
SCHEDULES
Schedule 1 - Lenders and Commitments
Schedule 1.1(b) - Lenders' Addresses
Schedule 5.2(b) - Certain Guarantors
Schedule 6.1(a) - Jurisdictions of Organization and Qualification
Schedule 6.1(b) - Consolidated Entities and Capitalization
Schedule 6.1(h) - Environmental Reports
Schedule 6.1(i) - ERISA Plans
Schedule 6.1(m) - Labor and Collective Bargaining Agreements
Schedule 6.1(t) - Debt and Contingent Obligations
Schedule 6.1(u) - Litigation
Schedule 10.3 - Existing Liens
Schedule 10.4 - Existing Loans, Advances and Investments
<PAGE> 6
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of the 22nd day of April, 1997, by and among
QUORUM HEALTH GROUP, INC., a corporation organized under the laws of Delaware
(the "Borrower"), the Lenders who are or may become a party to this Agreement,
and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent for the Lenders.
STATEMENT OF PURPOSE
The Borrower has requested, and the Lenders have agreed, to extend
certain credit facilities to the Borrower on the terms and conditions of this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms when used in this Agreement
shall have the meanings assigned to them below:
"Absolute Rate" means, as to any Competitive Bid made by a Lender
pursuant to Section 2.4(b), the fixed percentage rate per annum (expressed in
the form of a decimal to no more than four decimal places) specified by the
Lender making such Competitive Bid.
"Absolute Rate Loan" means any Loan bearing interest at the Absolute
Rate determined in accordance with Section 2.4.
"Acquisition Capital Expenditures" means Capital Expenditures incurred
in connection with the acquisition or substantial replacement of one or more
Facilities or businesses.
"Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary) which directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such first Person or any of its Subsidiaries. The term "control" means the
possession, directly or indirectly, of any other power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
<PAGE> 7
"Agent" means First Union in its capacity as Agent hereunder, and any
successor thereto appointed pursuant to Section 12.9.
"Agent's Office" means the office of the Agent specified in or
determined in accordance with the provisions of Section 13.1.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any time or
from time to time pursuant to the terms hereof. On the Closing Date, the
Aggregate Commitment shall be Eight Hundred Fifty Million Dollars
($850,000,000).
"Agreement" means this Credit Agreement, as amended or modified from
time to time.
"Applicable Law" means all applicable provisions of constitutions,
statutes, laws, rules, treaties, regulations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"Application" means an application, in the form specified by the
Issuing Lender from time to time, requesting the Issuing Lender to issue a
Letter of Credit.
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 13.10.
"Base Rate" means, at any time, the higher of (a) the Prime Rate or (b)
the Federal Funds Rate plus 1/2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.
"Base Rate Loan" means any Revolving Credit Loan bearing interest at a
rate based upon the Base Rate.
"Borrower" means Quorum Health Group, Inc. in its capacity as borrower
hereunder.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina and New York, New York, are open for
the conduct of their commercial banking business, and (b) with respect to all
notices and determinations in connection with, and payments of principal and
interest on, any LIBOR Loan or LIBOR Competitive Loan, any day that is a
Business Day described in clause (a) and that is also a day for trading by and
between banks in Dollar deposits in the London interbank market.
- 2 -
<PAGE> 8
"Capital Expenditure" means any cost by the Borrower or any of the
Consolidated Entities for the purpose of acquiring or constructing any real
property, plant and equipment or other fixed assets, or acquiring any existing
business or part thereof, including any such cost incurred under a title
retention agreement or capital lease, and any such cost incurred for goodwill of
a business or for any noncompetition covenant or under any earn-out or other
deferred payment arrangement in connection with the acquisition of a business,
and any other expenditure or liability (excluding capitalized loan costs or
other amortized acquisition costs, to the extent properly so classified in
accordance with GAAP) that is properly charged to a capital account or otherwise
capitalized on the Borrower's consolidated balance sheet in accordance with
GAAP.
"Capital Lease" means, with respect to the Borrower and the
Consolidated Entities, any lease of any property that should, in accordance with
GAAP, be classified and accounted for as a capital lease on a Consolidated
balance sheet of the Borrower and the Consolidated Entities.
"Carolinas Hospital System Facility" means the medical surgical acute
care hospital facility and related facilities being constructed to replace a
portion of the existing physical plant of Carolinas Hospital System.
"Change in Control" shall have the meaning assigned thereto in Section
11.1(g).
"Closing Date" means the date of this Agreement or such later Business
Day upon which each condition described in Article V shall be satisfied or
waived in all respects in a manner acceptable to the Agent, in its sole
discretion.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Commitment" means, as to any Lender, the obligation of such Lender to
make Loans to and issue or participate in Letters of Credit issued for the
account of the Borrower hereunder in an aggregate principal or face amount at
any time outstanding not to exceed the amount set forth opposite such Lender's
name on Schedule 1 hereto, as the same may be reduced or modified at any time or
from time to time pursuant to the terms hereof.
"Commitment Percentage" means, as to any Lender at any time, the ratio
of (a) the amount of the Commitment of such Lender to (b) the Aggregate
Commitment of all of the Lenders.
- 3 -
<PAGE> 9
"Committed Extensions of Credit" means, as to any Lender at any time,
an amount equal to the sum of (a) the aggregate principal amount of all
Revolving Credit Loans made by such Lender then outstanding and (b) such
Lender's Commitment Percentage of the L/C Obligations then outstanding.
"Competitive Bid" means an offer by a Lender to make a Competitive Bid
Loan pursuant to Section 2.4.
"Competitive Bid Accept/Reject Letter" means the acceptance or
rejection by the Borrower of Competitive Bids pursuant to Section 2.4.
"Competitive Bid Invitation" means the notice of a Competitive Bid
Request provided by the Agent to the Lenders pursuant to Section 2.4 (b).
"Competitive Bid Loan" means a Loan from a Lender to the Borrower
pursuant to the bidding procedure described in Section 2.4. Each Competitive Bid
Loan shall be a LIBOR Competitive Loan or an Absolute Rate Loan.
"Competitive Bid Notes" means the separate Competitive Bid Notes made
by the Borrower payable to the order of each of the Lenders, substantially in
the form of Exhibit A-2 hereto evidencing the Competitive Bid Loans, and any
amendments and supplements thereto, any substitutes therefor, and any
replacements, restatements, renewals or extension thereof, in whole or in part.
"Competitive Bid Rate" means, as to any Competitive Bid made by a
Lender pursuant to Section 2.4, (a) in the case of a LIBOR Competitive Loan, the
LIBOR Rate adjusted by the Competitive Margin, and (b) in the case of an
Absolute Rate Loan, the fixed rate of interest offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" shall have the meaning assigned thereto in
Section 2.4.
"Competitive Margin" means, as to any LIBOR Competitive Loan, the
margin (expressed as a percentage rate per annum in the form of a decimal to no
more than 4 decimal places) to be added to or subtracted from the LIBOR Rate in
order to determine the interest rate applicable to such Loan, as specified in
the Competitive Bid relating to such Loan.
"Consolidated" means, when used with reference to financial statements
or financial statement items of the Borrower and the Consolidated Entities, such
statements or items on a consolidated basis in accordance with applicable
principles of consolidation under GAAP.
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<PAGE> 10
"Consolidated Entity" means any Person the financial statements of
which are appropriately consolidated with the Borrower's financial statements
under GAAP.
"Consolidated Net Income" means, for any period, the net income (or
deficit) (exclusive of non-cash losses, non-cash interest accruing under the
Shareholder Securities, costs associated with early extinguishment of Debt,
non-cash adjustments under FAS 121, the effect of any gain resulting from any
asset sale, or, to the extent not resulting from an asset sale, any unusual,
extraordinary or other non-recurring gain) of the Borrower and its Consolidated
Entities, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, as of any date, the sum of (a) the
total shareholder's equity (including capital stock, additional paid-in capital
and retained earnings after deducting treasury stock) and (b) the Shareholder
Securities, in each case in the amount which would appear on a Consolidated
balance sheet of the Borrower and the Consolidated Entities prepared as of such
date in accordance with GAAP.
"Contingent Obligation" means, with respect to the Borrower and its
Consolidated Entities, without duplication, any obligation, contingent or
otherwise, of any such Person pursuant to which such Person has directly or
indirectly guaranteed any Debt or other monetary obligation of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of any such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or other
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement condition or otherwise) or (b) entered into
for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, that the term Contingent
Obligation shall not include the following items, to the extent that such items
are not required to be included as Debt on the balance sheet of such Person
prepared in accordance with GAAP:
(i) endorsements for collection or deposit in the ordinary
course of business,
(ii) guaranty obligations or direct obligations relating to
indemnities or covenants arising out of the purchase or sale of
Facilities or any assets substantially related to or supportive of a
Facility,
(iii) physician guaranties and similar arrangements with
physicians entered into in the ordinary course of business,
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<PAGE> 11
(iv) obligations by guaranty or otherwise related to master
lease agreements (or similar arrangements having like effect) of
medical office buildings or like properties which are utilized by or
which directly support a Facility so long as such arrangements relate
reasonably to the expected utilization of such medical office building
in support of the Facilities, and
(v) obligations arising under Letters of Credit.
"Controlled Company" means a limited liability company in which the
Borrower or a Consolidated Entity owns at least fifty-one percent (51%) of the
membership interest, controls the right to manage such limited liability company
and to make distributions and is entitled to receive distributions of cash in an
amount proportionate with its equity interest in such company, other than any
preferred cash distribution arrangement approved by the Required Lenders in
writing.
"Controlled Partnership" means a general partnership of which the
Borrower or a Consolidated Entity is a general partner, or a limited partnership
whose sole general partner or sole general partners are the Borrower or a
Consolidated Entity and with respect to which partnership (whether general or
limited) the Borrower or a Consolidated Entity is entitled to receive any
distributions of cash made to the partners thereof in an amount proportionate
with its equity interest in such partnership, other than any preferred cash
distribution arrangement approved by the Required Lenders in writing.
"Credit Facility" means the collective reference to the credit facility
established pursuant to Article II and the L/C Facility.
"Debt" means, with respect to the Borrower and the Consolidated
Entities at any date and without duplication, the sum of the following
calculated in accordance with GAAP:
(a) all indebtedness for money borrowed, including current
maturities of all long-term debt,
(b) all obligations to pay the deferred purchase price of
property or services of any such Person (other than trade payables,
deferred employee compensation and like accrued liabilities arising in
the ordinary course of business),
(c) all obligations of any such Person as lessee under Capital
Leases,
(d) Contingent Obligations of any such Person,
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<PAGE> 12
(e) any obligations arising from any agreement for the sale of
accounts receivable or interests therein, to the extent permitted
hereunder, and
(f) all obligations, contingent or otherwise, of any such
Person relative to the face amount of letters of credit, whether or not
drawn, including without limitation any Reimbursement Obligation, and
banker's acceptances issued for the account of any such Person;
provided that the term "Debt" shall not include (x) any obligations arising
under any Hedging Agreement so long as such obligations are not in default or
(y) the Shareholder Securities.
"Default" means any of the events specified in Section 11.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EBITDA" means, for any period, the Consolidated Net Income of the
Borrower and its Consolidated Entities for such period, plus the sum of the
following to the extent deducted in the determination of Consolidated Net
Income: (i) Interest Expense, (ii) income and franchise taxes, and (iii)
amortization, depreciation and other non-cash charges (including amortization of
goodwill, and other intangible assets). For purposes of calculating EBITDA:
(a) Pro forma effect will be given for acquisitions by the
Borrower. Historical cash flows for acquired businesses or Facilities
will be included in the Borrower's historical cash flows, subject to
receipt by the Agent and the Lenders, with respect to any acquisition
in which the aggregate consideration (including cash payments, deferred
purchase price, earn-outs and assumed debt) exceeds $50,000,000, of (i)
financial information audited (as of a date not more than 15 months
prior to the receipt by the Lenders) by certified public accountants
acceptable to the Required Lenders and accompanied by an opinion of
such accountants acceptable to the Required Lenders, unless the
Required Lenders approve unaudited financial information; and (ii) any
available unaudited financial information for the quarterly fiscal
periods ended since the date of the most recent audited statements.
(b) In addition, for purposes of such calculation, the
Borrower may elect to make pro forma income statement adjustments at
the time of the effective date of such acquisition as follows, subject
to the receipt and approval of any financial information, required to
be delivered pursuant to subsection (a), above:
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<PAGE> 13
(i) With the prior written approval of the Agent,
adjustments to reflect the elimination of that portion of
salary and employee benefit expenses, duplicative
administrative expenses and other objectively-determined,
non-recurring expenses that as a consequence of such
acquisition will no longer be incurred by the Person so
acquired on an on-going basis following the acquisition; and
(ii) With the prior written approval of the Required
Lenders, adjustments to reflect any other savings and expenses
which will be realized by such Person so acquired as a
consequence of such acquisition;
provided, however, that any such adjustment shall be reduced to zero on
a straight line basis over the period of the four fiscal quarters
immediately following the closing of the related acquisition.
(c) Retroactive effect will be given for dispositions of
businesses or Facilities by the Borrower by excluding all historical
earnings before interest, taxes, depreciation and amortization
attributable to businesses or Facilities that are disposed of in
determining EBITDA at any time after the date of disposition.
(d) In computing (i) historical cash flows for acquired
businesses or Facilities to be included in the Borrower's historical
cash flows and (ii) cash flows for businesses or Facilities that are
disposed of to be excluded under clause (b) of this definition, such
cash flows to be included or excluded, as the case may be, shall be
equal to the cash flows for the immediately preceding period of twelve
months; provided, however, that if the information required to
determine cash flows as set out above is not readily available, the
cash flows to be included or excluded, as the case may be, shall be the
average of the cash flows for the immediately preceding two (2) fiscal
years.
"Eligible Assignee" means, with respect to any assignment of the
rights, interest and obligations of a Lender hereunder, a Person that at the
time of such assignment is (a) a commercial bank organized under the laws of the
United States or any state thereof, having combined capital and surplus in
excess of $500,000,000, (b) a finance company, insurance company or other
financial institution which in the ordinary course of business extends credit of
the type extended hereunder and that has total assets in excess of
$1,000,000,000, (c) already a Lender hereunder (whether as an original party to
this Agreement or as the assignee of another Lender), (d) the successor (whether
by transfer of assets, merger or otherwise) to all or substantially all of the
commercial lending business of the assigning Lender, or (e) any other
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<PAGE> 14
Person that has been approved in writing as an Eligible Assignee by the Agent.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of the
Borrower or any ERISA Affiliate or (b) has at any time within the preceding six
years been maintained for the employees of the Borrower or any current or former
ERISA Affiliate.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
"ERISA Affiliate" means any Person who together with the Borrower is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"Eurodollar Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency reserves) in
respect of Eurocurrency liabilities or any similar category of liabilities for a
member bank of the Federal Reserve System in New York City.
"Event of Default" means any of the events specified in Section 11.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"Extensions of Credit" means, as to any Lender at any time, an amount
equal to the sum of (a) the aggregate principal amount of all Loans made by such
Lender then outstanding and (b) such Lender's Commitment Percentage of the L/C
Obligations then outstanding.
"Facility" means an acute care hospital, skilled nursing facility,
medical office building, primary care center, diagnostic center or other health
care-related facility, with all buildings and improvements associated therewith,
that is owned or leased, in whole or in part, by the Borrower or any
Consolidated Entity.
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<PAGE> 15
"Facility Fee Rate" shall have the meaning assigned thereto in Section
4.3(a).
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"Federal Funds Rate" means, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Agent and confirmed in Federal Reserve Board
Statistical Release H.15 (519) or any successor or substitute publication
selected by the Agent. If, for any reason, such rate is not available, then
"Federal Funds Rate" shall mean a daily rate which is determined, in the opinion
of the Agent, to be the rate at which federal funds are being offered for sale
in the national federal funds market at 9:00 a.m. (Charlotte time). Rates for
weekends or holidays shall be the same as the rate for the most immediate
preceding Business Day.
"First Union" means First Union National Bank of North Carolina, a
national banking association, and its successors.
"Fiscal Year" means the fiscal year of the Borrower and its
Consolidated Entities ending on June 30.
"GAAP" means generally accepted accounting principles, as recognized by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Borrower and the Consolidated Entities throughout the period
indicated and consistent with the prior financial practice of the Borrower and
the Consolidated Entities.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantor" means each Wholly-Owned Entity party to the Guaranty
Agreement.
"Guaranty Agreement" means the collective reference to the Guaranty
Agreement dated as of the Closing Date executed by the Guarantors party thereto
in favor of the Agent for the ratable benefit of the Agent and the Lenders
substantially in the form of Exhibit H hereto, and each
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<PAGE> 16
supplement to the Guaranty Agreement delivered after the Closing Date pursuant
to Section 8.11, as each such Guaranty Agreement may be amended or supplemented.
"Hazardous Materials" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Environmental Law or common law, (d) the discharge or emission or release of
which requires a permit or license under any Environmental Law or other
Governmental Approval, (e) which are deemed to constitute a nuisance, a trespass
or pose a health or safety hazard to persons or neighboring properties, (f)
which are materials consisting of underground or aboveground storage tanks,
whether empty, filled or partially filled with any substance, or (g) which
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedging Agreement" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of the Borrower and any confirming letter
executed pursuant to such hedging agreement, all as amended, restated or
otherwise modified.
"Interest Expense" means, for any period, the interest expense
(including, without limitation, interest expense attributable to Capital Leases
and without duplication all net obligations or benefits pursuant to any Hedging
Agreement) (but excluding all non-cash interest under the Shareholder
Securities) of the Borrower or any Consolidated Entity, for such period on a
Consolidated basis in accordance with GAAP.
"Interest Period" shall have the meaning assigned thereto in Section
4.1(b).
"Investment" means, with respect to any Person (a) any loan, advance or
extension of credit to any other Person, (b) the ownership of any shares of
stock, Partnership Interests, Other Equity Interests, obligations or other
securities of any other Person or (c) any joint venture or partnership with, or
any capital contribution to, or other investment in, any other Person; and any
of the foregoing shall be considered an Investment, whether acquired by
purchase, exchange, issuance of stock or other securities, merger,
reorganization or any other method.
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<PAGE> 17
"Issuing Lender" means First Union, in its capacity as issuer of any
Letter of Credit, or any successor thereto.
"Issuing Lender's Office" means the office of the Issuing Lender
specified in or determined in accordance with the provisions of Section 13.1(d).
"Joint Venture" means any Consolidated Entity (a) that is not
wholly-owned, directly or indirectly, by the Borrower and (b) that is formed to
provide healthcare related services or to own, operate, lease or manage a
Facility.
"L/C Commitment" means One Hundred Million Dollars ($100,000,000).
"L/C Facility" means the letter of credit facility established pursuant
to Article III hereof.
"L/C Obligations" means at any time, an amount equal to the sum of (a)
the aggregate undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants" means the collective reference to all the Lenders
other than the Issuing Lender.
"Lender" means each Person executing this Agreement as a Lender set
forth on the signature pages hereto and each Person that hereafter becomes a
party to this Agreement as a Lender pursuant to Section 13.10.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Commitment Percentage of the Loans.
"Letters of Credit" shall have the meaning assigned thereto in Section
3.1.
"LIBOR" means the rate for deposits in Dollars for a period equal to
the Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 a.m. London time, two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such rate is
not available, then "LIBOR" shall mean the rate per annum at which, as
determined by the Agent, Dollars in the amount of $5,000,000 are being offered
to leading banks at approximately 11:00 a.m. London time, two (2) Business Days
prior to the commencement of the applicable Interest Period for settlement in
immediately available funds by leading banks in the London interbank market for
a period equal to the Interest Period selected.
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<PAGE> 18
"LIBOR Competitive Loan" means any Competitive Bid Loan denominated in
Dollars and bearing interest at a rate determined by reference to the LIBOR Rate
in accordance with the provisions of Article II.
"LIBOR Loan" means any Revolving Credit Loan bearing interest at a rate
based upon the LIBOR Rate.
"LIBOR Margin" means the margin (expressed as a percentage) to be used
in determining the LIBOR Rate and shall, from the Closing Date until the receipt
of the initial Margin Certificate, be 0.425% and for each fiscal quarter ending
after the Closing Date shall be determined by reference to the Total Leverage
Ratio set forth in the most recently delivered Margin Certificate as follows:
<TABLE>
<CAPTION>
Total Leverage Ratio LIBOR Margin (%)
-------------------- ----------------
<S> <C>
Less than 1.5 to 1.0 0.2500
Equal to or greater than 1.5 to 1.0 but
0.3125
less than 2.0 to 1.0
Equal to or greater than 2.0 to 1.0 but
0.4250
less than 2.5 to 1.0
Equal to or greater than 2.5 to 1.0 but
0.5000
less than 3.0 to 1.0
Equal to or greater than 3.0 to 1.0
0.7500
</TABLE>
"LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to
the next higher 1/100th of 1%) determined by the Agent pursuant to the following
formula:
LIBOR Rate = LIBOR
----------------------------------
1.00-Eurodollar Reserve Percentage
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
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<PAGE> 19
"Line of Business" shall have the meaning assigned thereto in Section
10.14.
"Loan" means any Revolving Credit Loan, Competitive Bid Loan or
Swingline Loan made to the Borrower hereunder and all such Loans collectively as
the context requires.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Guaranty, any Hedging Agreement executed by any Lender, the Applications and
each other document, instrument and agreement executed and delivered in
connection with this Agreement or otherwise referred to herein or contemplated
hereby, all as may be amended, restated or otherwise modified.
"Maintenance Capital Expenditures" means Capital Expenditures other
than (a) Capital Expenditures relating to the construction of the Carolinas
Hospital System Facility; provided that all Capital Expenditures relating to
such construction in excess of $82,400,000 shall be included in the
determination of Maintenance Capital Expenditures, and (b) Acquisition Capital
Expenditures.
"Margin Certificate" shall have the meaning assigned thereto in Section
7.1(c).
"Material Adverse Effect" means a material adverse effect on the
properties, business, prospects, operations or condition (financial or
otherwise) of the Borrower or any Consolidated Entity taken as a whole or on the
ability of the Borrower and its Consolidated Entities to perform its obligations
under the Loan Documents in each case to which it is a party.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions within the preceding six years.
"Net Income Available for Debt Service" means, for any period, the sum
of (i) EBITDA for such period minus (ii) the aggregate amount of all Maintenance
Capital Expenditures of the Borrower and its Consolidated Entities for such
period plus (iii) Operating Lease Payments for such period plus (iv) minority
interests.
"1995 Indenture" means the Indenture dated as of November 1, 1995
between the Borrower and United States Trust Company of New York, as trustee,
pursuant to which the 1995 Senior Subordinated Notes were issued.
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<PAGE> 20
"1995 Senior Subordinated Notes" means the $150,000,000 8-3/4% Senior
Subordinated Notes due November 1, 2005 issued by the Borrower under the 1995
Indenture.
"1992 Indenture" means the Indenture dated as of December 15, 1992,
between the Borrower and United States Trust Company of New York, as trustee,
pursuant to which the Senior Subordinated Notes were issued.
"1992 Senior Subordinated Notes" means the $100,000,000 11-7/8% Senior
Subordinated Notes due December 15, 2002, issued by the Borrower under the 1992
Indenture.
"Notes" means the separate Revolving Credit Notes, Competitive Bid
Notes or the Swingline Note, or any combination thereof, and "Note" means any of
such Notes.
"Notice of Account Designation" shall have the meaning assigned thereto
in Section 5.2(e)(i).
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.3(a).
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 4.2.
"Obligations" means, in each case, whether now in existence or
hereafter arising: (a) the principal of and interest on (including interest
accruing after the filing of any bankruptcy or similar petition) the Loans, (b)
the L/C Obligations, (c) all payment and other obligations owing by the Borrower
to any Lender or an Affiliate of a Lender or the Agent under any Hedging
Agreement to which a Lender or an Affiliate of a Lender is a party and (d) all
other fees and commissions (including attorney's fees), charges, indebtedness,
loans, liabilities, financial accommodations, obligations, covenants and duties
owing by the Borrower to the Lenders or the Agent, of every kind, nature and
description, direct or indirect, absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, and whether or not
evidenced by any note, and whether or not for the payment of money under or in
respect of this Agreement, any Note, any Letter of Credit or any of the other
Loan Documents.
"Officer's Compliance Certificate" shall have the meaning assigned
thereto in Section 7.1(d).
"Operating Lease Payments" means all expenses under any lease or rental
agreement (other than obligations under Capital Leases) during the period in
question.
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<PAGE> 21
"Other Equity Interests" means all membership interests in any Person
that is a limited liability company, and all equity and other similar interests
in any other Person that is not a corporation, a partnership or a limited
liability company.
"Other Taxes" shall have the meaning assigned thereto in Section
4.11(b).
"Partnership Interests" means all partner interests, and rights to
distributions payable with respect to such interests, in any partnership.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of the
Borrower or any ERISA Affiliates or (b) has at any time within the preceding six
years been maintained for the employees of the Borrower or any of their current
or former ERISA Affiliates.
"Permitted Investments" means:
(1) direct obligations of, or obligations the payment of which is
guaranteed by, the United States of America or an interest in any trust or fund
that invests solely in such obligations or repurchase agreements, properly
secured, with respect to such obligations;
(2) direct obligations of agencies or instrumentalities of the United
States of America having a rating of A or higher by Standard & Poor's Ratings
Services or A2 or higher by Moody's Investors Service, Inc.;
(3) certificates of deposit issued by, or other interest-bearing
deposits with, a bank having its principal place of business in the United
States of America and having equity capital of not less than $250,000,000;
(4) certificates of deposit issued by, or other interest-bearing
deposits with, any other bank organized under the laws of the United States of
America or any state thereof, provided that such deposit is either (i) insured
by the Federal Deposit Insurance Corporation or (ii) properly secured by such
bank by pledging direct obligations of the United States of America having a
market value not less than the face amount of such, deposit;
(5) prime commercial paper maturing within 270 days of the acquisition
thereof and, at the time of acquisition, having a rating of
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<PAGE> 22
A-1 or higher by Standard & Poor's Ratings Services, or P-1 or higher by Moody's
Investors Service, Inc.;
(6) eligible banker's acceptances, repurchase agreements and tax-exempt
municipal bonds having a maturity of less than one year and in each case having
a rating, or being the full recourse obligation of a person whose senior debt
has a rating, of A or higher by Standard & Poor's Ratings Services or A2 or
higher by Moody's Investors Service, Inc.; and
(7) other Investments made with the express prior written approval of
the Required Lenders.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, business trust, joint venture, joint
stock company, pool, syndicate, sole proprietorship, unincorporated
organization, Governmental Authority or any other form of entity or group
thereof.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by First Union as its prime rate. Each
change in the Prime Rate shall be effective as of the opening of business on the
day such change in the Prime Rate occurs. The parties hereto acknowledge that
the rate announced publicly by First Union as its Prime Rate is an index or base
rate and shall not necessarily be its lowest or best rate charged to its
customers or other banks.
"Register" shall have the meaning assigned thereto in Section 13.10(d).
"Reimbursement Obligation" means the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Required Lenders" means, at any date, any combination of holders of at
least fifty-one percent (51%) of the aggregate unpaid principal amount of the
Revolving Credit Notes, or if no amounts are outstanding under the Revolving
Credit Notes, any combination of Lenders whose Commitment Percentages aggregate
at least fifty-one percent (51%).
"Revolving Credit Loans" means the revolving credit loans made by the
Lenders to the Borrower pursuant to Section 2.1(a).
"Revolving Credit Note" means the separate Revolving Credit Notes made
by the Borrower payable to the order of each Lender, substantially in the form
of Exhibit A-1 hereto, evidencing the Revolving Credit Loans, and any amendments
and supplements thereto, any substitutes therefor, and any replacements,
restatements, renewals or extension thereof, in whole or in part.
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"Senior Debt" means all Debt that is not Subordinated Debt.
"Shareholder Securities" means debt securities issued by the Borrower
and distributed to holders of the Borrower's common stock; provided that such
debt securities:
(a) are made expressly subordinate to all other indebtedness
of the Borrower;
(b) provide for the payment of principal thereof and interest
thereon solely in additional debt securities, which comply with this
definition, or in stock of the Borrower until a date no earlier than
the day following the Termination Date; and
(c) do not contain terms and conditions more restrictive on
the Borrower than those set forth in this Agreement.
"Solvent" means, as to the Borrower and the Consolidated Entities on a
particular date, that any such Person (a) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage and is able to pay its debts as they mature, (b) owns property having
a value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (c) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.
"Subordinated Debt" means the collective reference to Debt on Schedule
6.1(t) hereof designated as Subordinated Debt (including, without limitation,
the 1992 Senior Subordinated Notes and the 1995 Senior Subordinated Notes) and
any other Debt of the Borrower or any Subsidiary subordinated in right and time
of payment to the Obligations on terms satisfactory to the Required Lenders and
approved in writing by the Agent.
"Subsidiary" means, as to any Person, any corporation, partnership or
joint venture, whether now existing or hereafter organized or acquired: (a) in
the case of a corporation, of which at least a majority of the outstanding
shares of stock having by the terms thereof ordinary voting power to elect a
majority of the board of directors of such corporation (other than stock having
such voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person and/or one or more of
its Subsidiaries or (b) in the case of a partnership or joint venture, in which
such Person or a Subsidiary of such Person is a general partner or joint
venturer.
"Swingline Commitment" means Twenty Million Dollars ($20,000,000).
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"Swingline Lender" means First Union in its capacity as swingline
lender hereunder.
"Swingline Loan" means the swingline loans made by the Swingline Lender
to the Borrower pursuant to Section 2.2.
"Swingline Note" means the Swingline Note made by the Borrower payable
to the order of the Swingline Lender, substantially in the form of Exhibit A-3
hereto, evidencing the Swingline Facility, and any amendments and supplements
thereto, any substitutes therefor, and any replacements, restatements, renewals
or extension thereof, in whole or in part.
"Swingline Rate" means, for any day, a rate per annum equal to the Base
Rate minus 0.50%.
"Swingline Termination Date" means the earlier to occur of (a) the
resignation of First Union as Agent in accordance with Section 12.9 and (b) the
Termination Date.
"Taxes" shall have the meaning assigned thereto in Section 4.11(a).
"Termination Date" means the earliest of the dates referred to in
Section 2.8.
"Termination Event" means: (a) a "Reportable Event" described in
Section 4043 of ERISA, or (b) the withdrawal of the Borrower or any ERISA
Affiliate from a Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the termination of a
Pension Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate, or the appointment of
a trustee with respect to, any Pension Plan by the PBGC, or (e) any other event
or condition which would constitute grounds under Section 4042(a) of ERISA for
the termination of, or the appointment of a trustee to administer, any Pension
Plan, or (f) the partial or complete withdrawal of the Borrower or any ERISA
Affiliate from a Multiemployer Plan, or (g) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA, or (h) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA, or (i) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"Total Capitalization" means, as of any date of determination, without
duplication, the sum of Total Debt plus Consolidated Net Worth.
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"Total Consolidated Assets" means, as of any date of determination, the
assets of the Borrower and the Consolidated Entities, determined on a
consolidated basis in accordance with GAAP.
"Total Debt" means, as of any date of determination, the aggregate
amount of Debt of the Borrower and the Consolidated Entities determined on a
Consolidated basis.
"Total Leverage Ratio" shall have the meaning assigned thereto in
Section 9.1.
"UCC" means the Uniform Commercial Code as in effect in the State of
North Carolina.
"Uniform Customs" the Uniform Customs and Practice for Documentary
Credits (1994 Revision), International Chamber of Commerce Publication No. 500.
"United States" means the United States of America.
"Wholly-Owned Entity" means a Person all of the shares of capital stock
or other ownership interests of which are owned by the Borrower and/or one or
more of its Wholly-Owned Entities.
SECTION 1.2 General. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Any reference herein to "Charlotte time" shall refer to
the applicable time of day in Charlotte, North Carolina.
SECTION 1.3 Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Notes and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) Miscellaneous. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
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ARTICLE II
CREDIT FACILITY
SECTION 2.1 Revolving Credit and Competitive Bid Loans.
(a) Revolving Credit Loans. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Revolving Credit Loans to the
Borrower from time to time from the Closing Date to but not including the
Termination Date as requested by the Borrower in accordance with the terms of
Section 2.3; provided, that (i) the aggregate principal amount of all
outstanding Revolving Credit Loans (after giving effect to any amount requested)
shall not exceed the Aggregate Commitment less the sum of the aggregate
principal amount of all outstanding Competitive Bid Loans and Swingline Loans
(excluding Swingline Loans simultaneously being repaid with the proceeds of such
Revolving Credit Loans) and the L/C Obligations and (ii) the principal amount of
outstanding Committed Extensions of Credit from any Lender to the Borrower shall
not at any time exceed such Lender's Commitment. Each Revolving Credit Loan by a
Lender shall be in a principal amount equal to such Lender's Commitment
Percentage of the aggregate principal amount of Revolving Credit Loans requested
on such occasion. Subject to the terms and conditions hereof, the Borrower may
borrow, repay and reborrow Revolving Credit Loans hereunder until the
Termination Date.
(b) Competitive Bid Loans. Subject to the terms and conditions of this
Agreement, the Borrower may, prior to the Termination Date and pursuant to the
procedures set forth in Section 2.4, request the Lenders to make offers to make
Competitive Bid Loans; provided, that the aggregate principal amount of all
outstanding Competitive Bid Loans (after giving effect to any amount requested)
shall not exceed the lesser of (i) $225,000,000 or (ii) the Aggregate Commitment
less the sum of the aggregate principal amount of all outstanding Loans and the
L/C Obligations. The Lenders may, but shall have no obligation to, make such
offers and the Borrower may, but shall have no obligation to, accept any such
offers in the manner set forth in Section 2.4. Each Lender acknowledges that the
aggregate principal amount of all such outstanding Competitive Bid Loans made by
such Lender, when taken together with the aggregate principal amount of all
outstanding Revolving Credit Loans (and as to the Swingline Lender, Swingline
Loans) made by such Lender and such Lender's Commitment Percentage of the L/C
Obligations, may exceed such Lender's Commitment.
SECTION 2.2 Swingline Loans.
(a) Availability. Subject to the terms and conditions of this
Agreement, the Swingline Lender agrees to make Swingline Loans to the Borrower
from time to time from the Closing Date to but not including
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<PAGE> 27
the Swingline Termination Date; provided, that the aggregate principal amount of
all outstanding Swingline Loans (after giving effect to any amount requested),
shall not exceed the lesser of (i) the Aggregate Commitment less the sum of the
aggregate principal amount of all outstanding Revolving Credit Loans (excluding
any Revolving Credit Loans, the proceeds of which will be used to repay
Swingline Loans), Competitive Bid Loans and the L/C Obligations and (ii) the
Swingline Commitment. Each Lender acknowledges that the aggregate principal
amount of all outstanding Swingline Loans made by the Swingline Lender, when
taken together with the aggregate principal of all outstanding Revolving Credit
Loans and the Competitive Bid Loans made by such Lender and such Lender's
Commitment Percentage of the L/C Obligations, may exceed such Lender's
Commitment.
(b) Refunding.
(i) Swingline Loans shall be reimbursed fully by the Lenders
on demand by the Swingline Lender. Such reimbursements shall be made by
the Lenders in accordance with their respective Commitment Percentages
and shall thereafter be reflected as Revolving Credit Loans of the
Lenders on the books and records of the Agent. Each Lender shall fund
its respective Commitment Percentage of Revolving Credit Loans as
required to repay Swingline Loans outstanding to the Swingline Lender
upon demand by the Swingline Lender but in no event later than 3:00
p.m. (Charlotte time) on the date such demand is made if made on or
before 1:00 p.m. (Charlotte time) on such date and no later than 12:00
noon (Charlotte time) on the next succeeding Business Day if demand
therefor is made after 1:00 p.m. (Charlotte time).
(ii) The Borrower shall pay to the Swingline Lender on demand
the amount of such Swingline Loans to the extent amounts received from
the Lenders are not sufficient to repay in full the outstanding
Swingline Loans requested or required to be refunded. In addition, the
Borrower hereby authorizes the Agent to charge any account maintained
by it with the Swingline Lender (up to the amount available therein) in
order to immediately pay the Swingline Lender the amount of such
Swingline Loans to the extent amounts received from the Lenders are not
sufficient to repay in full the outstanding Swingline Loans requested
or required to be refunded. If any portion of any such amount paid to
the Swingline Lender shall be recovered by or on behalf of the Borrower
from the Swingline Lender in bankruptcy or otherwise, the loss of the
amount so recovered shall be ratably shared among all the Lenders in
accordance with their respective Commitment Percentages.
(iii) Each Lender acknowledges and agrees that its obligation
to refund Swingline Loans in accordance with the terms of this Section
2.2(b) is absolute and unconditional and shall not
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be affected by any circumstance whatsoever; provided, that if prior to
the refunding of any outstanding Swingline Loans pursuant to this
Section 2.2(b), one of the events described in Section 11.1(h) or (i)
shall have occurred, each Lender will, on the date the applicable
Revolving Credit Loan would have been made, purchase an undivided
participating interest in the Swingline Loan to be refunded in an
amount equal to its Commitment Percentage of the aggregate amount of
such Swingline Loan. Each Lender will immediately transfer to the
Swingline Lender, in immediately available funds, the amount of its
participation and upon receipt thereof the Swingline Lender will
deliver to such Lender a certificate evidencing such participation
dated the date of receipt of such funds and for such amount. Whenever,
at any time after the Swingline Lender has received from any Lender
such Lender's participating interest in a Swingline Loan, the Swingline
Lender receives any payment on account thereof, the Swingline Lender
will distribute to such Lender its participating interest in such
amount (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Lender's participating
interest was outstanding and funded).
SECTION 2.3 Procedure for Advances of Revolving Credit and Swingline
Loans.
(a) Requests for Borrowing. The Borrower shall give the Agent
irrevocable prior written notice in the form attached hereto as Exhibit B (a
"Notice of Borrowing") not later than 11:00 a.m. (Charlotte time) (i) on the
same Business Day as each Base Rate Loan or Swingline Loan and (ii) at least
three (3) Business Days before each LIBOR Loan, of its intention to borrow,
specifying (A) the date of such borrowing, which shall be a Business Day, (B)
the amount of such borrowing, which shall be (1) with respect to Base Rate Loans
in an aggregate principal amount of $3,000,000 or a whole multiple of $1,000,000
in excess thereof, (2) with respect to LIBOR Loans in an aggregate principal
amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof and
(3) with respect to Swingline Loans in an aggregate principal amount of $300,000
or a whole multiple of $100,000 in excess thereof, (C) whether such loans are to
be Revolving Credit Loans or Swingline Loans, (D) in the case of a Revolving
Credit Loan, whether the Loans are to be LIBOR Loans or Base Rate Loans and (E)
in the case of a LIBOR Loan, the duration of the Interest Period applicable
thereto. Notices received after 11:00 a.m. (Charlotte time) shall be deemed
received on the next Business Day. The Agent shall promptly notify the Lenders
of each Notice of Borrowing.
(b) Disbursement of Loans. Not later than 2:00 p.m. (Charlotte time) on
the proposed borrowing date, (i) each Lender will make available to the Agent,
for the account of the Borrower, at the office of the Agent in funds immediately
available to the Agent, such Lender's
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Commitment Percentage of the Revolving Credit Loans to be made on such borrowing
date and (ii) the Swingline Lender will make available to the Agent, for the
account of the Borrower, at the office of the Agent in funds immediately
available to the Agent, the Swingline Loans to be made to the Borrower on such
borrowing date. The Borrower hereby irrevocably authorizes the Agent to disburse
the proceeds of each borrowing requested pursuant to this Section 2.3 in
immediately available funds by crediting such proceeds to a deposit account of
the Borrower maintained with the Agent or by wire transfer to such account as
may be agreed upon by the Borrower and the Agent from time to time. Subject to
Section 4.7 hereof, the Agent shall not be obligated to disburse the portion of
the proceeds of any Revolving Credit Loan requested pursuant to this Section 2.3
to the extent that any Lender has not made available to the Agent its Commitment
Percentage of such Revolving Credit Loan. Revolving Credit Loans to be made for
the purpose of refunding Swingline Loans shall be made by the Lenders as
provided in Section 2.2(b) hereof.
SECTION 2.4 Procedure for Advances of Competitive Bid Loans.
(a) Competitive Bid Request. To request Competitive Bids, the Borrower
shall deliver to the Agent a duly completed Competitive Bid Request in the form
of Exhibit C-1 hereto (a "Competitive Bid Request") to be received by the Agent
(i) not later than 11:00 a.m. (Charlotte time) five (5) Business Days before a
proposed borrowing of LIBOR Competitive Loans and (ii) not later than 11:00 a.m.
(Charlotte time) two (2) Business Days before a proposed borrowing of Absolute
Rate Loans; provided that the Borrower shall not submit a Competitive Bid
Request within five (5) Business Days after the date of any previous Competitive
Bid Request. A Competitive Bid Request that does not conform substantially to
the form of Exhibit C-1 may be rejected in the Agent's sole discretion, and the
Agent shall promptly notify the Borrower of such rejection by telephone promptly
confirmed by telecopy. Such request shall in each case refer to this Agreement
and specify (i) whether the borrowing then being requested is to be a LIBOR
Competitive Loan or an Absolute Rate Loan, (ii) the date of such borrowing
(which shall be a Business Day), (iii) the aggregate principal amount of such
borrowing which shall be in a minimum principal amount of $10,000,000 or a whole
multiple of $5,000,000 in excess thereof and (iv) the Interest Period with
respect to each LIBOR Competitive Loan and each Absolute Rate Loan, which
Interest Periods may not expire on a date later than the first (1st) Business
Day prior to the Termination Date; provided that the Borrower may not request
bids for more than three (3) different durations of Interest Periods in the same
Competitive Bid Request. Promptly after its receipt of a Competitive Bid Request
that is not rejected as aforesaid, the Agent shall invite by telecopier (in the
form set forth in Exhibit C-2 hereto) the Lenders to bid, on the terms and
conditions of this Agreement, to make Competitive Bid Loans pursuant to the
Competitive Bid Request.
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<PAGE> 30
(b) Competitive Bids.
(i) Each Lender may make, in its sole discretion, up to three
(3) Competitive Bids to the Borrower responsive to a Competitive Bid
Request. Each Competitive Bid by a Lender must be received by the Agent
via telecopier, in the form of Exhibit C-3, (i) not later than 10:30
a.m., Charlotte time, three (3) Business Days before any proposed LIBOR
Competitive Loan and (ii) not later than 10:30 a.m., Charlotte time, on
the same Business Day of any proposed Absolute Rate Loan. Multiple bids
shall be accepted by the Agent. Competitive Bids that do not conform
substantially to the format of Exhibit C-3 may be rejected by the Agent
after conferring with, and upon the instruction of, the Borrower, and
the Agent shall notify the Lender making such nonconforming bid of such
rejection as soon as practicable. Each Competitive Bid shall refer to
this Agreement and specify (x) the principal amount (which shall be in
a minimum principal amount of $5,000,000 and in an integral multiple of
$1,000,000 and which may equal the entire principal amount of the
Competitive Bid Loan requested by the Borrower) of the Competitive Bid
Loan or Loans that the Lender is willing to make to the Borrower, (y)
the Competitive Bid Rate or Rates at which the Lender is prepared to
make the Competitive Bid Loan or Loans and (z) the Interest Period
applicable to each such Loan and the last day thereof. A Competitive
Bid submitted by a Lender pursuant to this Section 2.4(b) shall be
irrevocable.
(ii) The Agent shall promptly notify the Borrower by
telecopier, (A) not later than 11:00 a.m., Charlotte time, three (3)
Business Days before a proposed LIBOR Competitive Loan and (B) not
later than 11:00 a.m., Charlotte time, on the same Business Day of each
proposed Absolute Rate Loan, of all the Competitive Bids made, the
Competitive Bid Rate and the principal amount of each Competitive Bid
Loan in respect of which a Competitive Bid was made and the identity of
the Lender that made each bid. The Agent shall send a copy of all
Competitive Bids to the Borrower for its records as soon as practicable
after completion of the bidding process set forth in this Section.
(iii) The Borrower may, in its sole and absolute discretion,
subject only to the provisions of this Section 2.4(b)(iii), accept or
reject any Competitive Bid referred to in Section 2.4(b)(ii). The
Borrower shall notify the Agent by telephone, confirmed by telecopier
in the form of a Competitive Bid Accept/Reject Letter substantially in
the form set forth in Exhibit C-4, whether and to what extent it has
decided to accept or reject any of or all the bids referred to section
2.4(b)(ii), (y) not later than 11:30 a.m., Charlotte time, three
Business Days before a proposed LIBOR Competitive Loan and (z) not
later than 11:30 a.m., Charlotte time, on the same Business Day of a
proposed
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<PAGE> 31
Absolute Rate Loan; provided, however, that (i) the failure by the
Borrower to give such notice shall be deemed to be a rejection of all
the bids referred to in Section 2.4(b)(ii), (ii) the acceptance of bids
by the Borrower shall be made on the basis of ascending (from lowest to
highest) bids for LIBOR Competitive Loans or Absolute Rate Loans within
each Interest Period and the Borrower shall not accept a bid made at a
particular Competitive Bid Rate for a particular Interest Period if the
Borrower has decided to reject a bid made at a lower Competitive Bid
Rate for such Interest Period, (iii) if two or more Lenders submit bids
at the same Competitive Bid Rate, the principal amount of the bids
accepted by the Borrower shall be allocated by the Borrower (after
consultation with the Agent) on a pro rata basis in whole multiples of
$1,000,000, (iv) the aggregate amount of the Competitive Bids accepted
by the Borrower shall not exceed the principal amount specified in the
Competitive Bid Request, and (v) except pursuant to clause (iii) above,
no bid shall be accepted as a Competitive Bid Loan unless such
Competitive Bid Loan is in a minimum principal amount of $5,000,000 and
an integral multiple of $1,000,000. A notice given by the Borrower
pursuant to this Section 2.4 shall be irrevocable.
(iv) The Agent shall promptly notify each bidding Lender
whether or not its Competitive Bid has been accepted (and if so, in
what amount and at what Competitive Bid Rate) by telecopier sent by the
Agent, and each successful bidder shall thereupon become bound, subject
to the other applicable conditions hereof, to make the Competitive Bid
Loan in respect of which its bid has been accepted.
(v) If the Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such bid directly to the
Borrower one-quarter hour earlier than the earliest time at which the
other Lenders are required to submit their bids to the Agent pursuant
to Section 2.4.
(vi) All notices required by this Section shall be given in
accordance with Section 13.1.
(c) Disbursement of Competitive Bid Loans. Not later than 2:00 p.m.
(Charlotte time) on the proposed borrowing date, each Lender whose Competitive
Bid was accepted will make available to the Agent, for the account of the
Borrower, at the office of the Agent in funds immediately available to the
Agent, such Lender's Competitive Bid Loan to be made on such borrowing date. The
Borrower hereby irrevocably authorizes the Agent to disburse the proceeds of
each borrowing accepted pursuant to Section 2.4(b) in immediately available
funds by crediting such proceeds, not later than 3:30 p.m. (Charlotte time) on
the proposed borrowing date, to a deposit account of the Borrower maintained
with the
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Agent or by wire transfer to such account as may be designated by the Borrower
from time to time. The Agent shall not be obligated to disburse the proceeds of
any Competitive Bid Loan accepted pursuant to Section 2.4(b) until each
applicable Lender shall have made available to the Agent its Competitive Bid
Loan.
SECTION 2.5 Repayment of Loans.
(a) Repayment. The Borrower shall repay the outstanding principal
amount of (i) all Revolving Credit Loans on the Termination Date, if not sooner
repaid, (ii) each Competitive Bid Loan on the expiration of the Interest Period
applicable thereto and (iii) all Swingline Loans in accordance with Section
2.2(b), together, in each such case, with all accrued but unpaid interest
thereon to but not including the date of repayment. The Borrower shall have the
right at any time and from time to time to repay the Swingline Loans, each
repayment to be in the principal amount of not less than $300,000 or a whole
multiple of $100,000 in excess thereof.
(b) Mandatory Repayment of Excess Loans. If at any time the outstanding
principal amount of all Loans (excluding Swingline Loans simultaneously being
repaid with the proceeds of Revolving Loans) plus the L/C Obligations exceeds
the Aggregate Commitment, the Borrower shall repay immediately upon notice from
the Agent, by payment to the Agent for the account of the Lenders, Loans in an
amount equal to such excess with each such repayment applied first to the
principal amount of outstanding Swingline Loans (excluding Swingline Loans
simultaneously being repaid with the proceeds of Revolving Loans), then to the
principal amount of outstanding Revolving Credit Loans, and then to the
principal amount of outstanding Competitive Bid Loans, in the inverse order of
maturity of such Competitive Bid Loans.
(c) Limitation on Repayment of Certain Loans. The Borrower may not
repay any LIBOR Loan or any Competitive Bid Loan on any day other than on the
last day of the Interest Period applicable thereto unless such repayment is
accompanied by any amount required to be paid pursuant to Section 4.9 hereof.
SECTION 2.6 Notes.
(a) Revolving Credit Notes. Each Lender's Revolving Credit Loans and
the obligation of the Borrower to repay such Loans shall be evidenced by a
Revolving Credit Note executed by the Borrower payable to the order of such
Lender representing the Borrower's obligation to pay such Lender's Commitment
or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans
made by such Lender to the Borrower hereunder, plus interest and all other fees,
charges and other amounts due thereon. Each Revolving Credit Note shall be dated
the Closing Date (or, in the case of any Revolving Credit Note issued pursuant
to Section
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13.10, dated the effective date of the relevant Assignment and Acceptance) and
shall bear interest on the unpaid principal amount thereof at the applicable
interest rate per annum specified in Section 4.1(a).
(b) Competitive Bid Notes. Each Lender's Competitive Bid Loans and the
obligation of the Borrower to repay such Competitive Bid Loans shall be
evidenced by a Competitive Bid Note executed by the Borrower payable to the
order of such Lender in a principal amount up to $225,000,000 or, if less, the
aggregate unpaid principal amount of all Competitive Bid Loans made by such
Lender to the Borrower hereunder, plus interest on such principal amounts and
all other fees, charges and other amounts due thereon. Each Competitive Bid Note
shall be dated the Closing Date and shall bear interest on the unpaid principal
amount thereof at the applicable interest rate per annum specified in Section
4.1(a).
(c) Swingline Note. The Swingline Loans and the obligation of the
Borrower to repay such Swingline Loans shall be evidenced by a Swingline Note
executed by the Borrower payable to the order of the Swingline Lender
representing the Borrower's obligation to pay the Swingline Lender's Swingline
Commitment or, if less, the aggregate unpaid principal amount of all Swingline
Loans made by the Swingline Lender to the Borrower hereunder, plus interest on
such principal amounts and all other fees, charges and other amounts due
thereon. The Swingline Note shall be dated the Closing Date and shall bear
interest on the unpaid principal amount thereof at the applicable Swingline
Rate.
SECTION 2.7 Permanent Reduction of the Aggregate Commitment.
(a) The Borrower shall have the right at any time and from time to
time, upon at least five (5) Business Days prior written notice to the Agent, to
permanently reduce, in whole at any time or in part from time to time, without
premium, the Aggregate Commitment in an aggregate principal amount not less than
$10,000,000 or any whole multiple in excess thereof.
(b) Each permanent reduction permitted pursuant to this Section 2.7
shall be accompanied by a payment of principal sufficient to reduce the
aggregate outstanding Extensions of Credit of the Lenders after such reduction
to the Aggregate Commitment as so reduced. Any reduction of the Aggregate
Commitment to zero shall be accompanied by payment of all outstanding
Obligations (and furnishing of cash collateral satisfactory to the Agent for all
L/C Obligations) and, if such reduction is permanent, termination of the
Commitments and Credit Facility. Such cash collateral shall be applied in
accordance with Section 11.2(b). If the reduction of the Aggregate Commitment
requires the repayment of any LIBOR Rate Loan or Competitive Bid Loan, such
reduction may be made
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only on the last day of the then current Interest Period applicable thereto
unless such repayment is accompanied by any amount required to be paid pursuant
to Section 4.9 hereof.
SECTION 2.8 Termination and Extension of Credit Agreement. The Credit
Facility shall terminate on the earliest of (a) April 22, 2002 (as such date may
be extended pursuant to this Section 2.8, the "Termination Date"), (b) the date
of termination by the Borrower pursuant to Section 2.7(a), and (c) the date of
termination by the Agent on behalf of the Lenders pursuant to Section 11.2(a);
provided, that not earlier than the thirtieth (30th) day prior to and not later
than the thirtieth (30th) day after each of the first and second anniversaries
of the Closing Date, the Borrower may, by written notice (an "Extension
Request") given to the Agent, request that the Termination Date be extended in
each such instance to a date that is 364 days after the Termination Date then in
effect; provided, however, that the Termination Date shall not thereby be
extended beyond April 22, 2004. The Agent shall promptly advise each Lender of
its receipt of any Extension Request and furnish each Lender with a copy
thereof. Each Lender may, in its sole discretion, consent to a requested
extension by giving written notice thereof to the Agent not later than the
Business Day (the "Extension Confirmation Date") immediately preceding the date
which is thirty-one (31) days after the date of the Extension Request. No Lender
shall be under any obligation or commitment to extend any Termination Date and
no such obligation or commitment on the part of any Lender shall be inferred
from the provisions of this Section 2.8. Failure on the part of any Lender to
respond to an Extension Request by the applicable Extension Confirmation Date
shall be deemed to be a denial of such request by such Lender. The requested
extension shall not be granted unless Lenders holding 100% of the Aggregate
Commitment as of the date the Extension Request is given shall have consented in
writing to such extension. Promptly following the applicable Extension
Confirmation Date and in any event within five (5) Business Days, the Agent
shall provide notice to the Borrower in writing as to whether the requested
extension has been granted (an "Extension Confirmation Notice"). If granted,
such extension shall become effective upon the date of issuance of such
Extension Confirmation Notice. The Agent shall promptly thereafter provide a
copy of such Extension Confirmation Notice to each Lender.
SECTION 2.9 Use of Proceeds. The Borrower shall use the proceeds of the
Loans (a) to repay in full the existing Debt under the Credit Agreement between
Quorum Health Group, Inc., et al as Borrowers, AmSouth Bank of Alabama as Agent
and the Lenders party thereto dated as of May 22, 1995, as amended, (b) the
investment in and acquisition of Facilities and other assets to the extent
permitted hereunder, (c) to redeem or solicit the tender of the 1992 Senior
Subordinated Notes pursuant to the terms of the 1992 Indenture, and (d) for
working capital and other general corporate requirements of the Borrower and the
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Consolidated Entities, including the payment of certain fees and expenses
incurred in connection with the transactions contemplated hereby.
SECTION 2.10 Guaranty Agreement. Pursuant to the terms and conditions
of the Guaranty Agreement, payment and performance of the Obligations shall be
unconditionally guaranteed by each Wholly-Owned Entity.
ARTICLE III
LETTER OF CREDIT FACILITY
SECTION 3.1 L/C Commitment. Subject to the terms and conditions hereof,
the Issuing Lender, in reliance on the agreements of the other Lenders set forth
in Section 3.4(a), agrees to issue standby letters of credit ("Letters of
Credit") for the account of the Borrower on any Business Day from the Closing
Date through but not including the Termination Date in such form as may be
approved from time to time by the Issuing Lender; provided, that the Issuing
Lender shall have no obligation to issue any Letter of Credit if, after giving
effect to such issuance, (a) the L/C Obligations would exceed the L/C Commitment
or (b) the Committed Extensions of Credit would exceed such Lender's Commitment
or (c) the aggregate principal amount of all outstanding Loans plus the L/C
Obligations would exceed the Aggregate Commitment. Each Letter of Credit shall
(i) be denominated in Dollars in a minimum amount of $500,000, (ii) be a standby
letter of credit issued to support obligations of the Borrower or any of its
Subsidiaries, contingent or otherwise, incurred in the ordinary course of
business, (iii) have a term of not more than one (1) year, (iv) expire on a date
which shall be no later than thirty (30) days prior to the Termination Date and
(v) be subject to the Uniform Customs and, to the extent not inconsistent
therewith, the laws of the State of North Carolina. The Issuing Lender shall not
at any time be obligated to issue any Letter of Credit hereunder if such
issuance would conflict with, or cause the Issuing Lender or any L/C Participant
to exceed any limits imposed by, any Applicable Law. References herein to
"issue" and derivations thereof with respect to Letters of Credit shall also
include extensions or modifications of any existing Letters of Credit, unless
the context otherwise requires.
SECTION 3.2 Procedure for Issuance of Letters of Credit. The Borrower
may from time to time request that the Issuing Lender issue a Letter of Credit
by delivering to the Issuing Lender at the Issuing Lender's Office an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other
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papers and information as the Issuing Lender may request. Upon receipt of any
Application, the Issuing Lender shall process such Application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall,
subject to Section 3.1 and Article V hereof, promptly issue the Letter of Credit
requested thereby (but in no event shall the Issuing Lender be required to issue
any Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing
Lender and the Borrower. The Issuing Lender shall furnish to the Borrower a copy
of such Letter of Credit and furnish to each Lender a copy of such Letter of
Credit and the amount of each Lender's L/C Participation therein, all promptly
following the issuance of such Letter of Credit.
SECTION 3.3 Commissions and Other Charges.
(a) The Borrower shall pay to the Agent, for the account of the Issuing
Lender and the L/C Participants, a non-refundable letter of credit commission
with respect to each Letter of Credit in an amount equal to the product of (i)
the LIBOR Margin (on a per annum basis) and (ii) the face amount of such Letter
of Credit. Such commission shall be payable quarterly in arrears on the first
Business Day of each calendar quarter of the Borrower and on the Termination
Date. The Agent shall, promptly following its receipt thereof, distribute to the
Issuing Lender and the L/C Participants all commissions received by the Agent in
accordance with their respective Commitment Percentages.
(b) In addition to the foregoing commission, the Borrower shall pay the
Issuing Lender for its account an issuance fee of one-eighth of one percent
(0.125%) per annum on the face amount of each Letter of Credit, payable
quarterly in arrears on the first Business Day of each calendar quarter and on
the Termination Date, together with the Issuing Lender's standard and customary
documentation and other fees.
SECTION 3.4 L/C Participations.
(a) The Issuing Lender irrevocably agrees to grant and hereby grants to
each L/C Participant, and, to induce the Issuing Lender to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Commitment Percentage in
the Issuing Lender's obligations and rights under each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Lender thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the Issuing
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Lender that, if a draft is paid under any Letter of Credit for which the Issuing
Lender is not reimbursed in full by the Borrower in accordance with the terms of
this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand
at the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Commitment Percentage of the amount of such draft, or any
part thereof, which is not so reimbursed.
(b) Upon becoming aware of any amount required to be paid by any L/C
Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any Letter
of Credit, the Issuing Lender shall notify each L/C Participant of the amount
and due date of such required payment and such L/C Participant shall pay to the
Issuing Lender the amount specified on the applicable due date. If any such
amount is paid to the Issuing Lender after the date such payment is due, such
L/C Participant shall pay to the Issuing Lender on demand, in addition to such
amount, the product of (i) such amount, times (ii) the daily average Federal
Funds Rate as determined by the Agent during the period from and including the
date such payment is due to the date on which such payment is immediately
available to the Issuing Lender, times (iii) a fraction the numerator of which
is the number of days that elapse during such period and the denominator of
which is 360. A certificate of the Issuing Lender with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
With respect to payment to the Issuing Lender of the unreimbursed amounts
described in this Section 3.4(b), if the notice that any such payment is due is
received by the L/C Participants (A) prior to 1:00 p.m. (Charlotte time) on any
Business Day, such payment shall be due that Business Day, and (B) after 1:00
p.m. (Charlotte time) on any Business Day, such payment shall be due on the
following Business Day.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its
Commitment Percentage of such payment in accordance with this Section 3.4, the
Issuing Lender receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise, or any payment of interest on account
thereof, the Issuing Lender will distribute to such L/C Participant its pro rata
share thereof; provided, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
SECTION 3.5 Reimbursement Obligation of the Borrower. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft paid under any Letter of
Credit for the amount of (a) such draft so paid and (b) any taxes, fees, charges
or other costs or expenses
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incurred by the Issuing Lender in connection with such payment. Each such
payment shall be made to the Issuing Lender at its address for notices specified
herein in lawful money of the United States and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Article III from the date such amounts become payable
(whether at stated maturity, by acceleration or otherwise) until payment in full
at the rate which would be payable on any outstanding Base Rate Loans which were
then overdue. If the Borrower fails to timely reimburse the Issuing Lender on
the date the Borrower receives the notice referred to in this Section 3.5, the
Borrower shall be deemed to have timely given a Notice of Borrowing hereunder to
the Agent requesting the Lenders to make a Base Rate Loan on such date in an
amount equal to the amount of such drawing and, subject to the satisfaction or
waiver of the conditions precedent specified in Article V, the Lenders shall
make Base Rate Loans in such amount, the proceeds of which shall be applied to
reimburse the Issuing Lender for the amount of the related drawing and costs and
expenses.
SECTION 3.6 Obligations Absolute. The Borrower's obligations under this
Article III (including without limitation the Reimbursement Obligation) shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender or any beneficiary of a Letter of Credit.
The Borrower also agrees with the Issuing Lender that the Issuing Lender shall
not be responsible for, and the Borrower's Reimbursement Obligation under
Section 3.5 shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged, or any
dispute between or among the Borrower and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred or
any claims whatsoever of a Borrower against any beneficiary of such Letter of
Credit or any such transferee. The Issuing Lender shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions caused by the Issuing Lender's gross
negligence or willful misconduct. The Borrower agrees that any action taken or
omitted by the Issuing Lender under or in connection with any Letter of Credit
or the related drafts or documents, if done in the absence of gross negligence
or willful misconduct and in accordance with the standards of care specified in
the Uniform Customs and, to the extent not inconsistent therewith, the UCC shall
be binding on the Borrower and shall not result in any liability of the Issuing
Lender to the Borrower. The responsibility of the Issuing Lender to the Borrower
in connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in
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connection with such presentment are in conformity with such Letter of Credit.
SECTION 3.7 Effect of Application. To the extent that any provision of
any Application related to any Letter of Credit is inconsistent with the
provisions of this Article III, the provisions of this Article III shall apply.
ARTICLE IV
GENERAL LOAN PROVISIONS
SECTION 4.1 Interest.
(a) Interest Rate Options. Subject to the provisions of this Section
4.1, at the election of the Borrower in accordance with Article II, the unpaid
principal balance of (i) any Revolving Credit Loan shall bear interest at (A)
the Base Rate or (B) the LIBOR Rate plus the LIBOR Margin, (ii) any Competitive
Bid Loan shall bear interest at the applicable Competitive Bid Rate established
pursuant to Section 2.4 and (iii) any Swingline Loan shall bear interest at the
Swingline Rate. Any Revolving Credit Loan as to which the Borrower has not duly
specified an interest rate as provided herein shall be deemed a Base Rate Loan.
(b) Interest Periods.
(i) In connection with each LIBOR Loan, the Borrower, by
giving notice at the times described in Sections 2.3 and 4.2, shall
elect an interest period (each, an "Interest Period") to be applicable
to such Loan, which Interest Period shall be a period of one (1), two
(2), three (3), or six (6) months; provided that:
(A) each Interest Period shall commence on the date
of advance of or conversion to any LIBOR Loan and, in the case
of immediately successive Interest Periods, each successive
Interest Period shall commence on the date on which the next
preceding Interest Period expires;
(B) if any Interest Period would otherwise expire on
a day that is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day; provided, that if
any Interest Period would otherwise expire on a day that is
not a Business Day but is a day of the month after which no
further Business Day occurs in such month, such Interest
Period shall expire on the next preceding Business Day;
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(C) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the relevant calendar month at the end of such
Interest Period; and
(D) no Interest Period shall extend beyond the
Termination Date.
(ii) In connection with each Competitive Bid Loan, the
Borrower, by giving notice at the times described in Section 2.4, shall
elect an Interest Period to be applicable to such Loan, which Interest
Period shall be a period of such duration as accepted by the Borrower
pursuant to Section 2.4(b); provided that:
(A) the Interest Period for any Absolute Rate Loan
shall not be less than seven (7) days nor more than one
hundred eighty (180) days;
(B) the Interest Period for any LIBOR Competitive
Loan shall be a period of one (1), two (2), three (3), or six
(6) months;
(C) if any Interest Period would otherwise expire on
a day that is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day; and
(D) no Interest Period shall extend beyond the
Termination Date.
(iii) With respect LIBOR Rate Loans and LIBOR Competitive
Loans in the aggregate, there shall be no more than eight (8) Interest
Periods in effect at any time.
(c) LIBOR Margin. Adjustments, if any, in the LIBOR Margin shall be
made by the Agent on the fifth (5th) Business Day after receipt by the Agent of
quarterly financial statements for the Borrower and its Subsidiaries and the
accompanying Officer's Compliance Certificate setting forth the Total Leverage
Ratio of the Borrower and its Consolidated Entities as of the most recent fiscal
quarter end. Subject to Section 4.1(d), in the event the Borrower fails to
deliver such financial statements and certificate within the time required by
Section 7.1(c) hereof, the LIBOR Margin shall be the highest LIBOR Margin until
five (5) Business Days after receipt by the Agent of such financial statements
and certificate.
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(d) Default Rate. Upon the occurrence and during the continuance of an
Event of Default, (i) the Borrower shall no longer have the option to request
LIBOR Loans, (ii) all outstanding LIBOR Loans may at the option of the Agent and
shall at the direction of the Required Lenders bear interest at a rate per annum
which shall be two percent (2%) in excess of the rate then applicable to LIBOR
Loans, as applicable, until the end of the applicable Interest Period and
thereafter at a rate equal to two percent (2%) in excess of the rate then
applicable to Base Rate Loans, and (iii) all outstanding Base Rate Loans shall
bear interest at a rate per annum equal to two percent (2%) in excess of the
rate then applicable to Base Rate Loans. Interest shall continue to accrue on
the Notes after the filing by or against the Borrower of any petition seeking
any relief in bankruptcy or under any act or law pertaining to insolvency or
debtor relief, whether state, federal or foreign.
(e) Interest Payment and Computation. Interest on each Base Rate Loan
shall be payable in arrears on the first Business Day of each calendar quarter
for the immediately preceding quarter, commencing on July 1, 1997; interest on
each LIBOR Loan and Competitive Bid Loan shall be payable on the last day of
each Interest Period applicable thereto, and if such Interest Period extends
over three (3) months, at the end of each three (3) month interval during such
Interest Period. All interest rates, fees and commissions provided hereunder
shall be computed on the basis of a 360-day year and assessed for the actual
number of days elapsed.
(f) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lenders
have charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate permitted by Applicable Law and the Lenders shall at the Agent's option
promptly refund to the Borrower any interest received by Lenders in excess of
the maximum lawful rate or shall apply such excess to the principal balance of
the Obligations. It is the intent hereof that the Borrower not pay or contract
to pay, and that neither the Agent nor any Lender receive or contract to
receive, directly or indirectly in any manner whatsoever, interest in excess of
that which may be paid by the Borrower under Applicable Law.
SECTION 4.2 Notice and Manner of Conversion or Continuation of
Revolving Credit Loans. Provided that no Event of Default has occurred and is
then continuing, the Borrower shall have the option to (a) convert at any time
all or any portion of its outstanding Base Rate Loans in a principal amount
equal to $10,000,000 or any whole multiple
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of $1,000,000 in excess thereof into one or more LIBOR Loans, and (b) upon the
expiration of any Interest Period, (i) convert all or any part of its
outstanding LIBOR Loans in a principal amount equal to $3,000,000 or a whole
multiple of $1,000,000 in excess thereof into Base Rate Loans or (ii) continue
such LIBOR Loans as LIBOR Loans. Whenever the Borrower desires to convert or
continue Loans as provided above, the Borrower shall give the Agent irrevocable
prior written notice in the form attached as Exhibit D (a "Notice of Conversion/
Continuation") not later than 11:00 a.m. (Charlotte time) three (3) Business
Days before the day on which a proposed conversion or continuation of such Loan
is to be effective specifying (A) the Loans to be converted or continued, and,
in the case of any LIBOR Loan to be converted or continued, the last day of the
Interest Period therefor, (B) the effective date of such conversion or
continuation (which shall be a Business Day), (C) the principal amount of such
Loans to be converted or continued, and (D) the Interest Period to be applicable
to such converted or continued LIBOR Loan. The Agent shall promptly notify the
Lenders of such Notice of Conversion/Continuation.
SECTION 4.3 Fees.
(a) Facility Fees. Commencing on the Closing Date, the Borrower shall
pay to the Agent, for the account of the Lenders, a non-refundable facility fee
at a rate (the "Facility Fee Rate") per annum equal to the product of (i) the
Facility Fee Rate set forth below and (ii) the amount of the Aggregate
Commitment, whether used or unused. The Facility Fee Rate, from the Closing Date
until the receipt of the initial Margin Certificate, shall be 0.20% and
thereafter shall be determined by reference to the Total Leverage Ratio of the
Borrower and its Consolidated Entities set forth in the most recently delivered
Margin Certificate as follows:
<TABLE>
<CAPTION>
Total Leverage Ratio Facility Fee Rate (%)
-------------------- ---------------------
<S> <C>
Less than 1.5 to 1.0 0.1750
Equal to or greater than 1.5 to 1.0 0.1875
but less than 2.0 to 1.0
Equal to or greater than 2.0 to 1.0 but 0.2000
less than 2.5 to 1.0
Equal to or greater than 2.5 to 1.0 but 0.2500
less than 3.0 to 1.0
Equal to or greater than 3.0 to 1.0 0.2500
</TABLE>
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Adjustments, if any, in the Facility Fee Rate shall be made by the Agent on the
fifth Business Day after receipt by the Agent of quarterly financial statements
for the Borrower and the Consolidated Entities and the accompanying Officer's
Compliance Certificate setting forth the Total Leverage Ratio of the Borrower
and its Subsidiaries as of the most recent fiscal quarter end. In the event the
Borrower fails to deliver such financial statements and certificate within the
time required by Section 7.1 hereof, the Facility Fee Rate shall be the highest
Facility Fee Rate until five (5) Business Days after receipt by the Agent of
such financial statements and certificate. The Facility Fee shall be payable in
arrears on the first Business Day of each fiscal quarter of the Borrower during
the term of this Agreement commencing July 1, 1997, and on the Termination Date.
Such fee shall be distributed by the Agent to the Lenders pro rata in accordance
with the Lenders' respective Commitment Percentages.
(b) Agent's and Other Fees. The Borrower agrees to pay to the Agent,
for its account, the fees set forth in the separate fee letter agreement
executed by the Borrower and the Agent dated March 21, 1997.
SECTION 4.4 Manner of Payment. Each payment by the Borrower on account
of the principal of or interest on the Loans or of any fee, commission or other
amounts (including the Reimbursement Obligation) payable to the Lenders under
this Agreement or any Note shall be made not later than 1:00 p.m. (Charlotte
time) on the date specified for payment under this Agreement to the Agent at the
Agent's Office for the account of the Lenders (other than as set forth below)
pro rata in accordance with their respective Commitment Percentages, in Dollars,
in immediately available funds and shall be made without any set-off,
counterclaim or deduction whatsoever. Any payment received after such time but
before 2:00 p.m. (Charlotte time) on such day shall be deemed a payment on such
date for the purposes of Section 11.1, but for all other purposes shall be
deemed to have been made on the next succeeding Business Day. Any payment
received after 2:00 p.m. (Charlotte time) shall be deemed to have been made on
the next succeeding Business Day for all purposes. Promptly upon receipt by the
Agent of each such payment, the Agent shall distribute to each Lender at its
address for notices set forth herein its pro rata share of such payment in
accordance with such Lender's Commitment Percentage and shall wire advice of the
amount of such credit to each Lender. Each payment to the Agent of the Issuing
Lender's fees or L/C Participants' commissions shall be made in like manner, but
for the account of the Issuing Lender or the L/C Participants, as the case may
be. Each payment to the Agent of Agent's fees or expenses shall be made for the
account of the Agent and any amount payable to any Lender under Sections 4.8,
4.9, 4.10, 4.11 or 13.2 shall be paid to the Agent for the account of the
applicable Lender.
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SECTION 4.5 Crediting of Payments and Proceeds. In the event that the
Borrower shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 11.2, all payments received by the
Lenders upon the Notes and the other Obligations and all net proceeds from the
enforcement of the Obligations shall be applied first to all expenses then due
and payable by the Borrower hereunder, then to all indemnity obligations then
due and payable by the Borrower hereunder, then to all Agent's and Issuing
Lender's fees then due and payable, then to all commitment and other fees and
commissions then due and payable, then to accrued and unpaid interest on the
Swingline Note, then to the principal amount outstanding under the Swingline
Note, then to accrued and unpaid interest on the Revolving Credit Notes and any
termination payments due in respect of a Hedging Agreement with any Lender (pro
rata in accordance with all such amounts due), then to the principal amount
outstanding under the Revolving Credit Notes, then to accrued and unpaid
interest on the Competitive Bid Notes, then to the principal amount outstanding
under the Competitive Bid Notes and then to the cash collateral account
described in Section 11.2(b) hereof to the extent of any L/C Obligations then
outstanding, in that order.
SECTION 4.6 Adjustments. If any Lender (a "Benefitted Lender") shall at
any time receive any payment of all or part of its Extensions of Credit, or
interest thereon, or if any Lender shall at any time receive any collateral in
respect to its Extensions of Credit (whether voluntarily or involuntarily, by
set-off or otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect of such other
Lender's Extensions of Credit, or interest thereon, such Benefitted Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Extensions of Credit, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary
to cause such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, that if all
or any portion of such excess payment or benefits is thereafter recovered from
such Benefitted Lender, such purchase shall be rescinded, and the purchase price
and benefits returned to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of another Lender's
Extensions of Credit may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
SECTION 4.7 Nature of Obligations of Lenders Regarding Extensions of
Credit; Assumption by the Agent. The obligations of the Lenders under this
Agreement to make the Loans and issue or participate in Letters of Credit are
several and are not joint or joint and several. Unless the Agent shall have
received notice from a Lender prior to a
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<PAGE> 45
proposed borrowing date that such Lender will not make available to the Agent
such Lender's ratable portion of the amount to be borrowed on such date (which
notice shall not release such Lender of its obligations hereunder), the Agent
may assume that such Lender has made such portion available to the Agent on the
proposed borrowing date in accordance with Section 2.3(b) and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If such amount is made available to the Agent on a date
after such borrowing date, such Lender shall pay to the Agent on demand an
amount, until paid, equal to the product of (a) the amount of such Lender's
Commitment Percentage of such borrowing, times (b) the daily average Federal
Funds Rate during such period as determined by the Agent, times (c) a fraction
the numerator of which is the number of days that elapse from and including such
borrowing date to the date on which such Lender's Commitment Percentage of such
borrowing shall have become immediately available to the Agent and the
denominator of which is 360. A certificate of the Agent with respect to any
amounts owing under this Section shall be conclusive, absent manifest error. If
such Lender's Commitment Percentage of such borrowing is not made available to
the Agent by such Lender within three (3) Business Days of such borrowing date,
the Agent shall be entitled to recover such amount made available by the Agent
with interest thereon at the rate per annum applicable to Base Rate Loans
hereunder, on demand, from the Borrower. The failure of any Lender to make its
Commitment Percentage of any Revolving Credit Loan available shall not relieve
it or any other Lender of its obligation, if any, hereunder to make its
Commitment Percentage of such Loan available on such borrowing date, but no
Lender shall be responsible for the failure of any other Lender to make its
Commitment Percentage of such Loan available on the borrowing date.
SECTION 4.8 Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate Availability. If with respect to
any Interest Period the Agent or any Lender (after consultation with Agent)
shall determine that, by reason of circumstances affecting the foreign exchange
and interbank markets generally, deposits in eurodollars, in the applicable
amounts are not being quoted via Telerate Page 3750 or offered to the Agent or
such Lender for such Interest Period, then the Agent shall forthwith give notice
thereof to the Borrower. Thereafter, until the Agent notifies the Borrower that
such circumstances no longer exist, the obligation of the Lenders to make LIBOR
Loans and the right of the Borrower to convert any Loan to or continue any Loan
as a LIBOR Loan shall be suspended, and the Borrower shall repay in full (or
cause to be repaid in full) the then outstanding principal amount of each such
LIBOR Loans together with accrued interest thereon, on the last day of the then
current Interest Period applicable to such LIBOR Loan or convert the then
outstanding principal amount of each such LIBOR Loan to a Base Rate Loan as of
the last day of such Interest Period.
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(b) Laws Affecting LIBOR Rate Availability. If, after the date hereof,
the introduction of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any of their respective Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Authority, central bank or comparable agency, shall make it unlawful
or impossible for any of the Lenders (or any of their respective Lending
Offices) to honor its obligations hereunder to make or maintain any LIBOR Loan,
such Lender shall promptly give notice thereof to the Agent and the Agent shall
promptly give notice to the Borrower and the other Lenders. Before giving any
notice to the Agent, such Lender shall designate a different Lending Office if
such designation will avoid the need for giving such notice and will not, in the
judgment of such Lender, be otherwise disadvantageous to such Lender.
Thereafter, until the Agent notifies the Borrower that such circumstances no
longer exist, (i) the obligations of the Lenders to make LIBOR Loans and the
right of the Borrower to convert any Loan or continue any Loan as a LIBOR Loan
shall be suspended and thereafter the Borrower may select only Base Rate Loans
hereunder, and (ii) if any of the Lenders may not lawfully continue to maintain
a LIBOR Loan to the end of the then current Interest Period applicable thereto
as a LIBOR Loan, the applicable LIBOR Loan shall immediately be converted to a
Base Rate Loan for the remainder of such Interest Period, and (iii) thereafter,
such Lender shall make only Base Rate Loans and Absolute Rate Loans hereunder.
(c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any of the
Lenders (or any of their respective Lending Offices) with any request or
directive (whether or not having the force of law) of such Authority, central
bank or comparable agency:
(i) shall subject any of the Lenders (or any of their
respective Lending Offices) to any tax, duty or other charge with
respect to any Note, Letter of Credit or Application or shall change
the basis of taxation of payments to any of the Lenders (or any of
their respective Lending Offices) of the principal of or interest on
any Note, Letter of Credit or Application or any other amounts due
under this Agreement in respect thereof (except for changes in the rate
of tax on the overall net income of any of the Lenders or any of their
respective Lending Offices imposed by the jurisdiction in which such
Lender is organized or is or should be qualified to do business or such
Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of
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Governors of the Federal Reserve System), special deposit, insurance or
capital or similar requirement against assets of, deposits with or for
the account of, or credit extended by any of the Lenders (or any of
their respective Lending Offices) or shall impose on any of the Lenders
(or any of their respective Lending Offices) or the foreign exchange
and interbank markets any other condition affecting any Note;
and the result of any of the foregoing is to increase the costs to any of the
Lenders of maintaining any LIBOR Loan, as applicable, or issuing or
participating in Letters of Credit or to reduce the yield or amount of any sum
received or receivable by any of the Lenders under this Agreement or under the
Notes in respect of a LIBOR Loan or Letter of Credit or Application, then such
Lender shall promptly notify the Agent, and the Agent shall promptly notify the
Borrower of such fact and demand compensation therefor and, within fifteen (15)
days after such notice by the Agent, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or Lenders for such
increased cost or reduction. The Agent will promptly notify the Borrower of any
event of which it has knowledge which will entitle such Lender to compensation
pursuant to this Section 4.8(c); provided, that the Agent shall incur no
liability whatsoever to the Lenders or the Borrower in the event it fails to do
so. The amount of such compensation shall be determined, in the applicable
Lender's sole discretion, based upon the assumption that such Lender funded its
Commitment Percentage of the LIBOR Loans in the London interbank or domestic
certificate of deposit market, as applicable, and using any reasonable
attribution or averaging methods which such Lender deems appropriate and
practical. A certificate of such Lender setting forth the basis for determining
such amount or amounts necessary to compensate such Lender shall be forwarded to
the Borrower through the Agent and shall be conclusively presumed to be correct
save for manifest error.
SECTION 4.9 Indemnity. The Borrower hereby indemnifies each of the
Lenders against any loss or expense which may arise or be attributable to each
Lender's obtaining, liquidating or employing deposits or other funds acquired to
effect, fund or maintain any Loan (a) as a consequence of any failure by the
Borrower to make any payment when due of any amount due hereunder in connection
with a LIBOR Loan, (b) due to any failure of the Borrower to borrow on a date
specified therefor in a Notice of Borrowing, Notice of Continuation/Conversion
or Competitive Bid Accept/Reject Letter or (c) due to any payment, prepayment or
conversion of any LIBOR Loan or Competitive Bid Loan on a date other than the
last day of the Interest Period therefor. The amount of such loss or expense
shall be determined, in the applicable Lender's sole discretion, based upon the
assumption that such Lender funded its Commitment Percentage of the LIBOR Loans
in the London interbank or domestic certificate of deposit market, as
applicable, and
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using any reasonable attribution or averaging methods which such Lender deems
appropriate and practical. A certificate of such Lender setting forth the basis
for determining such amount or amounts necessary to compensate such Lender shall
be forwarded to the Borrower through the Agent and shall be conclusively
presumed to be correct save for manifest error.
SECTION 4.10 Capital Requirements. If either (a) the introduction of,
or any change in, or in the interpretation of, any Applicable Law or (b)
compliance with any guideline or request from any central bank or comparable
agency or other Governmental Authority (whether or not having the force of law),
has or would have the effect of reducing the rate of return on the capital of,
or has affected or would affect the amount of capital required to be maintained
by, any Lender or any corporation controlling such Lender as a consequence of,
or with reference to the Commitments and other commitments of this type, below
the rate which the Lender or such other corporation could have achieved but for
such introduction, change or compliance, then within five (5) Business Days
after written demand by any such Lender, the Borrower shall pay to such Lender
from time to time as specified by such Lender additional amounts sufficient to
compensate such Lender or other corporation for such reduction. A certificate as
to such amounts submitted to the Borrower and the Agent by such Lender, shall,
in the absence of manifest error, be presumed to be correct and binding for all
purposes.
SECTION 4.11 Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrower
hereunder or under the Notes or the Letters of Credit shall be made free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholding, and all liabilities with respect
thereto excluding, (i) in the case of each Lender and the Agent, income and
franchise taxes imposed by the jurisdiction under the laws of which such Lender
or the Agent (as the case may be) is organized or is or should be qualified to
do business or any political subdivision thereof and (ii) in the case of each
Lender, income and franchise taxes imposed by the jurisdiction of such Lender's
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note or Letter of Credit to any Lender or the Agent, (A) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
4.11) such Lender or the Agent (as the case may be) receives an amount equal to
the amount such party would have received had no such deductions been made, (B)
the Borrower shall make such deductions, (C)
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the Borrower shall pay the full amount deducted to the relevant taxing authority
or other authority in accordance with applicable law, and (D) the Borrower shall
deliver to the Agent evidence of such payment to the relevant taxing authority
or other authority in the manner provided in Section 4.11(d).
(b) Stamp and Other Taxes. In addition, the Borrower shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes, levies of the United
States or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the Letters of Credit, the other Loan Documents, or the perfection of any
rights or security interest in respect thereto (hereinafter referred to as
"Other Taxes").
(c) Indemnity. The Borrower shall indemnify each Lender and the Agent
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this
Section 4.11) paid by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Such indemnification shall be made within thirty (30) days
from the date such Lender or the Agent (as the case may be) makes written demand
therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the Agent, at its
address referred to in Section 13.1, the original or a certified copy of a
receipt evidencing payment thereof or other evidence of payment satisfactory to
the Agent.
(e) Delivery of Tax Forms. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
the Borrower, with a copy to the Agent, on the Closing Date or concurrently with
the delivery of the relevant Assignment and Acceptance, as applicable, (i) two
United States Internal Revenue Service Forms 4224 or Forms 1001, as applicable
(or successor forms) properly completed and certifying in each case that such
Lender is entitled to a complete exemption from withholding or deduction for or
on account of any United States federal income taxes, and (ii) an Internal
Revenue Service Form W-8 or W-9 or successor applicable form, as the case may
be, to establish an exemption from United States backup withholding taxes. Each
such Lender further agrees to deliver to the Borrower, with a copy to the Agent,
a Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or manner
of certification, as the case may be, on or before the date that any such form
expires or becomes
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obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower, certifying in the case
of a Form 1001 or 4224 that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes (unless in any such case an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders such forms inapplicable
or the exemption to which such forms relate unavailable and such Lender notifies
the Borrower and the Agent that it is not entitled to receive payments without
deduction or withholding of United States federal income taxes) and, in the case
of a Form W-8 or W-9, establishing an exemption from United States backup
withholding tax.
(f) Survival. Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 4.11 shall survive the payment in full of the
Obligations and the termination of the Commitments.
SECTION 4.12 Replacement of Lenders. If deposits in eurodollars shall
not be available to any Lender, as determined in accordance with Section 4.8(a),
or it shall be unlawful or impossible for any Lender to make or maintain any
LIBOR Loan, as determined in accordance with Section 4.8(b), the Borrower shall
have the right, if no Default or Event of Default exists or will exist
immediately after giving effect to the respective replacement, to replace such
affected Lender (the "Replaced Lender"), upon ten (10) days' written notice to
the Agent, with one or more other Eligible Assignee or Assignees reasonably
acceptable to the Agent in accordance with Section 13.10 (collectively, the
"Replacement Lender"); provided, that no assignment shall be required if the
consummation of such assignment conflicts with any Applicable Law. Neither the
Agent nor any Lender shall be obligated to assist the Borrower in identifying
any Eligible Assignees that are willing to become a Replacement Lender. At the
time of any replacement pursuant to this Section 4.12, the Replacement Lender
shall enter into an Assignment and Acceptance (with all fees payable pursuant to
Section 13.10 to be paid by the Replacement Lender) pursuant to which the
Replacement Lender shall acquire all of the Commitment and outstanding
Extensions of Credit of the Replaced Lender and in connection therewith, shall
pay on the effective date of the corresponding Assignment and Acceptance to the
Replaced Lender an amount equal to the sum of (i) the principal of, and all
accrued interest on, all outstanding Loans of the Replaced Lender and (ii) all
accrued but unpaid fees owing to the Replaced Lender pursuant to Sections 3.3
and 4.3 and (iii) all other obligations of the Borrower owing to the Replaced
Lender. Upon the execution of such Assignment and Acceptance, the payment of
amounts referred to in clauses (i), (ii) and (iii) above and delivery to the
Replacement Lender of new Notes executed by the Borrower, the Replacement Lender
shall become a Lender hereunder and the Replaced
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Lender shall cease to constitute a Lender hereunder, except with respect to the
indemnification provisions under this Agreement (including, without limitation,
Sections 4.9, 4.11(c), 8.7, 12.7, 13.2, and 13.14), which shall survive as to
such Replaced Lender and in the case of a replacement of a Replaced Lender with
an existing Lender, the Commitment Percentage of such Lender shall be
automatically adjusted at such time to give effect to such replacement.
ARTICLE V
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 5.1 Closing. The closing shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P. at 10:00 a.m. on April 22, 1997, or
on such other date as the parties hereto shall mutually agree.
SECTION 5.2 Conditions to Closing and Initial Extensions of Credit. The
obligation of the Lenders to close this Agreement and to make the initial Loan
or issue the initial Letter of Credit is subject to the satisfaction of each of
the following conditions:
(a) Executed Loan Documents. This Agreement, the Notes and each of the
Loan Documents shall have been duly authorized, executed and delivered to the
Agent by the parties thereto, shall be in full force and effect and no default
shall exist thereunder, and the Borrower shall have delivered original
counterparts thereof to the Agent.
(b) Closing Certificates; etc.
(i) Officers's Certificate of the Borrower. The Agent shall
have received a certificate from the chief executive officer, chief
operating officer, chief financial officer, treasurer or controller of
the Borrower, in form and substance satisfactory to the Agent, to the
effect that all representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents are true,
correct and complete; that the Borrower is not in violation of any of
the covenants contained in this Agreement and the other Loan Documents;
that, after giving effect to the transactions contemplated by this
Agreement, no Default or Event of Default has occurred and is
continuing; and that the Borrower has satisfied each of the closing
conditions.
(ii) Certificate of Secretary of the Borrower. The Agent shall
have received a certificate of the secretary or assistant secretary of
the Borrower certifying that attached thereto is a true and complete
copy of the articles of incorporation of the
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Borrower and all amendments thereto, certified as of a recent date by
the appropriate Governmental Authority in its jurisdiction of
incorporation; that attached thereto is a true and complete copy of the
bylaws of the Borrower as in effect on the date of such certification;
that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the
borrowings contemplated hereunder and the execution, delivery and
performance of this Agreement and the other Loan Documents to which it
is a party; and as to the incumbency and genuineness of the signature
of each officer of the Borrower executing Loan Documents to which it is
a party.
(iii) Certificate of Secretary of the Guarantors. The Agent
shall have received a certificate of the secretary or assistant
secretary of each Guarantor certifying that attached thereto is a true
and complete copy of the organizational documents of such Guarantor and
all amendments thereto, certified as of a recent date by the
appropriate Governmental Authority in its jurisdiction of formation;
that attached thereto is a true and complete copy of resolutions duly
adopted by the governing body of such Guarantor authorizing the
execution, delivery and performance of the Loan Documents to which it
is a party; and as to the incumbency and genuineness of the signature
of each Person executing the Loan Documents on behalf of such
Guarantor; provided, however, that, with respect to the Guarantors
listed on Schedule 5.2(b), the Agent shall receive the foregoing
certificates and related attachments not later than thirty (30) days
following the Closing Date.
(iv) Certificates of Good Standing. The Agent shall have
received long-form certificates as of a recent date of the good
standing of the Borrower under the laws of its jurisdiction of
organization and each other jurisdiction where the Borrower is
qualified to do business.
(v) Opinion of Counsel. The Agent shall have received a
favorable opinion of counsel to the Borrower addressed to the Agent and
the Lenders with respect to the Borrower, the Guarantors, the Loan
Documents and such other matters as the Lenders shall request.
(vi) Tax Forms. The Agent shall have received copies of the
United States Internal Revenue Service forms required by Section
4.11(e) hereof.
(c) Consents; Defaults.
(i) Governmental and Third Party Approvals. All necessary
approvals, authorizations and consents, if any be required, of any
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Person and of all Governmental Authorities and courts having
jurisdiction with respect to the transactions contemplated by this
Agreement and the other Loan Documents shall have been obtained.
(ii) No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before any Governmental Authority to enjoin, restrain, or
prohibit, or to obtain substantial damages in respect of, or which is
related to or arises out of this Agreement or the other Loan Documents
or the consummation of the transactions contemplated hereby or
thereby, or which, in the Agent's discretion, would make it inadvisable
to consummate the transactions contemplated by this Agreement and such
other Loan Documents.
(iii) No Event of Default. No Default or Event of Default
shall have occurred and be continuing.
(d) Financial Matters.
(i) Financial Statements. The Agent shall have received the
most recent annual audited and quarterly unaudited Consolidated
financial statements of the Borrower and the Consolidated Entities
required by this Agreement.
(ii) Financial Condition Certificate. The Borrower shall have
delivered to the Agent a certificate, in form and substance
satisfactory to the Agent, and certified as accurate by the chief
executive officer, chief operating officer, chief financial officer,
treasurer or controller of the Borrower, that (A) the Borrower and each
of the Consolidated Entities is Solvent and (B) attached thereto is an
unaudited balance sheet of the Borrower and the Consolidated Entities
for the quarter ending March 31, 1997 evidencing compliance by the
Borrower and its Consolidated Entities with the covenants contained in
Articles IX and X hereof.
(iii) Payment at Closing; Fee Letters. There shall have been
paid by the Borrower to the Agent and the Lenders the fees set forth or
referenced in Section 4.3 and any other accrued and unpaid fees or
commissions due hereunder (including, without limitation, legal fees
and expenses), and to any other Person such amount as may be due
thereto in connection with the transactions contemplated hereby,
including all taxes, fees and other charges in connection with the
execution, delivery, recording, filing and registration of any of the
Loan Documents. The Agent shall have received duly authorized and
executed copies of the fee letter agreement referred to in Section
4.3(b).
(e) Miscellaneous.
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(i) Notice of Borrowing. The Agent shall have received a Notice of
Borrowing from the Borrower in accordance with Section 2.3(a), and a
written notice in the form attached hereto as Exhibit G (a "Notice of
Account Designation") specifying the account or accounts to which the
proceeds of any Loans made after the Closing Date are to be disbursed.
(ii) Proceedings and Documents. All opinions, certificates and other
instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and substance
to the Lenders. The Lenders shall have received copies of all other
instruments and other evidence as the Lender may reasonably request, in
form and substance satisfactory to the Lenders, with respect to the
transactions contemplated by this Agreement and the taking of all actions
in connection therewith.
(iii) Due Diligence and Other Documents. The Borrower shall have
delivered to the Agent such other documents, certificates and opinions as
the Agent reasonably requests, including without limitation copies of each
document evidencing or governing the Subordinated Debt, certified by a
secretary or assistant secretary of the Borrower as a true and correct
copy thereof.
SECTION 5.3 Conditions to All Loans and Letters of Credit. The obligations
of the Lenders to make any Loan or issue any Letter of Credit is subject to the
satisfaction of the following conditions precedent on the relevant borrowing or
issue date, as applicable:
(a) Continuation of Representations and Warranties. The
representations and warranties contained in Article VI shall be true and
correct in all material respects on and as of such borrowing or issuance
date with the same effect as if made on and as of such date (except and to
the extent that such representations and warranties relate to an earlier
date, in which case such representations and warranties shall be true and
correct as of such earlier date).
(b) No Existing Default. No Default or Event of Default shall have
occurred and be continuing hereunder (i) on the borrowing date with
respect to such Loan or after giving effect to the Loans to be made on
such date or (ii) on the issue date with respect to such Letter of Credit
or after giving effect to such Letter of Credit on such date.
(c) Officer's Compliance Certificate; Additional Documents.
The Agent shall have received the current Officer's Compliance
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Certificate and each additional document, instrument, legal opinion or
other item of information reasonably requested by it.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 6.1 Representations and Warranties. To induce the Agent to enter
into this Agreement and the Lenders to make the Loans or issue or participate in
the Letters of Credit, the Borrower hereby represents and warrants to the Agent
and Lenders that:
(a) Organization; Power; Qualification. Each of the Borrower and the
Consolidated Entities is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
formation, has the power and authority to own its properties and to carry
on its business as now being and hereafter proposed to be conducted and is
duly qualified and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires
such qualification and authorization. The jurisdictions in which the
Borrower and the Consolidated Entities are organized and qualified to do
business are described on Schedule 6.1(a).
(b) Ownership. Each Consolidated Entity of the Borrower is listed on
Schedule 6.1(b). The capitalization of the Borrower and the Consolidated
Entities is described on Schedule 6.1(b). All outstanding shares of stock
have been duly authorized and validly issued and are fully paid and
nonassessable. The equity owners of the Consolidated Entities of the
Borrower and the ownership interest of each is described on Schedule
6.1(b). There are no outstanding stock purchase warrants, subscriptions,
options, securities, instruments or other rights of any type or nature
whatsoever, which are convertible into, exchangeable for or otherwise
provide for or permit the issuance of capital stock of the Borrower or the
Consolidated Entities, except as described on Schedule 6.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowing. Each
of the Borrower and the Wholly-Owned Entities has the right, power and
authority and has taken all necessary corporate and other action to
authorize the execution, delivery and performance of this Agreement and
each of the other Loan Documents to which it is a party in accordance with
their respective terms. This Agreement and each of the other Loan
Documents have been duly executed and delivered by the duly authorized
officers of the
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Borrower and each of the Wholly-Owned Entities party thereto, and each
such document constitutes the legal, valid and binding obligation of the
Borrower or its Subsidiary party thereto, enforceable in accordance with
its terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar state or federal debtor
relief laws from time to time in effect which affect the enforcement of
creditors' rights in general and the availability of equitable remedies.
(d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance by the Borrower and the
Wholly-Owned Entities of the Loan Documents to which each such Person is a
party, in accordance with their respective terms, the borrowings hereunder
and the transactions contemplated hereby do not and will not, by the
passage of time, the giving of notice or otherwise, (i) require any
Governmental Approval or violate any Applicable Law relating to the
Borrower or any of the Wholly-Owned Entities, (ii) conflict with, result
in a breach of or constitute a default under the articles of
incorporation, bylaws or other organizational documents of the Borrower or
any of the Wholly-Owned Entities or any indenture, agreement or other
instrument to which such Person is a party or by which any of its
properties may be bound or any Governmental Approval relating to such
Person, which conflict, breach or default could not reasonably be expected
to have a Material Adverse Effect, or (iii) result in or require the
creation or imposition of any Lien upon or with respect to any property
now owned or hereafter acquired by such Person other than Liens arising
under the Loan Documents.
(e) Compliance with Law; Governmental Approvals. Each of the
Borrower and the Consolidated Entities (i) has all Governmental Approvals
required by any Applicable Law for it to conduct its business, each of
which is in full force and effect, is final and not subject to review on
appeal and is not the subject of any pending or, to the best of its
knowledge, threatened attack by direct or collateral proceeding, and (ii)
is in compliance with each Governmental Approval applicable to it and in
compliance with all other Applicable Laws relating to it or any of its
respective properties, except for such violations which could not
reasonably be expected to have a Material Adverse Effect.
(f) Tax Returns and Payments. Each of the Borrower and the
Consolidated Entities has duly filed or caused to be filed all federal,
state, local and other tax returns required by Applicable Law to be filed,
and has paid, or made adequate provision for the payment of, all federal,
state, local and other taxes, assessments and governmental charges or
levies upon it and its property,
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income, profits and assets which are due and payable except for any taxes
which are not federal income taxes and the failure to pay which could not
reasonably be expected to have a Material Adverse Effect. No Governmental
Authority has asserted any Lien or other claim against the Borrower or the
Consolidated Entities with respect to unpaid taxes which has not been
discharged or resolved or as to which the Borrower or Consolidated Entity
is contesting and for which appropriate reserves have been established.
The charges, accruals and reserves on the books of the Borrower and any of
the Consolidated Entities in respect of federal, state, local and other
taxes for all Fiscal Years and portions thereof since the organization of
the Borrower and any of the Consolidated Entities are in the judgment of
the Borrower adequate, and the Borrower does not anticipate any additional
taxes or assessments for any of such years in excess of amounts reserved
therefor.
(g) Intellectual Property Matters. Each of the Borrower and the
Consolidated Entities owns or possesses rights to use all franchises,
licenses, copyrights, copyright applications, patents, patent rights or
licenses, patent applications, trademarks, trademark rights, trade names,
trade name rights, copyrights and rights with respect to the foregoing
which are required to conduct its business, except where the failure could
not reasonably be expected to have a Material Adverse Effect. No event has
occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such rights, and neither the
Borrower nor any of the Consolidated Entities is liable to any Person for
infringement under Applicable Law with respect to any such rights as a
result of its business operations.
(h) Environmental Matters. Except as disclosed in the
environmental assessment reports and the executive summaries of
environmental assessment reports listed on Schedule 6.1(h):
(i) The properties of the Borrower and the Consolidated
Entities do not contain, and to their knowledge have not previously
contained, any Hazardous Materials in amounts or concentrations
which (A) constitute or constituted a violation of, or (B) could
give rise to liability under, applicable Environmental Laws;
(ii) Such properties and all operations conducted in
connection therewith have been in compliance, at the time of the
action in question, with all applicable Environmental Laws, except
where such non-compliance could not reasonably be expected to have a
Material Adverse Effect, and to the knowledge of the Borrower there
is no contamination at or
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under such properties or such operations which could interfere with
the continued operation of such properties or reasonably be expected
to impair the fair saleable value thereof;
(iii) Neither the Borrower nor any Consolidated Entity has
received any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of their
properties or the operations conducted in connection therewith, nor
does the Borrower or any Consolidated Entity have knowledge or
reason to believe that any such notice will be received or is being
threatened;
(iv) To the knowledge of the Borrower, Hazardous Materials
have not been transported or disposed of from the properties of the
Borrower and the Consolidated Entities in violation of, or in a
manner or to a location which could give rise to liability under,
Environmental Laws, except where such liability could not reasonably
be expected to have a Material Adverse Effect, nor to the knowledge
of the Borrower have any Hazardous Materials been generated,
treated, stored or disposed of at, on or under any of such
properties in violation of, or in a manner that could give rise to
liability under, any applicable Environmental Laws, except where
such liability could not reasonably be expected to have a Material
Adverse Effect;
(v) No judicial proceedings or governmental or administrative
action is pending, or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower or any of the
Consolidated Entities is or will be named as a party with respect to
such properties or operations conducted in connection therewith, nor
to the knowledge of the Borrower are there any consent decrees or
other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding
under any Environmental Law with respect to such properties or such
operations, which if adversely determined could reasonably be
expected to have a Material Adverse Effect, individually or in the
aggregate; and
(vi) To the knowledge of the Borrower, there has been no
release or threat of release of Hazardous Materials at or from such
properties, in violation of or in amounts or in a manner that could
give rise to liability under Environmental Laws.
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(i) ERISA. Except to the extent the following would
not reasonably be expected to have a Material Adverse Effect:
(i) Neither the Borrower nor any ERISA Affiliate maintains or
contributes to, or has any obligation under, any Employee Benefit
Plans other than those identified on Schedule 6.1(i);
(ii) The Borrower and each ERISA Affiliate is in material
compliance with all applicable provisions of ERISA and the
regulations and published interpretations thereunder with respect to
all Employee Benefit Plans except for any required amendments for
which the remedial amendment period as defined in Section 401(b) of
the Code has not yet expired. Each Employee Benefit Plan maintained
by Borrower or an ERISA Affiliate that is intended to be qualified
under Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified, and each trust related to such
plan has been determined to be exempt under Section 501(a) of the
Code. No liability has been incurred by the Borrower or any ERISA
Affiliate which remains unsatisfied for any taxes or penalties with
respect to any Employee Benefit Plan or any Multiemployer Plan;
(iii) No Pension Plan has any accumulated funding deficiency
(as defined in Section 412 of the Code) been incurred (without
regard to any waiver granted under Section 412 of the Code), nor has
any funding waiver from the Internal Revenue Service been received
or requested with respect to any Pension Plan, nor has the Borrower
or any ERISA Affiliate failed to make any contributions or to pay
any amounts due and owing as required by Section 412 of the Code,
Section 302 of ERISA or the terms of any Pension Plan prior to the
due dates of such contributions under Section 412 of the Code or
Section 302 of ERISA, nor has there been any event requiring any
disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with
respect to any Pension Plan;
(iv) Neither the Borrower nor any ERISA Affiliate has: (A)
engaged in a nonexempt prohibited transaction described in Section
406 of the ERISA or Section 4975 of the Code, (B) incurred any
liability to the PBGC which remains outstanding other than the
payment of premiums and there are no premium payments which are due
and unpaid, (C) failed to make a required contribution or payment to
a Multiemployer Plan, or (D) failed to make a required installment
or other required payment under Section 412 of the Code;
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(v) No Termination Event has occurred or is reasonably
expected to occur; and
(vi) No proceeding, claim, lawsuit and/or investigation is
existing or, to the best knowledge of the Borrower after due
inquiry, threatened concerning or involving any (A) employee welfare
benefit plan (as defined in Section 3(1) of ERISA) currently
maintained or contributed to by the Borrower or any ERISA Affiliate,
(B) Pension Plan or (C) Multiemployer Plan.
(j) Margin Stock. Neither the Borrower nor any Consolidated Entity
is engaged principally or as one of its activities in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" (as each such term is defined or used in Regulations G and U of the
Board of Governors of the Federal Reserve System). No part of the proceeds
of any of the Loans or Letters of Credit will be used for purchasing or
carrying margin stock or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulation G, T, U or X of such Board
of Governors.
(k) Government Regulation. Neither the Borrower nor any Consolidated
Entity is an "investment company" or a company "controlled" by an
"investment company" (as each such term is defined or used in the
Investment Company Act of 1940, as amended) and neither the Borrower nor
any Subsidiary thereof is, or after giving effect to any Extension of
Credit will be, subject to regulation under the Public Utility Holding
Company Act of 1935 or the Interstate Commerce Act, each as amended, or
any other Applicable Law which limits its ability to incur or consummate
the transactions contemplated hereby.
(l) Loans Constitute Senior Debt. The Loans constitute and
will constitute "Senior Debt," as defined in the 1992 Indenture
and the 1995 Indenture.
(m) Employee Relations. Each of the Borrower and its Consolidated
Entities has a stable work force in place and is not, except as set forth
on Schedule 6.1(m), party to any collective bargaining agreement nor has
any labor union been recognized as the representative of its employees.
The Borrower knows of no pending, threatened or contemplated strikes, work
stoppage or other collective labor disputes involving its employees or
those of the Consolidated Entities.
(n) Burdensome Provisions. Neither the Borrower nor any
Consolidated Entity is a party to any indenture, agreement, lease
or other instrument, or subject to any corporate or partnership
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restriction, Governmental Approval or Applicable Law which is so unusual
or burdensome as in the foreseeable future could be reasonably expected to
have a Material Adverse Effect. The Borrower and the Consolidated Entities
do not presently anticipate that future expenditures needed to meet the
provisions of any statutes, orders, rules or regulations of a Governmental
Authority will be so burdensome as to have a Material Adverse Effect.
(o) Financial Statements. The (i) Consolidated balance sheet of the
Borrower and the Consolidated Entities as of June 30, 1996 and the related
statements of income and stockholders equity and cash flows for the Fiscal
Year then ended and (ii) unaudited Consolidated balance sheet of the
Borrower and the Consolidated Entities as of December 31, 1996 and related
unaudited interim statements of income and stockholders equity, copies of
which have been furnished to the Agent and each Lender, are complete and
correct and fairly present the assets, liabilities and financial position
of the Borrower and the Consolidated Entities as at such dates, and the
results of the operations and changes of financial position for the
periods then ended. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP.
The Borrower and the Consolidated Entities have no Debt, obligation or
other unusual forward or long-term commitment which is not fairly
reflected in the foregoing financial statements or in the notes thereto.
(p) No Material Adverse Change. Since December 31, 1996, there has
been no material adverse change in the properties, business, operations,
prospects, or condition (financial or otherwise) of the Borrower and the
Consolidated Entities and no event has occurred or condition arisen that
could reasonably be expected to have a Material Adverse Effect.
(q) Solvency. As of the Closing Date and after giving effect to each
Extension of Credit made hereunder, the Borrower and each of the
Consolidated Entities will be Solvent.
(r) Titles to Properties. Each of the Borrower and the Consolidated
Entities has such title to the real property owned by it as is necessary
or desirable to the conduct of its business and valid and legal title to
all of its personal property and assets, to the extent failure to have
such title to such real property or personal property could reasonably be
expected to have a Material Adverse Effect, including, but not limited to,
those reflected on the balance sheets of the Borrower and the Consolidated
Entities delivered pursuant to Section 6.1(o), except those which have
been disposed of by the Borrower or the Consolidated Entities subsequent
to such date which dispositions have been in the
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ordinary course of business or as otherwise expressly permitted
hereunder.
(s) Liens. None of the properties and assets of the Borrower or any
of the Consolidated Entities is subject to any Lien, except Liens
permitted pursuant to Section 10.3.
(t) Debt and Contingent Obligations. Schedule 6.1(t) is a complete
and correct listing of all Debt and Contingent Obligations of the Borrower
and the Consolidated Entities in excess of $2,000,000. The Borrower and
the Consolidated Entities have performed and are in compliance with all of
the terms of such Debt and Contingent Obligations and all instruments and
agreements relating thereto, and no default or event of default, or event
or condition which with notice or lapse of time or both would constitute
such a default or event of default on the part of the Borrower or the
Consolidated Entities exists with respect to any such Debt or Contingent
Obligation.
(u) Litigation. Except as set forth on Schedule 6.1(u), there are no
actions, suits or proceedings pending nor, to the knowledge of the
Borrower, threatened against or in any other way relating adversely to or
affecting the Borrower or any of the Consolidated Entities or any of their
respective properties in any court or before any arbitrator of any kind or
before or by any Governmental Authority, which if adversely determined
would have a Material Adverse Effect.
(v) Absence of Defaults. No event has occurred or is continuing
which constitutes a Default or an Event of Default, and, except to the
extent such event would not have a Material Adverse Effect, no event has
occurred and is continuing which constitutes, or which with the passage of
time or giving of notice or both would constitute, a default or event of
default by the Borrower or any of the Consolidated Entities under any
material contract or judgment, decree or order to which the Borrower or
the Consolidated Entities is a party or by which the Borrower or the
Consolidated Entities or any of their respective properties may be bound
or which would require the Borrower or the Consolidated Entities to make
any payment thereunder prior to the scheduled maturity date therefor.
(w) Accuracy and Completeness of Information. All written
information, reports and other papers and data produced by or on behalf of
the Borrower or any of the Consolidated Entities and furnished to the
Lenders were, at the time the same were so furnished, complete and correct
in all respects to the extent necessary to give the recipient a true and
accurate knowledge of the subject matter. No document furnished or written
statement
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made to the Agent or the Lenders by the Borrower or any of the
Consolidated Entities in connection with the negotiation, preparation or
execution of this Agreement or any of the Loan Documents contains or will
contain any untrue statement of a fact material to the creditworthiness of
the Borrower or the Consolidated Entities or omits or will omit to state a
fact necessary in order to make the statements contained therein not
misleading. The Borrower is not aware of any facts which it has not
disclosed in writing to the Agent having a Material Adverse Effect, or
insofar as the Borrower can now foresee, could reasonably be expected to
have a Material Adverse Effect.
(x) Reimbursement from Third Party Payors. The accounts receivable
of the Borrower and its Consolidated Entities have been and will continue
to be recorded in accordance with GAAP to reflect currently known
reimbursement policies of third party payors such as Medicare, Medicaid,
Blue Cross/Blue Shield, private insurance companies, health maintenance
organizations, preferred provider organizations, alternative delivery
systems, managed care systems and other third party payors. The recorded
accounts receivable set forth in financial statements of the Borrower and
its Consolidated Entities relating to such third party payors, in the
aggregate, do not and shall not exceed amounts the Borrower and its
Consolidated Entities reasonably expect to receive under any capitation
arrangement, fee schedule, discount formula, cost-based reimbursement or
other adjustment or limitation to the usual charges of such Person, except
for inaccuracies in such amounts as would not reasonably be expected to
have a Material Adverse Effect.
(y) Fraud and Abuse. Neither the Borrower nor any Consolidated
Entity, nor to the knowledge of the Borrower or any of its Consolidated
Entities, any of its stockholders, officers or directors have engaged on
behalf of the Borrower or any Consolidated Entity in any of the following:
(i) knowingly and willfully making or causing to be made a false statement
or representation of a material fact in any applications for any benefit
or payment under the Medicare or Medicaid program; (ii) knowingly and
willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to any
benefit or payment under the Medicare or Medicaid program; (iii) knowingly
and willfully soliciting or receiving any remuneration (including any
kickback, bribe or rebate), directly or indirectly, overtly or covertly,
in cash or in kind or offering to pay such remuneration (a) in return for
referring an individual to a Person for the furnishing or arranging for
the furnishing of any item or service for which payment may be made in
whole or in part by Medicare or Medicaid, or (b) in return for purchasing,
leasing or ordering or arranging
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for or recommending the purchasing, leasing or ordering of any good,
facility, service, or item for which payment may be made in whole or in
part by Medicare or Medicaid to the extent that any such actions described
above would reasonably be expected to have a Material Adverse Effect. For
purposes of this subsection, "knowingly" and the like shall mean knowledge
of the senior officers of the Borrower or a Consolidated Entity. With
respect to this Section, knowledge by any senior officer of the Borrower
or a Consolidated Entity of any of the events described in this Section
shall not be imputed to the Borrower or such Consolidated Entity unless
such knowledge was obtained or learned by a senior officer in his or her
official capacity as a senior officer of the Borrower or such Consolidated
Entity. No activity of the Borrower or any Consolidated Entity shall be
considered to be a breach of this Section, except in the case of a knowing
and willful violation thereof, until the Borrower or such Consolidated
Entity has received notification, written or oral, by a Governmental
Authority of competent jurisdiction as to any such violation; provided
that receipt of such notice, in and of itself, shall not be deemed to
breach this representation.
SECTION 6.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article VI and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty made
in or in connection with any amendment thereto) shall constitute representations
and warranties made under this Agreement. All representations and warranties
made under this Agreement shall be made or deemed to be made at and as of the
Closing Date, shall survive the Closing Date and shall not be waived by the
execution and delivery of this Agreement, any investigation made by or on behalf
of the Lenders or any borrowing hereunder.
ARTICLE VII
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been finally and indefeasibly paid and
satisfied in full and the Commitments terminated, unless consent has been
obtained in the manner set forth in Section 13.11 hereof, the Borrower will
furnish or cause to be furnished to each of the Lenders at their respective
addresses as set forth on Schedule 1.1(b), or such other office as may be
designated by the Agent and Lenders from time to time:
SECTION 7.1 Financial Statements.
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(a) Not later than 45 days after the end of the first three fiscal
quarters of each year, a balance sheet and a statement of income of the Borrower
and its Consolidated Entities on a consolidated basis for such quarter and for
the period beginning on the first day of the fiscal year and ending on the last
day of such quarter (in sufficient detail to indicate compliance by the Borrower
and its Consolidated Entities with the financial covenants set forth in Article
IX) and certified by the chief executive officer, chief operating officer, chief
financial officer, treasurer or controller of the Borrower, and such other
information and documentation as the Borrower regularly sends to its Board of
Directors for each quarter (which information and documentation shall include,
at a minimum, the information and documentation contained in the sample thereof
delivered by the Borrower to the Agent prior to the Closing Date); each
certificate provided pursuant to this clause (a) shall state that, except as
disclosed in such certificate (i) on the date of such certificate the
representations and warranties set forth in this Agreement and all the other
Loan Documents are true and correct in all material respects on and as of such
date with the same effect as though such representations and warranties had been
made on such date (except as to any representation which by its terms relates to
a different specific date) except to the extent any inaccuracy would not have a
Material Adverse Effect, and (ii) no Default or Event of Default has occurred
and is continuing as of such date or, if such certificate discloses that a
Default or Event of Default has occurred and is continuing as of such date, such
certificate shall describe such Default or Event of Default in reasonable detail
and state what action, if any, the Borrower is taking or proposes to take with
respect thereto;
(b) Not later than 100 days after the end of each fiscal year, financial
statements (including a balance sheet, a statement of income, a statement of
changes in stockholders' equity and a statement of cash flows) of the Borrower
and its Consolidated Entities on a consolidated basis for such fiscal year (in
sufficient detail to indicate compliance by the Borrower and its Consolidated
Entities with the financial covenants set forth in Article IX), together with
statements in comparative form for the preceding fiscal year, and accompanied by
an opinion of certified public accountants reasonably acceptable to the Required
Lenders, which opinion shall state in effect that such financial statements (i)
were audited using generally accepted auditing standards, (ii) were prepared in
accordance with GAAP applied on a consistent basis and (iii) present fairly the
financial condition and results of operations of the Borrower and its
Consolidated Entities for the periods covered;
(c) Not later than forty-five (45) days after the end of each fiscal
quarter, a certificate duly signed by the chief executive officer, chief
operating officer, chief financial officer, treasurer or controller of the
Borrower setting forth the Total Leverage Ratio for
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the period of four consecutive fiscal quarters ending with such quarter-end and
setting forth the computations employed in calculating the ratio ("Margin
Certificate");
(d) At each time financial statements are delivered pursuant to Sections
7.1(a) or (b), a compliance certificate duly executed by the President,
Treasurer, chief financial officer or Controller of the Borrower substantially
in the form of Exhibit E attached hereto ("Officer's Compliance Certificate");
(e) Promptly upon written request by the Agent, copies of all reports,
management letters and other documents submitted to the Borrower by independent
accountants in connection with any annual or interim audit of the books of the
Borrower or Consolidated Entity made by such accountants;
(f) Promptly after the distribution thereof to the stockholders of the
Borrower or the filing thereof with the Securities and Exchange Commission, as
the case may be, copies of all statements, reports, notices and filings
distributed by the Borrower to its stockholders or filed with the Securities and
Exchange Commission (including reports on SEC Forms 10-K, 10-Q and 8-K);
(g) Promptly after the Borrower knows or has reason to know of the
occurrence of any "reportable event" under Section 4043 of ERISA applicable to
the Borrower or other ERISA Affiliate, a certificate of the chief executive
officer, chief operating officer, chief financial officer, treasurer or
controller of the Borrower setting forth the details as to such "reportable
event" and the action that the Borrower or other ERISA Affiliate has taken or
will take with respect thereto, and promptly after the filing or receiving
thereof, copies of all reports and notices respecting such reportable event that
the Borrower or other ERISA Affiliate files under ERISA with the Internal
Revenue Service, the Pension Benefit Guaranty Corporation or the United States
Department of Labor; and
(h) As soon as practicable, such other information regarding any Facility
or the business affairs, financial condition or operations of the Borrower or
its Consolidated Entities as the Agent or the Required Lenders shall reasonably
request from time to time or at any time.
SECTION 7.2 Notice of Litigation and Other Matters. Prompt (but in no
event later than ten (10) days after an officer of the Borrower obtains
knowledge thereof) written notice of:
(a) the commencement of all proceedings and investigations by or
before any Governmental Authority and all actions and proceedings in any
court or before any arbitrator against or involving the Borrower or any
Consolidated Entity or any of their
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respective properties, assets or businesses which, if adversely
determined, would have a Material Adverse Effect;
(b) any notice of any violation received by the Borrower or any
Consolidated Entity from any Governmental Authority including, without
limitation, any notice of violation of Environmental Laws which in any
such case could reasonably be expected to have a Material Adverse Effect;
(c) any labor controversy that has resulted in, or threatens to
result in, a strike or other work action against the Borrower or any
Consolidated Entity thereof which would have a Material Adverse Effect;
(d) any attachment, lien, levy or order exceeding $500,000 that may
be assessed against or threatened against the Borrower or any Consolidated
Entity;
(e) any Default or Event of Default, or any event which constitutes
or which with the passage of time or giving of notice or both would
constitute a default under any material contract to which the Borrower or
any Consolidated Entity is a party or by which the Borrower or any
Consolidated Entity or any of their respective properties may be bound if
such default could be expected to have a Material Adverse Effect;
(f) (i) any unfavorable determination letter from the Internal
Revenue Service regarding the qualification of an Employee Benefit Plan
under Section 401(a) of the Code (along with a copy thereof), (ii) all
notices received by the Borrower or any ERISA Affiliate of the PBGC's
intent to terminate any Pension Plan or to have a trustee appointed to
administer any Pension Plan, (iii) all notices received by the Borrower or
any ERISA Affiliate from a Multiemployer Plan sponsor concerning the
imposition or amount of withdrawal liability pursuant to Section 4202 of
ERISA and (iv) the Borrower obtaining knowledge or reason to know that the
Borrower or any ERISA Affiliate has filed or intends to file a notice of
intent to terminate any Pension Plan under a distress termination within
the meaning of Section 4041(c) of ERISA;
(g) the commencement of any investigation, action, suit or
proceeding before any Governmental Authority involving the condemnation or
taking under the power of eminent domain of any of its property or the
property of any Consolidated Entity to the extent such condemnation or
taking would have a Material Adverse Effect; and
(h) any event which makes any of the representations set
forth in Section 6.1 inaccurate in any respect, to the extent such
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inaccuracy could reasonably be expected to have a Material Adverse
Effect.
SECTION 7.3 Loss of Accreditation, Etc. Within 20 days of the receipt by
the Borrower or any Consolidated Entity, copies of (A) all notices of loss of
Joint Commission on Accreditation of Healthcare Organizations accreditation,
loss of participation under any material governmental reimbursement program or
loss of applicable material health care licenses at any Facility owned or leased
by the Borrower or any Consolidated Entity; and (B) all other material
deficiency notices, compliance orders or adverse reports issued by any
Governmental Authority or accreditation commission having jurisdiction over
licensing, accreditation or operation of a Facility or by any Governmental
Authority, which, if not promptly complied with or cured, could result in the
suspension or forfeiture of any license, certification, or accreditation
necessary for the Facility to carry on its business as then conducted or the
termination of any material governmental reimbursement program available to the
Facility;
SECTION 7.4 Accuracy of Information. All written information, reports,
statements and other papers and data furnished by or on behalf of the Borrower
to the Agent or any Lender (other than financial fore casts) whether pursuant to
this Article VII or any other provision of this Agreement, or any of the
Security Documents, shall be, at the time the same is so furnished, complete and
correct in all material respects to the extent necessary to give the Agent or
any Lender complete, true and accurate knowledge of the subject matter based on
the Borrower's knowledge thereof.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid and
satisfied in full and the Commitments terminated, unless consent has been
obtained in the manner provided for in Section 13.11, the Borrower will, and
will cause each of its Consolidated Entities which is a Guarantor to:
SECTION 8.1 Preservation of Existence and Related Matters. Except as
permitted by Section 10.5, preserve and maintain its separate legal existence
and all rights, franchises, licenses and privileges necessary to the conduct of
its business, and qualify and remain qualified as a foreign corporation and
authorized to do business in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect.
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SECTION 8.2 Maintenance of Property. Protect and preserve all properties
useful in and material to its business, including copyrights, patents, trade
names and trademarks; maintain in good working order and condition all
buildings, equipment and other tangible real and personal property, ordinary
wear and tear excepted; and from time to time make or cause to be made all
renewals, replacements and additions to such property necessary for the conduct
of its business, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
SECTION 8.3 Insurance. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses and as may be required by
Applicable Law, and on the Closing Date and from time to time thereafter deliver
to the Agent upon its request a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts of the insurance, the
dates of the expiration thereof and the properties and risks covered thereby.
SECTION 8.4 Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete in all material respects) as may be required or as may be necessary to
permit the preparation of financial statements in accordance with GAAP and in
compliance with the regulations of any Governmental Authority having
jurisdiction over it or any of its properties.
SECTION 8.5 Payment and Performance of Obligations. Pay and perform all
Obligations under this Agreement and the other Loan Documents, and pay or
perform (a) all taxes, assessments and other governmental charges that may be
levied or assessed upon it or any of its property, and (b) all other
indebtedness, obligations and liabilities in accordance with customary trade
practices; which if not paid would have a Material Adverse Effect; provided,
that the Borrower or such Consolidated Entity may contest any item described in
this Section 8.5 in good faith so long as adequate reserves are maintained with
respect thereto in accordance with GAAP.
SECTION 8.6 Compliance With Laws and Approvals. To the extent failure to
do so would have a Material Adverse Effect, observe and remain in compliance
with all Applicable Laws and maintain in full force and effect all Governmental
Approvals, in each case applicable to the conduct of its business; keep in full
force and effect all licenses, certifications or accreditations necessary for
any Facility to carry on its business; and not permit the termination of any
insurance or reimbursement program available to any Facility.
SECTION 8.7 Environmental Laws. In addition to and without limiting the
generality of Section 8.6, and to the extent failure to do
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so would have a Material Adverse Effect, (a) comply with, and ensure such
compliance by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply with and maintain, and ensure that all
tenants and subtenants obtain and comply with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws, (b) conduct and complete all investigations,
studies, sampling and testing, and all remedial, removal and other actions
required under Environmental Laws, and promptly comply with all lawful orders
and directives of any Governmental Authority regarding Environmental Laws, and
(c) defend, indemnify and hold harmless the Agent and the Lenders, and their
respective parents, Subsidiaries, Affiliates, employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under any Environmental Laws
applicable to the operations of the Borrower or such Consolidated Entity, or any
orders, requirements or demands of Governmental Authorities related thereto,
including, without limitation, reasonable attorney's and consultant's fees,
investigation and laboratory fees, response costs, court costs and litigation
expenses, except to the extent that any of the foregoing directly result from
the gross negligence or willful misconduct of the party seeking indemnification
therefor.
SECTION 8.8 Compliance with ERISA. In addition to and without limiting the
generality of Section 8.6, (a) comply with all applicable provisions of ERISA
and the regulations and published interpretations thereunder with respect to all
Employee Benefit Plans, (b) not take any action or fail to take action the
result of which could be a liability to the PBGC or to a Multiemployer Plan, (c)
not participate in any prohibited transaction that could result in any civil
penalty under ERISA or tax under the Code, (d) operate each Employee Benefit
Plan in such a manner that will not incur any tax liability under Section 4980B
of the Code or any liability to any qualified beneficiary as defined in Section
4980B of the Code and (e) furnish to the Agent upon the Agent's request such
additional information about any Employee Benefit Plan as may be reasonably
requested by the Agent.
SECTION 8.9 Compliance With Agreements. Comply in all respects with each
term, condition and provision of all leases, agreements and other instruments
entered into in the conduct of its business to the extent failure to so comply
would have a Material Adverse Effect; provided, that the Borrower or any
Consolidated Entity may contest any such lease, agreement or other instrument in
good faith through applicable proceedings so long as adequate reserves are
maintained in accordance with GAAP.
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SECTION 8.10 Visits and Inspections. Provided that the Agent and the
Lenders use reasonable efforts to minimize disruption to the business of the
Borrower and the Consolidated Entities, permit representatives of the Agent or
any Lender, from time to time, to visit and inspect its properties; inspect,
audit and make extracts from its books, records and files, including, but not
limited to, management letters prepared by independent accountants; and discuss
with its principal officers, and its independent accountants, its business,
assets, liabilities, financial condition, results of operations and business
prospects.
SECTION 8.11 Wholly-Owned Entities. Concurrently with the creation or
acquisition of any Wholly-Owned Entity (a) cause it to execute and deliver to
the Agent a supplement to the Guaranty Agreement delivered on the Closing Date
substantially in the form of Exhibit A to such Guaranty Agreement and (b) cause
to be delivered to the Agent such other documents as the Agent or Required
Lenders shall reasonably request in connection therewith, including without
limitation, officers' certificates, financial statements, opinions of counsel,
resolutions, charter documents, certificates of existence and authority to do
business and any other closing certificates and documents described in Section
5.2.
SECTION 8.12 Further Assurances. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Agent or any
Lender may reasonably require to document and consummate the transactions
contemplated hereby and to vest completely in and insure the Agent and the
Lenders their respective rights under this Agreement, the Notes, the Letters of
Credit and the other Loan Documents.
ARTICLE IX
FINANCIAL COVENANTS
Until all of the Obligations have been finally and indefeasibly paid and
satisfied in full and the Commitments terminated, unless consent has been
obtained in the manner set forth in Section 13.11 hereof, the Borrower and its
Consolidated Entities on a Consolidated basis will not:
SECTION 9.1 Total Leverage Ratio. As of any fiscal quarter end, permit the
ratio of (i) Total Debt as of such date to (ii) EBITDA for the period of four
(4) consecutive fiscal quarters ending on such date (the "Total Leverage
Ratio"), to exceed 3.25 to 1.00.
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SECTION 9.2 Senior Leverage Ratio. As of any fiscal quarter end, permit
the ratio of (i) Senior Debt as of such date to (ii) EBITDA, for the period of
four (4) consecutive fiscal quarters ending on such date, to exceed 2.50 to
1.00.
SECTION 9.3 Fixed Charge Coverage Ratio. As of any fiscal quarter end,
permit the ratio of (i) Net Income Available for Debt Service for the period of
four (4) consecutive fiscal quarters ending on such date to (ii) the sum of (x)
for such four-quarter period (A) Operating Lease Payments, (B) Interest Expense
and (C) minority interests plus (y) as of such quarter end, current maturities
of long-term Debt to be less than 1.50 to 1.00.
SECTION 9.4 Debt to Capital Ratio. As of any fiscal quarter end, permit
the ratio of Total Debt to Total Capitalization to exceed (a) 0.60 to 1.00.
SECTION 9.5 Consolidated Net Worth. As of any fiscal quarter end, permit
Consolidated Net Worth to be less than the sum of (a) $450,000,000 plus (b) 80%
of cumulative Consolidated Net Income (if positive) after the Closing Date plus
(c) 90% of the proceeds from any equity offerings (net of offering and
professional fees and expenses) and any other capital contributions since the
Closing Date.
ARTICLE X
NEGATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid and
satisfied in full and the Commitments terminated, unless consent has been
obtained in the manner set forth in Section 13.11 hereof, the Borrower will not
and will not permit any of its Consolidated Entities to:
SECTION 10.1 Limitations on Debt. Create, incur, assume or suffer to
exist any Debt except:
(a) the Obligations;
(b) Subordinated Debt;
(c) Debt existing on the Closing Date and not otherwise permitted
under this Section 10.1, as set forth on Schedule 6.1(t) and the renewal
and refinancing (but not the increase) thereof;
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(d) Debt arising under the endorsement of negotiable instruments in
the ordinary course of business for collection;
(e) Debt permitted under Section 10.4(c);
(f) other Debt and Contingent Obligations not to exceed an aggregate
of $75,000,000 (on a consolidated basis for the Borrower and its
Consolidated Entities) at any time outstanding; and
(g) Debt arising out of the recourse sale of certain of the accounts
receivable of the Borrower and its Consolidated Entities to the extent
otherwise permitted under this Agreement;
provided, that none of the Debt permitted to be incurred by this Section
shall restrict, limit or otherwise encumber (by covenant or otherwise) the
ability of any Consolidated Entity of the Borrower to make any payment to
the Borrower or any other Consolidated Entity (in the form of dividends,
intercompany advances or otherwise) for the purpose of enabling the
Borrower to pay the Obligations.
SECTION 10.2 Limitations on Contingent Obligations. Create, incur, assume
or suffer to exist any Contingent Obligations except as permitted under Section
10.1 above.
SECTION 10.3 Limitations on Liens. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
without limitation shares of capital stock or other ownership interests), real
or personal, whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges
(excluding any Lien imposed pursuant to any of the provisions of ERISA or
Environmental Laws) that are not delinquent or that are being contested in
good faith by appropriate proceedings duly pursued, and adequate reserves
for which have been established and are being maintained;
(b) mechanics', materialmen's, contractor's, landlord's or other
similar Liens arising in the ordinary course of business, securing
obligations that are not delinquent or that are being contested in good
faith by appropriate proceedings duly pursued, and adequate reserves for
which have been established and are being maintained;
(c) Liens constituting restrictions, exceptions, reservations,
easements, conditions, space leases of a portion of a property limitations
and other matters of record that do not
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materially adversely affect the value or utility of the property
or the use to which the property is being put;
(d) Liens (including Liens arising under leases, whether operating
leases or Capital Leases) on equipment used in a Facility (a) that secure
Debt that already existed when such equipment was purchased or acquired,
or (b) that were created to secure loans, the proceeds of which were used
in their entirety to pay the purchase price of such equipment or were
created to acquire the right to use such equipment under leases, provided
that such Liens attach only to the equipment so purchased or the use of
which so acquired;
(e) Liens consisting of deposits or pledges made in the ordinary
course of business in connection with, or to secure payment of,
obligations under workers' compensation, unemployment insurance or similar
legislation or obligations under customer service contracts;
(f) Liens in favor of landlords, the amount secured by which would
not, in the aggregate, materially adversely affect the Borrower;
(g) Liens not otherwise permitted by this Section 10.3 and in
existence on the Closing Date and described on Schedule 10.3;
(h) Liens on the property of a Consolidated Entity securing
loans or advances made by the Borrower to such Consolidated
Entity;
(i) Liens securing Debt permitted under Section 10.1 in an aggregate
amount not to exceed $25,000,000; provided however, that none of the Liens
permitted hereunder may secure any Hedging Agreement; and
(j) Liens and other matters approved in writing by the Agent and
Required Lenders.
SECTION 10.4 Limitations on Loans, Advances, Investments and Acquisitions.
Purchase, own, invest in or otherwise acquire (including through swaps and
exchanges), directly or indirectly, any capital stock, interests in any
partnership or joint venture (including without limitation the creation or
capitalization of any Subsidiary), evidence of Debt or other obligation or
security, substantially all or a portion of the business or assets of any other
Person or any other investment or interest whatsoever in any other Person, or
make or permit to exist, directly or indirectly, any loans, advances or
extensions of credit to, or any investment in cash or by delivery of property
in, any Person, or
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enter into, directly or indirectly, any commitment or option in respect
of the foregoing except:
(a) Subject to Section 10.4(g), below, Investments in Consolidated
Entities existing on the Closing Date and the other existing Investments
described on Schedule 10.4;
(b) Permitted Investments;
(c) Loans or advances by:
(i) the Borrower to (A) a Wholly-Owned Entity or (B) subject
to the limitations of Section 10.4(g)(iii), any Consolidated Entity
that is not a Wholly-Owned Entity;
(ii) any Wholly-Owned Entity to (A) the Borrower, (B) any
other Wholly-Owned Entity or (C) subject to the limitations of
Section 10.4(g)(iii), any Consolidated Entity that is not a
Wholly-Owned Entity; and
(iii) any Consolidated Entity to (A) the Borrower, (B) any
Wholly-Owned Entity or (C) subject to the limitations of Section
10.4(g)(iii), any other Consolidated Entity that is not a
Wholly-Owned Entity.
(d) Loans and advances to employees for reasonable travel and
business expenses incurred in the ordinary course of business;
(e) Accounts receivable created, and prepaid expenses incurred, in
the ordinary course of business;
(f) Loans, advances or other extensions of credit to tenants with
whom the Borrower or a Subsidiary has a business relationship in an
aggregate amount not to exceed $5,000,000 at any time outstanding;
(g) The acquisition (including any swap or exchange), directly or
through an Investment in a Joint Venture which makes such acquisition, of
one or more Facilities and other assets not otherwise permitted by this
Section 10.4 (whether by the acquisition of capital stock, assets or any
combination thereof), subject to the following conditions:
(i) if the aggregate consideration (including cash payments,
deferred purchase price, earn-outs and assumed Debt) in connection
with the acquisition of any Facility or other asset or the aggregate
amount invested in a Joint Venture (including the Investment of both
the Borrower and its Consolidated Entities) exceeds:
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(1) $50,000,000, the following items shall have been
delivered to the Agent not later than five (5) Business Days
prior to funding such Investment:
(A) A description of the Facility or other asset
to be acquired or of the Joint Venture in which the
Investment is to be made;
(B) Historical financial statements of the
Facility or other asset to be acquired for the most
recent two fiscal years available and for the latest
available interim period since the most recent fiscal
year-end; and
(C) Written confirmation, supported by detailed
calculations, demonstrating to the Agent pro forma
compliance with each covenant contained in Article IX
hereof as of the most recent fiscal quarter end for
which financial statements are available and after
giving effect to such Investment or acquisition;
(2) Fifteen percent (15%) of Total Consolidated Assets
as of the end of the immediately preceding fiscal year, the
prior written consent of the Required Lenders shall be
required as a condition to such Investment;
(ii) no Default or Event of Default shall have occurred and be
continuing both before and after giving effect to the Investment;
(iii) not more than thirty percent (30%) of Total Consolidated
Assets (determined at the time of any Investment and after giving
effect to such Investment and thereafter quarterly on the basis of
each Officer's Compliance Certificate) shall be invested in Joint
Ventures at any time (including Investments in Joint Ventures
existing on the Closing Date); and
(iv) each Joint Venture shall be either a Controlled
Partnership or a Controlled Company.
(h) Subject to the limitations of Section 10.4(g), the swap or
exchange of any Facility for a comparable facility or facilities, provided
the following conditions are met:
(i) The swap or exchange must be on commercially
reasonable terms for like value, as determined by resolution
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of the Borrower's board of directors, taking into account, among
other things, historical cash flows and other relevant financial and
other factors.
(ii) No Default or Event of Default shall exist immediately
prior to or immediately after the consummation of the swap or
exchange.
(iii) The net cash proceeds, if any, received by the Borrower
and the Consolidated Entities as a result of the swap or exchange
shall be promptly applied to reduce the Obligations.
(iv) The swap or exchange must not expose the Borrower or any
of its Consolidated Entities to any material liability (other than
liabilities for Debt expressly assumed as a part of the transaction,
to the extent such Debt is permitted under this Agreement),
including liabilities with respect to litigation, Hazardous
Materials and adverse tax consequences. The Borrower and the
Consolidated Entities must receive in connection with the swap or
exchange appropriate representations and warranties with respect to
such liabilities, as well as appropriate evidence of good title, and
must exercise due diligence with respect to all such matters.
(i) other Investments, in an aggregate amount not to exceed
$50,000,000 at any time; provided that such Investments shall be within
the Line of Business of the Borrower and its Consolidated Entities and
provided further that neither the Borrower nor any of its Consolidated
Entities shall own (individually or in the aggregate) fifty-one percent
(51%) or more of the Person in which the Investment is made.
SECTION 10.5 Limitations on Mergers and Liquidation. Merge, consolidate or
enter into any similar combination with any other Person or liquidate, wind-up
or dissolve itself (or suffer any liquidation or dissolution); provided that so
long as immediately before and after giving effect to such merger,
consolidation, other combination, liquidation or wind-up no Default or Event of
Default exists, (a) any Consolidated Entity, whether now existing or hereafter
created or acquired, may merge or consolidate with or into, or sell, lease,
transfer or otherwise dispose of all or any portion of its business or assets
to, the Borrower, so long as the entity which survives or results from any such
merger or consolidation is the Borrower, (b) any Wholly-Owned Entity, whether
now existing or hereafter created or acquired may merge or consolidate with or
into, or sell, lease, transfer or otherwise dispose of all or any portion of its
business to, any other Wholly-Owned Entity, and (c) any Wholly-Owned Entity may
sell, lease, transfer or
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otherwise dispose of all or any portion of its business or assets to or merge or
consolidate with or into any Person which is not a Wholly-Owned Entity, provided
any such sale, lease, transfer, other disposition, merger or consolidation shall
be treated as an Investment in a Joint Venture and shall be subject to the
limitations of Section 10.4.
SECTION 10.6 Limitations on Sale of Assets. Convey, sell, lease, assign,
transfer, swap, exchange or otherwise dispose of any of its property, business
or assets (including, without limitation, the sale of any receivables and
leasehold interests and any sale-leaseback or similar transaction), whether now
owned or hereafter acquired except:
(a) the sale of inventory in the ordinary course of business;
(b) the sale of obsolete assets no longer used or usable in the
business of the Borrower or any of its Consolidated Entities;
(c) the transfer of assets to the Borrower or any Consolidated
Entity pursuant to Section 10.5;
(d) the sale by the Borrower or any Consolidated Entity, on a term
or revolving basis, of all or any part of its private pay receivables
representing balances due from patients, including balances for
deductibles, co-insurance or co-payments provided that the net cash
proceeds of any disposition of such assets are immediately applied to
reduce the Obligations;
(e) the transfer of assets from a Consolidated Entity of the
Borrower to the Borrower or another Consolidated Entity ; provided that,
immediately after giving effect to such transfer, no Default or Event of
Default would exist; and
(f) any disposition of assets, including a disposition by means of a
swap or exchange, not otherwise permitted hereunder provided (i) the gross
proceeds from any single disposition shall not exceed $25,000,000 and (ii)
the net cash proceeds of each disposition or exchange, if any, of such
assets are promptly applied to reduce the Obligations. In addition, the
Borrower and the Consolidated Entities will not sell, lease, transfer,
swap, exchange or otherwise dispose of any Facility or any part thereof
(or all or any part of the shares of stock of or partnership or other
equity interest in the Consolidated Entity that owns such Facility) unless
(a) the Borrower notifies the Agent of such sale, lease, transfer, swap,
exchange or other disposition and advises the Agent as to the proposed
terms thereof within 30 days prior to the consummation of such sale,
lease, transfer, swap, exchange or other disposition and promptly notifies
the Agent of any material changes in such terms, (b) no Default or Event
of Default shall
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exist immediately prior to or after the consummation of the sale, lease,
assignment, transfer, swap, exchange or other disposition, (c) any swap or
exchange must (i) be on commercially reasonable terms for like value, as
determined by resolution of the Borrower's board of directors, taking into
account, among other things, historical cash flows and other relevant
financial and other factors and (ii) not expose the Borrower or any of its
Consolidated Entities to any material liability (other than liabilities
for Debt expressly assumed as a part of the transaction, to the extent
such Debt is permitted under this Agreement), including liabilities with
respect to litigation, Hazardous Materials and adverse tax consequences,
and (d) any sale, lease, transfer or other disposition (excluding swaps or
exchanges) is made on commercially reasonable terms on an arms'-length
basis for a purchase price at least 90% of which is payable in cash.
SECTION 10.7 Limitations on Dividends, Distributions and Changes in
Capital Structure. Declare or pay any dividends upon any of its capital stock;
purchase, redeem, retire or otherwise acquire, directly or indirectly, any
shares of its capital stock, or make any distribution of cash, property or
assets among the holders of shares of its capital stock or other ownership
interests, or make any change in its capital structure or amend any of its
organizational documents if such change or amendment could reasonably be
expected to have a Material Adverse Effect; provided that:
(a) the Borrower or any Consolidated Entity may pay dividends in
shares of its own capital stock in options or other rights to acquire its
own capital stock or in Shareholder Securities;
(b) any Consolidated Entity may pay cash dividends or make other
distributions to the Borrower, another Consolidated Entity or to any other
Person owning an equity interest in such Consolidated Entity; and the
Borrower will not permit any Consolidated Entity to be or become subject
to any restriction on the ability of such Consolidated Entity to pay
dividends or to make partnership distributions.
(c) the Borrower may purchase or redeem its capital stock pursuant
to the terms of its Employee Stock Purchase Plan or Stock Option Plan or
under the terms of the Borrower's 1989 stock offering to its employees.
SECTION 10.8 Limitations on Exchange and Issuance of Capital Stock. Issue,
sell or otherwise dispose of any class or series of capital stock that, by its
terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of
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an event or passage of time would be, (a) convertible or exchangeable into Debt
or (b) required to be redeemed or repurchased, including at the option of the
holder, in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due.
SECTION 10.9 Transactions with Affiliates. Except pursuant to the
reasonable requirements of its business and upon fair and reasonable terms which
are no less favorable to it than it would obtain in a comparable arm's length
transaction with a Person not its Affiliate, directly or indirectly: (a) make
any loan or advance to, or purchase or assume any note or other obligation to or
from, any of its officers, directors, shareholders or other Affiliates, or to or
from any member of the immediate family of any of its officers, directors,
shareholders or other Affiliates, or subcontract any operations to any of its
Affiliates, or (b) enter into, or be a party to, any transaction with any of its
Affiliates.
SECTION 10.10 Certain Accounting Changes. Change its Fiscal Year end.
SECTION 10.11 Amendments; Payments and Prepayments of Subordinated Debt.
Amend or modify (or permit the modification or amendment of) any of the terms or
provisions of any Subordinated Debt, or cancel or forgive, make any voluntary or
optional payment or prepayment on, or redeem or acquire for value (including
without limitation by way of depositing with any trustee with respect thereto
money or securities before due for the purpose of paying when due) any
Subordinated Debt; provided that nothing herein shall be deemed to prevent the
Borrower from taking action, to the extent that such action would not otherwise
cause a Default or Event of Default hereunder, (a) to redeem or to solicit the
tender of the 1992 Senior Subordinated Notes and, in connection therewith, to
amend the terms of the 1992 Indenture on terms no less favorable to the Borrower
than as presently set forth in the 1992 Indenture or (b) to redeem or solicit
the tender of the 1995 Senior Subordinated Notes; provided that the Borrower
shall, contemporaneously with such redemption or tender, replace such 1995
Senior Subordinated Notes with other Subordinated Debt on terms no less
favorable to the Borrower than those set forth in the 1995 Indenture.
SECTION 10.12 Restrictive Agreements. Enter into any Debt which contains
any negative pledge on assets or any covenants more restrictive than the
provisions of Articles VIII, IX and X hereof, or which restricts, limits or
otherwise encumbers its ability to incur Liens on or with respect to any of its
assets or properties other than the assets or properties securing such Debt.
SECTION 10.13 Amendments and Prepayments of Other Debt. Except as provided
in Section 10.11, amend or modify (or permit the
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modification or amendment of) any of the terms or provisions of any Debt (other
than Debt arising hereunder), or make any voluntary or optional payment or
prepayment of any Debt (other than Debt arising hereunder) to the extent that
such amendment, modification, payment or prepayment would cause a Default or
Event of Default hereunder.
SECTION 10.14 Continuation of Current Business. Change its primary
business ("Line of Business") of managing hospitals under contract, providing
consulting and support services to hospitals, owning and operating acute care
hospitals and related or supporting facilities and businesses and nursing homes
and providing in-patient and out-patient services, including, without
limitation, services provided through home health agencies, surgery centers,
diagnostic centers and physicians offices.
ARTICLE XI
DEFAULT AND REMEDIES
SECTION 11.1 Events of Default. Each of the following shall constitute an
Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
(a) Default in Payment of Loans, Fees and Reimbursement Obligations.
The Borrower shall default in any payment, when and as due (whether at
maturity, by reason of acceleration or otherwise), of (i) principal of or
interest on any Loan, Revolving Credit Note, Competitive Bid Note or
Reimbursement Obligation or
(ii) any fees due hereunder.
(b) Misrepresentation. Any representation or warranty made or deemed
to be made by the Borrower or any of its Consolidated Entities under this
Agreement, any Loan Document or any amendment hereto or thereto, shall at
any time prove to have been incorrect or misleading in any material
respect when made or deemed made.
(c) Default in Performance of Certain Covenants. The Borrower shall
default in the performance or observance of any covenant or agreement
contained in Articles IX or X of this Agreement.
(d) Default in Performance of Other Covenants and Conditions. The
Borrower or any of its Consolidated Entities shall default in the
performance or observance of any term,
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covenant, condition or agreement contained in this Agreement (other than
as specifically provided for otherwise in this Section 11.1) or any other
Loan Document and such default shall continue for a period of thirty (30)
days after written notice thereof has been given to the Borrower by the
Agent.
(e) Debt Cross-Default. The Borrower or any of its Consolidated
Entities shall (i) default in the payment of any Debt (other than the
Notes or any Reimbursement Obligation) the aggregate outstanding amount of
which Debt is in excess of $5,000,000 beyond the period of grace if any,
provided in the instrument or agreement under which such Debt was created,
or (ii) default in the observance or performance of any other agreement or
condition relating to any Debt (other than the Notes or any Reimbursement
Obligation) the aggregate outstanding amount of which Debt is in excess of
$10,000,000 individually or $25,000,000 in the aggregate or contained in
any instrument or agreement evidencing, securing or relating thereto or
any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder
or holders of such Debt (or a trustee or agent on behalf of such holder or
holders) to cause, with the giving of notice if required, any such Debt to
become due prior to its stated maturity (any applicable grace period
having expired).
(f) Other Cross-Defaults. The Borrower or any of its Consolidated
Entities shall default in the payment when due, or in the performance or
observance, of any obligation or condition of any Material Contract
unless, but only as long as, the existence of any such default is being
contested by the Borrower or such Consolidated Entity in good faith by
appropriate proceedings and adequate reserves in respect thereof have been
established on the books of the Borrower or such Consolidated Entity to
the extent required by GAAP.
(g) Change in Control. Either (i) any Person or any Persons acting
together that would constitute a "group" (a "Group") for purposes of
Section 13(d) of the Securities Exchange Act of 1934, or any successor
provision thereto, together with any Affiliates or Related Persons
thereof, other than any trust for the employee stock ownership plans of
the Borrower or any of the Consolidated Entities, shall beneficially own
(as defined in Rule 13d-3 of the Securities Exchange Act of 1934 or any
successor provision thereto) at least 50% of the aggregate voting power of
all classes of stock of the Borrower; or (ii) any Person or Group,
together with any Affiliates or Related Persons thereof, shall succeed in
having its or their nominees elected to the Board of Directors of the
Borrower such that such nominees, when added to any existing director
remaining on the Board of Directors of the Borrower after
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such election who is an Affiliate or Related Person of such Person or
Group, shall constitute a majority of the Board of Directors of the
Borrower. (As used herein, the term "Related Person" of any Person means
any other Person owning (a) five percent (5%) or more of the outstanding
common stock of such Person or (b) five percent (5%) or more of the voting
stock of such Person.)
(h) Voluntary Bankruptcy Proceeding. The Borrower or any
Consolidated Entity shall (i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (ii) file a petition
seeking to take advantage of any other laws, domestic or foreign, relating
to bankruptcy, insolvency, reorganization, winding up or composition for
adjustment of debts, (iii) consent to or fail to contest in a timely and
appropriate manner any petition filed against it in an involuntary case
under such bankruptcy laws or other laws, (iv) apply for or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or
the taking of possession by, a receiver, custodian, trustee, or liquidator
of itself or of a substantial part of its property, domestic or foreign,
(v) admit in writing its inability to pay its debts as they become due,
(vi) make a general assignment for the benefit of creditors, or (vii) take
any corporate action for the purpose of authorizing any of the foregoing.
(i) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against the Borrower or any Consolidated Entity in any
court of competent jurisdiction seeking (i) relief under the federal
bankruptcy laws (as now or hereafter in effect) or under any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or adjustment of debts, or (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like for the Borrower or any
Consolidated Entity or for all or any substantial part of their respective
assets, domestic or foreign, and such case or proceeding shall continue
undismissed or unstayed for a period of sixty (60) consecutive days, or an
order granting the relief requested in such case or proceeding (including,
but not limited to, an order for relief under such federal bankruptcy
laws) shall be entered.
(j) Failure of Agreements. Any provision of this Agreement or of any
other Loan Document shall for any reason cease to be valid and binding on
the Borrower or Consolidated Entity party thereto or any such Person shall
so state in writing, or this Agreement or any other Loan Document shall
for any reason cease to create a valid and perfected first priority Lien
on, or security interest in, any of the collateral purported to be covered
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thereby, in each case other than in accordance with the express terms
hereof or thereof.
(k) Termination Event. The occurrence of any of the following
events: (i) the Borrower or any ERISA Affiliate fails to make full payment
when due of all amounts which, under the provisions of any Pension Plan or
Section 412 of the Code, the Borrower or any ERISA Affiliate is required
to pay as contributions thereto, (ii) an accumulated funding deficiency in
excess of $500,000 occurs or exists, whether or not waived, with respect
to any Pension Plan, (iii) a Termination Event or (iv) the Borrower or any
ERISA Affiliate as employers under one or more Multiemployer Plan makes a
complete or partial withdrawal from any such Multiemployer Plan and the
plan sponsor of such Multiemployer Plans notifies such withdrawing
employer that such employer has incurred a withdrawal liability requiring
payments in an amount exceeding $10,000,000.
(l) Judgment. A judgment or order for the payment of money not
covered by valid and collectible insurance which causes the aggregate
amount of all such judgments to exceed $500,000 in any Fiscal Year shall
be entered against the Borrower or any of its Consolidated Entities by any
court and such judgment or order shall continue undischarged, unstayed or
not be removed to bond for a period of more than thirty (30) days.
(m) Execution or Attachment. Any writ of execution, attachment or
garnishment for an amount in excess of $500,000 shall be assessed against
the assets of the Borrower or any Consolidated Entity and such writ of
execution, attachment or garnishment shall not be dismissed, discharged or
quashed within thirty (30) days of issuance.
SECTION 11.2 Remedies. Upon the occurrence of an Event of Default, with
the consent of the Required Lenders, the Agent may, or upon the request of the
Required Lenders, the Agent shall, by notice to the Borrower:
(a) Acceleration; Termination of Facilities. Declare the principal
of and interest on the Loans, the Notes and the Reimbursement Obligations
at the time outstanding, and all other amounts owed to the Lenders and to
the Agent under this Agreement or any of the other Loan Documents
(including, without limitation, all L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) and all other Obligations, to
be forthwith due and payable, whereupon the same shall immediately become
due and payable without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in this
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Agreement or the other Loan Documents to the contrary notwithstanding, and
terminate the Credit Facility and any right of the Borrower to request
borrowings or Letters of Credit thereunder; provided, that upon the
occurrence of an Event of Default specified in Section 11.1(h) or (i) the
Credit Facility shall be automatically terminated and all Obligations
shall automatically become due and payable.
(b) Letters of Credit. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time
of an acceleration pursuant to the preceding paragraph, require the
Borrower at such time to deposit in a cash collateral account opened by
the Agent an amount equal to the aggregate then undrawn and unexpired
amount of such Letters of Credit. Amounts held in such cash collateral
account shall be applied by the Agent to the payment of drafts drawn under
such Letters of Credit, and the unused portion thereof after all such
Letters of Credit shall have expired or been fully drawn upon, if any,
shall be applied to repay the other Obligations. After all such Letters of
Credit shall have expired or been fully drawn upon, the Reimbursement
Obligation shall have been satisfied and all other Obligations shall have
been paid in full, the balance, if any, in such cash collateral account
shall be returned to the Borrower.
(c) Rights of Collection. Exercise on behalf of the Lenders all of
its other rights and remedies under this Agreement, the other Loan
Documents and Applicable Law, in order to satisfy all of the Borrower's
Obligations.
SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Agent and the Lenders set forth in
this Agreement is not intended to be exhaustive and the exercise by the Agent
and the Lenders of any right or remedy shall not preclude the exercise of any
other rights or remedies, all of which shall be cumulative, and shall be in
addition to any other right or remedy given hereunder or under the Loan
Documents or that may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of the Agent or any
Lender in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between the Borrower, the Agent and the
Lenders or their respective agents or employees shall be effective to change,
modify or discharge any provision of this Agreement or any of the other Loan
Documents or to constitute a waiver of any Event of Default.
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ARTICLE XII
THE AGENT
SECTION 12.1 Appointment. Each of the Lenders hereby irrevocably
designates and appoints First Union as Agent of such Lender under this Agreement
and the other Loan Documents and each such Lender irrevocably authorizes First
Union as Agent for such Lender, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to the Agent by the
terms of this Agreement and such other Loan Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Agreement or such other Loan Documents, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein and therein, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or the other Loan Documents or
otherwise exist against the Agent.
SECTION 12.2 Delegation of Duties. The Agent may execute any of its
respective duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by the Agent with reasonable care.
SECTION 12.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Loan Documents (except for actions occasioned solely by its or such
Person's own gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Borrower or any of its Subsidiaries or any officer
thereof contained in this Agreement or the other Loan Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or the
other Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the other Loan Documents or
for any failure of the Borrower or any of its Subsidiaries to perform its
obligations hereunder or thereunder. The Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement, or to
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inspect the properties, books or records of the Borrower or any of its
Subsidiaries.
SECTION 12.4 Reliance by the Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless such
Note shall have been transferred in accordance with Section 13.10 hereof. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement and the other Loan Documents unless it shall first receive such
advice or concurrence of the Required Lenders (or, when expressly required
hereby or by the relevant other Loan Document, all the Lenders) as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action except for its own gross
negligence or willful misconduct. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
Notes in accordance with a request of the Required Lenders (or, when expressly
required hereby, all the Lenders), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Notes.
SECTION 12.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring
to this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, it shall promptly give notice thereof to the Lenders. The Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
SECTION 12.6 Non-Reliance on the Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any of its respective
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates has made any representations or warranties to it and that no act by
the Agent hereinafter taken, including any review of the affairs of the Borrower
or any of its Subsidiaries, shall
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be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and its Subsidiaries and made its
own decision to make its Loans and issue or participate in Letter of Credit
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Agent hereunder or by the other Loan Documents, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial and other
condition or creditworthiness of the Borrower or any of its Subsidiaries which
may come into the possession of the Agent or any of its respective officers,
directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates.
SECTION 12.7 Indemnification. The Lenders agree to indemnify the Agent in
its capacity as such and (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
the respective amounts of their Commitment Percentages, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Notes or any Reimbursement Obligation) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement or the
other Loan Documents, or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent's bad faith,
gross negligence or willful misconduct. To the extent indemnity payments made by
the Lenders pursuant to this Section 12.7 are subsequently recovered by the
Agent, it promptly shall refund such previously paid indemnity amounts to the
appropriate Lenders. The agreements in this Section 12.7 shall survive the
payment of the Notes, any Reimbursement Obligation and
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all other amounts payable hereunder and the termination of this Agreement.
SECTION 12.8 The Agent in Its Individual Capacity. The Agent and its
respective Subsidiaries and Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Agent were not an Agent hereunder. With respect to any Loans made or renewed by
it and any Note issued to it and with respect to any Letter of Credit issued by
it or participated in by it, the Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may exercise
the same as though it were not an Agent, and the terms "Lender" and "Lenders"
shall include the Agent in its individual capacity.
SECTION 12.9 Resignation of the Agent; Successor Agent. Subject to the
appointment and acceptance of a successor as provided below, the Agent may
resign at any time by giving notice thereof to the Lenders and the Borrower.
Upon any such resignation, the Required Lenders shall have the right to appoint
a successor Agent, which successor shall have minimum capital and surplus of at
least $500,000,000. If no successor Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within thirty (30)
days after the Agent's giving of notice of resignation, then the Agent may, on
behalf of the Lenders, appoint a successor Agent, which successor shall have
minimum capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations hereunder, except for liabilities incurred prior
thereto. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section 12.9 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt
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requested, and shall be presumed to be received by a party hereto (i) on the
date of delivery if delivered by hand or sent by telecopy, (ii) on the next
Business Day if sent by recognized overnight courier service and (iii) on the
third Business Day following the date sent by certified mail, return receipt
requested. A telephonic notice to the Agent as understood by the Agent will be
deemed to be the controlling and proper notice in the event of a discrepancy
with or failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at the
following addresses, or any other address as to which all the other parties are
notified in writing.
If to the Borrower: Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Steve B. Hewett
Telephone No.: (615) 371-4760
Telecopy No.: (615) 371-4554
With copies to: Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: General Counsel
Telephone No.: (615) 371-4868
Telecopy No.: (615) 371-4788
If to First Union, First Union Capital Markets
As Issuing Lender: Specialized Industries Division
One First Union Center, DC-5
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Healthcare Finance Group
Telephone No.: (704) 374-7121
Telecopy No.: (704) 383-9144
If to any Lender: To the Address set forth on Schedule 1.1(b) hereto.
If to First Union, First Union National Bank of
As Agent: North Carolina
One First Union Center, TW-10
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
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Telephone No.: (704) 383-0281
Telecopy No.: (704) 383-0288
With copies to: Kennedy Covington Lobdell & Hickman, L.L.P.
100 North Tryon Street, 42nd Floor
Charlotte, North Carolina 28202
Attention: J. Donnell, Lassiter, Esq.
Telephone No.: 704-331-7444
Telecopy No.: 704-331-7598
(c) Agent's Office. The Agent hereby designates its office located at the
address set forth above, or any subsequent office which shall have been
specified for such purpose by written notice to the Borrower and Lenders, as the
Agent's Office referred to herein, to which payments due are to be made and at
which Loans will be disbursed and Letters of Credit issued.
(d) Issuing Lender's Office. The Issuing Lender hereby designates its
office located at the address set forth above, or any subsequent office which
shall have been specified for such purpose by written notice to the Borrower and
Lenders, as the Issuing Lender's Office referred to herein, at which Letters of
Credit will be issued.
SECTION 13.2 Expenses; Indemnity. The Borrower will (a) pay all
out-of-pocket expenses of the Agent in connection with: (i) the preparation,
execution and delivery of this Agreement and each other Loan Document, whenever
the same shall be executed and delivered, including without limitation all
out-of-pocket syndication and due diligence expenses and reasonable fees and
disbursements of counsel for the Agent, (ii) the preparation, execution and
delivery of any waiver, amendment or consent by the Agent or the Lenders
relating to this Agreement or any other Loan Document, including without
limitation reasonable fees and disbursements of counsel for the Agent and (iii)
the administration and enforcement of any rights and remedies of the Agent and
Lenders under the Credit Facility, including consulting with appraisers,
accountants, engineers, attorneys and other Persons concerning the nature,
scope or value of any right or remedy of the Agent or any Lender hereunder or
under any other Loan Document or any factual matters in connection therewith,
which expenses shall include without limitation the reasonable fees and
disbursements of such Persons, and (b) defend, indemnify and hold harmless the
Agent and the Lenders, and their respective parents, Subsidiaries, Affiliates,
employees, agents, officers and directors, from and against any losses,
penalties, fines, liabilities, settlements, damages, costs and expenses,
suffered by any such Person in connection with any claim, investigation,
litigation or other proceeding (whether or not the Agent or any Lender is a
party thereto) and the prosecution and defense thereof, arising out of or in any
way connected with the Agreement, any other Loan Document or the Loans,
including without limitation reasonable attorney's and
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consultant's fees, except to the extent that any of the foregoing directly
result from the gross negligence or willful misconduct of the party seeking
indemnification therefor.
SECTION 13.3 Set-off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon and
after the occurrence of any Event of Default and during the continuance thereof,
the Lenders and any assignee or participant of a Lender in accordance with
Section 13.10 are hereby authorized by the Borrower at any time or from time to
time, without notice to the Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all deposits (general or special, time or demand, including, but not limited
to, indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by the Lenders,
or any such assignee or participant to or for the credit or the account of the
Borrower against and on account of the Obligations irrespective of whether or
not (a) the Lenders shall have made any demand under this Agreement or any of
the other Loan Documents or (b) the Agent shall have declared any or all of the
Obligations to be due and payable as permitted by Section 11.2 and although such
Obligations shall be contingent or unmatured.
SECTION 13.4 Governing Law. This Agreement, the Notes and the other Loan
Documents, unless otherwise expressly set forth therein, shall be governed by,
construed and enforced in accordance with the laws of the State of North
Carolina, without reference to the conflicts or choice of law principles
thereof.
SECTION 13.5 Consent to Jurisdiction. The Borrower hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg County, North Carolina, in any action, claim or other proceeding
arising out of any dispute in connection with this Agreement, the Notes and the
other Loan Documents, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations. The Borrower hereby irrevocably
consents to the service of a summons and complaint and other process in any
action, claim or proceeding brought by the Agent or any Lender in connection
with this Agreement, the Notes or the other Loan Documents, any rights or
obligations hereunder or thereunder, or the performance of such rights and
obligations, on behalf of itself or its property, in the manner specified in
Section 13.1. Nothing in this Section 13.5 shall affect the right of the Agent
or any Lender to serve legal process in any other manner permitted by Applicable
Law or affect the right of the Agent or any Lender to bring any action or
proceeding against the Borrower or its properties in the courts of any other
jurisdictions.
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SECTION 13.6 Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. Upon demand of any party, whether made before or
after institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to the Notes or any other Loan
Documents ("Disputes"), between or among parties to the Notes or any other Loan
Document shall be resolved by binding arbitration as provided herein.
Institution of a judicial proceeding by a party does not waive the right of that
party to demand arbitration hereunder. Disputes may include, without limitation,
tort claims, counterclaims, claims brought as class actions, claims arising from
Loan Documents executed in the future, or claims concerning any aspect of the
past, present or future relationships arising out of or connected with the Loan
Documents. Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in Charlotte, North Carolina. The expedited procedures set
forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims
of less than $1,000,000. All applicable statutes of limitation shall apply to
any Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted. Notwithstanding the foregoing, this paragraph shall not apply to any
Hedging Agreement that is a Loan Document.
(b) Jury Trial. TO THE EXTENT PERMITTED BY LAW, THE AGENT, EACH LENDER AND
THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS
AND OBLIGATIONS.
(c) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the parties hereto and the other Loan Documents
preserve, without diminution, certain remedies that such Persons may employ or
exercise freely, either alone, in conjunction with or during a Dispute. Each
such Person shall have and hereby reserves the right to proceed in any court of
proper jurisdiction or by self help to exercise or prosecute the following
remedies: (i) all rights to foreclose against any real or personal property or
other security by exercising a power of sale granted in the Loan Documents or
under applicable law or by judicial foreclosure and sale, (ii) all rights of
self help including peaceful occupation of property and collection of rents, set
off, and peaceful possession of property, (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and in
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filing an involuntary bankruptcy proceeding, and (iv) when applicable, a
judgment by confession of judgment. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that may be requested
by a party in a Dispute.
SECTION 13.7 Reversal of Payments. To the extent the Borrower makes a
payment or payments to the Agent for the ratable benefit of the Lenders or the
Agent receives any payment or proceeds of the collateral which payments or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or proceeds
repaid, the Obligations or part thereof intended to be satisfied shall be
revived and continued in full force and effect as if such payment or proceeds
had not been received by the Agent.
SECTION 13.8 Injunctive Relief; Punitive Damages.
(a) The Borrower recognizes that, in the event the Borrower fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to the Lenders.
Therefore, the Borrower agrees that the Lenders, at the Lenders' option, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
(b) The Agent, Lenders and Borrower (on behalf of itself and its
Subsidiaries) hereby agree that no such Person shall have a remedy of punitive
or exemplary damages against any other party to a Loan Document and each such
Person hereby waives any right or claim to punitive or exemplary damages that
they may now have or may arise in the future in connection with any Dispute,
whether such Dispute is resolved through arbitration or judicially.
(c) The parties agree that they shall not have a remedy of punitive or
exemplary damages against any other party in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which may arise
in the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
SECTION 13.9 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower or any Subsidiary thereof to determine compliance with any covenant
contained herein, shall, except as otherwise expressly contemplated hereby or
unless there is an express written direction by the Agent to the contrary agreed
to by the Borrower, be performed in accordance with GAAP as in effect from time
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to time. In the event that changes in GAAP shall be mandated by the Financial
Accounting Standards Board, or any similar accounting body of comparable
standing, or shall be recommended by the Borrower's certified public
accountants, to the extent that such changes would modify such accounting terms
or the interpretation or computation thereof, such changes shall be followed in
defining such accounting terms only from and after the date the Borrower and the
Lenders shall have amended this Agreement to the extent necessary to reflect any
such changes in the financial covenants and other terms and conditions of this
Agreement.
SECTION 13.10 Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Agent and the Lenders, all future holders of
the Notes, and their respective successors and as signs, except that the
Borrower shall not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of each Lender.
(b) Assignment by Lenders. Each Lender may, with the consent of the Agent
and, provided no Event of Default shall have occurred and be continuing, the
consent of the Borrower, which consent shall not be unreasonably withheld,
assign to one or more Eligible Assignees all or a portion of its interests,
rights and obligations under this Agreement (including, without limitation, all
or a portion of the Extensions of Credit at the time owing to it and the Notes
held by it); provided that:
(i) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Lender's rights and obligations under this
Agreement;
(ii) if less than all of the assigning Lender's Commitment is to be
assigned, the Commitment so assigned shall not be less than $10,000,000;
(iii) the parties to each such assignment shall execute and deliver
to the Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance in the form of Exhibit F attached hereto (an
"Assignment and Acceptance"), together with any Note or Notes subject to
such assignment;
(iv) such assignment shall not, without the consent of the Borrower,
require the Borrower to file a registration statement with the Securities
and Exchange Commission or apply to or qualify the Loans or the Notes
under the blue sky laws of any state; and
(v) the assigning Lender shall pay to the Agent an assignment fee of
$3,000 upon the execution by such Lender of the Assignment and Acceptance;
provided that no such fee shall be payable upon any assignment by a Lender
to an Affiliate thereof.
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<PAGE> 96
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereby
and (B) the Lender thereunder shall, to the extent provided in such assignment,
be released from its obligations under this Agreement.
(c) Rights and Duties Upon Assignment. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.
(d) Register. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Lenders and the amount of the Extensions of Credit with respect
to each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrower, the
Agent and the Lenders may treat each person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by the Borrower or Lender at any reasonable
time and from time to time upon reasonable prior notice.
(e) Issuance of New Notes. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee together
with any Note or Notes subject to such assignment and the written consent to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is substantially in the form of Exhibit F:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the Register;
(iii) give prompt notice thereof to the Lenders and the Borrower;
and
(iv) promptly deliver a copy of such Assignment and Acceptance to
the Borrower.
Within five (5) Business Days after receipt of notice, the Borrower shall
execute and deliver to the Agent, in exchange for the surrendered Note or Notes,
a new Note or Notes to the order of such Eligible Assignee in amounts equal to
the Commitment assumed by it pursuant to such Assignment and Acceptance and a
new Note or Notes to the order of the assigning Lender in an amount equal to the
Commitment retained by
- 91 -
<PAGE> 97
it hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the assigned Notes delivered to the
assigning Lender. Each surrendered Note or Notes shall be canceled and returned
to the Borrower.
(f) Participations. Each Lender may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Extensions of Credit and the Notes held by it); provided that:
(i) each such participation shall be in an amount not less than
$5,000,000;
(ii) such Lender's obligations under this Agreement (including,
without limitation, its Commitment) shall remain unchanged;
(iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of the Notes held by it for
all purposes of this Agreement;
(v) the Borrower, the Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement;
(vi) such Lender shall not permit such participant the right to
approve any waivers, amendments or other modifications to this Agreement
or any other Loan Document other than waivers, amendments or
modifications which would reduce the principal of or the interest rate on
any Loan or Reimbursement Obligation, extend the term or increase the
amount of the Commitment, reduce the amount of any fees to which such
participant is entitled, extend any scheduled payment date for principal
of any Loan or, except as expressly contemplated hereby or thereby,
release substantially all of the Collateral; and
(vii) any such disposition shall not, without the consent of the
Borrower, require the Borrower to file a registration statement with the
Securities and Exchange Commission to apply to qualify the Loans or the
Notes under the blue sky law of any state.
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<PAGE> 98
(g) Disclosure of Information; Confidentiality. The Agent and the Lenders
shall hold all non-public information with respect to the Borrower obtained
pursuant to the Loan Documents in accordance with their customary procedures for
handling confidential information. Any Lender may, in connection with any
assignment, proposed assignment, participation or proposed participation
pursuant to this Section 13.10, disclose to the assignee, participant, proposed
assignee or proposed participant, any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower; provided, that prior
to any such disclosure, each such assignee, proposed assignee, participant or
proposed participant shall agree with the Borrower or such Lender to preserve
the confidentiality of any confidential information relating to the Borrower
received from such Lender.
(h) Certain Pledges or Assignments. Nothing herein shall
prohibit any Lender from pledging or assigning any Note to any Federal
Reserve Bank in accordance with Applicable Law.
SECTION 13.11 Amendments, Waivers and Consents. Except as set forth below,
any term, covenant, agreement or condition of this Agreement or any of the other
Loan Documents may be amended or waived by the Lenders, and any consent given by
the Lenders, if, but only if, such amendment, waiver or consent is in writing
signed by the Required Lenders (or by the Agent with the consent of the Required
Lenders) and delivered to the Agent and, in the case of an amendment, signed by
the Borrower; provided, that no amendment, waiver or consent shall (a) increase
the amount or extend the time of the obligation of the Lenders to make Loans or
issue or participate in Letters of Credit (including without limitation pursuant
to Section 2.8) or decrease or forgive the principal of any Loan or
Reimbursement Obligation, (b) extend the originally scheduled time or times of
payment of the principal of any Loan or Reimbursement Obligation or the time or
times of payment of interest on any Loan or Reimbursement Obligation, (c) reduce
the rate of interest or fees payable on any Loan or Reimbursement Obligation,
(d) permit any subordination of the principal or interest on any Loan or
Reimbursement Obligation, or (e) amend the provisions of this Section 13.11 or
the definition of Required Lenders, without the prior written consent of each
Lender. In addition, no amendment, waiver or consent to the provisions of (a)
Article XII shall be made without the written consent of the Agent and (b)
Article III without the written consent of the Issuing Lender.
SECTION 13.12 Performance of Duties. The Borrower's obligations under this
Agreement and each of the Loan Documents shall be performed by the Borrower at
its sole cost and expense.
SECTION 13.13 All Powers Coupled with Interest. All powers of attorney and
other authorizations granted to the Lenders, the Agent and any Persons
designated by the Agent or any Lender pursuant to any
- 93 -
<PAGE> 99
provisions of this Agreement or any of the other Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or the Credit Facility has not been
terminated.
SECTION 13.14 Survival of Indemnities. Notwithstanding any termination of
this Agreement, the indemnities to which the Agent and the Lenders are entitled
under the provisions of this Article XIII and any other provision of this
Agreement and the Loan Documents shall continue in full force and effect and
shall protect the Agent and the Lenders against events arising after such
termination as well as before.
SECTION 13.15 Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 13.16 Severability of Provisions. Any provision of this Agreement
or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 13.17 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
SECTION 13.18 Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full. No
termination of this Agreement shall affect the rights and obligations of the
parties hereto arising prior to such termination.
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<PAGE> 100
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, all as of the day and year first
written above.
[CORPORATE SEAL] QUORUM HEALTH GROUP, INC.
By: ___________________________________
Name: _____________________________
Title: ____________________________
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent and Lender
By: ___________________________________
Name: _____________________________
Title: ____________________________
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<PAGE> 101
SCHEDULE 1: LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
COMMITMENT
AND COMMITMENT
LENDER PERCENTAGE
- ------ ----------
<S> <C>
First Union National Bank $__________
of North Carolina ____%
One First Union Center, TW-10
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone No.: (704) 383-0281
Telecopy No.: (704) 382-0288
</TABLE>
<PAGE> 1
EXHIBIT 4.4.19
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") dated June
30, 1997 is entered into by and among QUORUM HEALTH GROUP, INC., a corporation
organized under the laws of Delaware (the "Borrower"), the LENDERS referred to
in the Credit Agreement (the "Lenders") and FIRST UNION NATIONAL BANK as Agent
for the Lenders (hereinafter defined the "Agent").
STATEMENT OF PURPOSE
The Borrower, the Lenders and the Agent are parties to that certain
Credit Agreement dated as of April 22, 1997 (such agreement, as amended from
time to time, herein referred to as the "Credit Agreement") pursuant to which
the Lenders have agreed to extend certain credit facilities to the Borrower.
Capitalized terms used in this Amendment not otherwise defined herein have the
respective meanings attributed to such terms in the Credit Agreement.
The Borrower, the Lenders and the Agent wish to amend the Credit
Agreement as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the Borrower,
each of the Lenders and the Agent agree as follows:
1. AMENDED DEFINITION OF CONTROLLED COMPANY. The definition of
"Controlled Company" is hereby deleted and the following inserted in lieu
thereof:
"Controlled Company" means a corporation or a limited
liability company in which the Borrower or a Consolidated
Entity owns at least fifty-one percent (51%) of the shares or
membership interests, as applicable, controls the right to
manage such corporation or limited liability company and to
make distributions and is entitled to receive distributions of
cash in an amount proportionate with its equity interest in
such entity, other than in any other preferred cash
distribution arrangement approved by the Required Lenders in
writing.
2. AMENDMENT OF COVENANT LIMITING MERGER. In the eleventh (11th)
line of Section 10.5, in subsection (c), the words "any Wholly-Owned
Entity" shall be deleted and replaced with the words "any Consolidated
Entity".
<PAGE> 2
3. AMENDMENT OF COVENANTS LIMITING ACQUISITION OF CAPITAL STOCK.
In Section 10.7, the following new subsection (d) shall be added:
(d) subject to compliance by the Borrower with the
provisions of Section 10.4(g) relating to acquisitions, any
Consolidated Entity may purchase, redeem, retire or otherwise
acquire, directly or indirectly, any shares of its capital
stock or other ownership interests if done pursuant to
contractual obligations, whether now or hereafter existing,
which obligations arise from rights of first refusal, put
rights, call rights or similar contractual obligations
provided to minority investors in such Consolidated Entity.
4. AMENDMENT OF COVENANTS RESTRICTING EXCHANGE AND ISSUANCE OF
CAPITAL STOCK. In Section 10.8, the following proviso shall be added as
additional text at the end of such section:
; provided, however, a Consolidated Entity may issue such
equity subject to put rights or other similar contractual
obligations so long as the aggregate amount of such
obligations outstanding, whether now of hereafter existing,
determined as of the date of issuance of such obligations, of
all Consolidated Entities, together with any Debt counted
against the amount permitted under Section 10.1(f) does not
exceed $75,000,000.00.
5. ADDITIONAL PROVISIONS REGARDING COMPETITIVE BID AND SWINGLINE
LOANS. A new sub-section 2.5(d) shall be added to the Credit Agreement
as follows:
(d) Special Provisions Regarding Repayment of Certain
Competitive Bid Loans and Swingline Loans.
Upon the happening of any event or the existence of
any condition which is the basis for assertion by the Lenders
being requested to make a Loan or Loans to refinance a
Competitive Bid Loan or Swingline Loan that a condition to
making such Loan set forth in Section 5.3(a) or (b) has not
been satisfied (other than a failure with respect to the
financial covenants set forth in Article IX or an event of the
type described in Subsections 11.1(a), 11.1(h), 11.1(i),
11.1(l), and 11.1(m)), notwithstanding the provisions of
Section 11.2(a) to the contrary, the Borrower shall have the
option of either (i) repaying such Competitive Bid Loan(s) or
Swingline Loan(s) by using the Borrower's own funds or (ii)
extending the maturity of such Loans to the Termination Date.
In the event of extension of a Loan to the Termination Date,
such Loan shall bear interest at the highest rate applicable
to any Revolving
2
<PAGE> 3
Credit Loan outstanding from time to time from the end of the
applicable Interest Period until the Termination Date. The
Borrower reserves the right to prepay such Loan at any time,
subject to the limitations of Section 2.5(c). The rights of
the Borrower to repay Competitive Bid Loans and Swingline
Loans in accordance with these provisions shall not impair or
otherwise prejudice the rights of the Lenders, if any, as a
consequence of such asserted Event of Default, including, but
not limited to, the right to accelerate and exercise any other
rights and remedies under the Credit Agreement.
6. RATIFICATION; NO NOVATION. Notwithstanding anything to the contrary
contained in this Amendment, all the Obligations under this Agreement shall
remain in full force and effect and nothing contained in this Amendment shall be
construed to constitute a novation of the Obligations or to release, discharge,
terminate or otherwise affect of impair in any manner whatsoever the validity of
the Obligations, the liability of the Borrower or any Guarantor now or hereafter
liable under or on account of the Loan Documents relating to the Obligations.
7. REFERENCES TO CREDIT AGREEMENT. All references in the Loan Documents
to "Credit Agreement" shall refer to the Credit Agreement as amended by this
Amendment and as the Credit Agreement may be further amended from time to time.
8. EFFECTIVE DATE. This Amendment shall be effective as of April 22,
1997.
9. MISCELLANEOUS. Except as hereby amended, the Credit Agreement shall
remain in full force and effect in full force and effect in accordance with its
terms. This Amendment may be executed in one or more counterparts each of which
shall be deemed to be an original and all of which, when taken together, shall
constitute one and the same instrument and no single counterpart of this
Amendment need be executed by all the parties hereto. The covenants and
agreements contained in this Amendment shall apply to and inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. This Amendment shall be governed by the laws of the State of North
Carolina.
3
<PAGE> 4
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this First Amendment to Credit Agreement as of the date first written
above.
QUORUM HEALTH GROUP, INC.
By:______________________
Name:____________________
Title:___________________
FIRST UNION NATIONAL BANK,
AS AGENT AND LENDER
By:______________________
Name:____________________
Title:___________________
ABN AMRO BANK N.V.
By:______________________
Name:____________________
Title:___________________
<PAGE> 5
AMSOUTH BANK OF ALABAMA
By:______________________
Name:____________________
Title:___________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:______________________
Name:____________________
Title:___________________
BANK OF TOKYO - MITSUBISHI
TRUST COMPANY
By:_______________________
Name:_____________________
Title:____________________
<PAGE> 6
BANK ONE, DAYTON, NA
By:________________________
Name:______________________
Title:_____________________
BANQUE PARIBAS
By:______________________
Name:____________________
Title:___________________
CITIBANK, N.A.
By:______________________
Name:____________________
Title:___________________
<PAGE> 7
COMERICA BANK
By:______________________
Name:____________________
Title:___________________
COOPERATIEVE CENTRALE RAIFFEISEN
BOERENLEENBANK B.A.
"RABOBANK NEDERLAND,"
NEW YORK BRANCH
By:______________________
Name:____________________
Title:___________________
CORESTATES BANK, N.A.
By:______________________
Name:____________________
Title:___________________
<PAGE> 8
CREDIT LYONNAIS NEW YORK BRANCH
By:______________________
Name:____________________
Title:___________________
FIRST AMERICAN NATIONAL BANK
By:______________________
Name:____________________
Title:___________________
FIRST TENNESSEE BANK
NATIONAL ASSOCIATION
By:______________________
Name:____________________
Title:___________________
<PAGE> 9
FLEET NATIONAL BANK
By:______________________
Name:____________________
Title:___________________
THE FUJI BANK, LTD (ATLANTA AGENCY)
By:______________________
Name:____________________
Title:___________________
KREDIETBANK N.V.,
GRAND CAYMAN BRANCH
By:______________________
Name:____________________
Title:___________________
LTCB TRUST COMPANY
By:______________________
Name:____________________
Title:___________________
<PAGE> 10
MELLON BANK, N.A.
By:______________________
Name:____________________
Title:___________________
NATIONAL CITY BANK OF KENTUCKY
By:______________________
Name:____________________
Title:___________________
<PAGE> 11
NATIONSBANK, N.A.
By:______________________
Name:____________________
Title:___________________
THE SANWA BANK LIMITED,
ATLANTA AGENCY
By:_______________________
Name:_____________________
Title:____________________
SCOTIABANC INC.
By:______________________
Name:____________________
Title:___________________
THE SUMITOMO BANK, LIMITED
By:______________________
Name:____________________
Title:___________________
<PAGE> 12
THE SUMITOMO TRUST AND
BANKING CO., LTD.,
NEW YORK BRANCH
By:_____________________
Name:___________________
Title:__________________
SUNTRUST BANK, NASHVILLE, N.A.
By:_____________________
Name:___________________
Title:__________________
TORONTO DOMINION (TEXAS), INC.
By:_____________________
Name:___________________
Title:__________________
<PAGE> 13
UNION BANK OF CALIFORNIA, N.A.
By:______________________
Name:____________________
Title:___________________
<PAGE> 1
EXHIBIT 10.6
MANAGEMENT AGREEMENT
This Agreement is entered into this ____ day of ____________, 1997, by
and between QUORUM HEALTH RESOURCES, INC., a Delaware corporation ("Quorum"),
and ____________ (the "Hospital"), located in ____________,
________________.
1. TERM.
The initial term of this Agreement shall be ____ years ("Initial Term")
commencing _______, 199_, and terminating on __________, 199_. The Initial Term
shall automatically be extended by successive renewal periods of _____ years
each ("Renewal Term") unless either the Hospital or Quorum gives the other party
notice of termination no less than 90 days prior to the expiration of the then
current Term. The Initial Term and any Renewal Terms are herein together
referred to as the "Term" of this Agreement.
2. RETENTION OF AUTHORITY BY HOSPITAL; REPRESENTATIONS AND WARRANTIES.
(a) CONTROL RETAINED BY HOSPITAL. Throughout the Term of this
Agreement, the Hospital, through its Board of Directors (the "Board"), shall
retain all authority and shall exercise control over the business, policies,
operation, and assets of the Hospital, in accordance with the Hospital's Charter
and Bylaws. Quorum shall perform the services described in this Agreement in
accordance with such of the policies and directives of the Hospital as may be
from time to time provided to it. Quorum shall not be held responsible for any
such policies or directives of which it has not been advised. By entering into
this Agreement, the Hospital does not delegate to Quorum any of the powers,
duties, and responsibilities vested in the Board by law or by the Hospital's
Charter or Bylaws.
(b) QUORUM RELIANCE ON BOARD POLICIES. The Board shall communicate all
policies and directives to Quorum and Quorum shall rely on and assume the
validity of communications from, and shall report to, the Board, the Chairman of
the Board, or a designee of the Board. All matters requiring professional
medical judgments shall remain the responsibility of the Hospital's Board,
Medical Staff and allied health professionals. Quorum shall have no
responsibility for such judgments.
The relationship between Quorum and the Hospital created by this
Agreement is one of principal and agent. The Hospital and Quorum are not
partners, joint venturers, or independent contractors, and it is agreed that
Quorum is acting solely as the agent of the Hospital in performing services to
be provided by Quorum hereunder.
(c) REPRESENTATIONS OF THE HOSPITAL. Except as disclosed in writing to
Quorum prior to the date hereof, the Hospital represents the following to be
true:
<PAGE> 2
(i) This Agreement has been duly authorized, executed, and
delivered by the Board as the governing body of the Hospital and represents the
legal, valid, and binding agreement of the Hospital and is enforceable against
the Hospital in accordance with its terms.
(ii) The execution, delivery, and performance of this
Agreement by Hospital and consummation by it of the transactions contemplated
hereby do not: (A) require the consent, waiver, approval, license, or
authorization of any person or public authority which has not heretofore been
obtained; (B) violate any provision of law applicable to Hospital; (C) conflict
with or result in a default under, or create, any lien upon any of the property
or assets of Hospital pursuant to any agreement or instrument; or (D) violate
any judicial or administrative decree, regulation, or any other restriction of
any kind or character to which Hospital or Board is a party or by which Hospital
or any of its assets may be bound.
(iii) At the time of executing this Agreement, there are no
actions, suits, or proceedings pending or threatened against Hospital, at law or
in equity, or before or by any federal, state, municipal, or other governmental
department, commission, board, bureau, agency or instrumentality, that would, if
decided adversely, have a materially adverse effect on Hospital or its business.
(iv) At the time of executing this Agreement, the assets and
properties, including medical equipment ("Medical Equipment"), owned, operated,
or leased by Hospital and used by Hospital in the provision of medical and
related services are in a normal state of repair and operating condition,
reasonable wear and tear excepted, and suitable for the uses for which they are
intended. Hospital is in compliance in all material respects with all
requirements of federal and state laws and regulations regarding asbestos and
other toxic or hazardous materials.
(v) At the time of executing this Agreement, Hospital has
properly prepared and filed all reports required to be filed by Hospital
relative to all regulated activities. Such reports and the information and data
therein contained have been properly and accurately compiled and completed in
accordance with the requirements of the regulatory authority with which they
were filed and present fairly and accurately the information purported to be
shown thereby.
(vi) Hospital has made available to Quorum such of Hospital's
business records as Quorum has requested including all relevant inspection and
accreditation reports, patient or medical staff complaints or incident reports,
insurance and governmental inspection reports, and all files relative to
current, pending, or threatened litigation.
(vii) At the time of executing this Agreement, to the best of
the Hospital's knowledge after due inquiry, there is not currently pending any
license revocation proceeding or investigation nor any pending or threatened
medical malpractice claims relative to the Hospital, any employed nurse, any
medical staff member, or any member of the allied health professional staff.
2
<PAGE> 3
(viii) Hospital is in compliance with all requirements of
state and federal wage and hour laws and other labor laws and has paid, in a
timely manner, all required federal and state withholding taxes for its
employees. Hospital has complied with all legal requirements relating to
employee retirement plans and other employee benefit programs offered by the
Hospital.
3. DUTIES OF QUORUM.
Subject to the limitations set forth in Section 3(i) hereof and the
Board's continuing control and direction, Quorum agrees to perform the
administrative services described herein including responsibility for management
of the day-to-day business affairs of the Hospital. Nothing in this Agreement is
intended to alter, weaken, displace, or modify the responsibility of the Board
for the Hospital's direction and control as set forth in Hospital's Charter and
Bylaws. Quorum shall use all reasonable efforts to implement the Board's
policies and directives with the goal of causing the Hospital to provide quality
health care consistent with the policies and directives dictated by the Board,
the financial resources available to the Hospital, the competitive marketplace
in which the Hospital is located, and Medicare reimbursement and other laws.
Quorum shall follow the policies and directives of the Board or any committee
thereof in discharging its duties hereunder.
Further, Quorum may rely on the recommendations of the Hospital's
Medical Staff (and its designated committees and departmental chairmen
(collectively "Medical Staff") relative to the quality of professional services
provided by individuals with clinical privileges, and on the Board and the
Medical Staff, or any jointly appointed or Board appointed committee or
representative as to the adequacy and proper state of repair of all Medical
Equipment and the professional competency, training, and requisite supervision
of nurses, medical technicians, and other Medical Staff. Quorum shall have the
following duties which shall be implemented as soon as reasonably possible, in
accordance with priorities determined by Quorum and the Board.
(a) PERSONNEL. Quorum shall provide the Hospital with the services of
the Key Personnel specified in Section 4, "Key Personnel," and such Key
Personnel shall be employees of Quorum. All other Hospital personnel shall be
employees or independent contractors of the Hospital and shall be subject to the
Hospital's personnel policies. Quorum, as agent for the Hospital, shall enforce
and administer the personnel policies established by the Hospital in hiring,
managing, and discharging Hospital employees; provided, however, that matters
with respect to professional competency shall be determined with the assistance
of the appropriate Hospital or Medical Staff committee. Furthermore, Quorum
shall assist the Hospital and its personnel director (or, if a designated
personnel director does not exist, the Hospital employee discharging
substantially similar duties) in determining the number and qualifications of
employees required for the efficient operation of the Hospital and in
establishing and revising wage scales, employee benefit packages, in-service
training programs, staffing schedules, and job
3
<PAGE> 4
descriptions, all in order to accomplish the goals and objectives of the
Hospital and in accordance with policies and procedures established by the
Board. Quorum shall provide the Board and the appropriate Medical Staff or
Hospital committee with a regular flow of information on these subjects, so as
to assist the Board in establishing personnel-related policies and resolving
related issues.
(b) BUDGETS. Prior to the end of each fiscal year of the Hospital
during the Term of this Agreement, in accordance with Board policies and
procedures, Quorum shall submit to the Hospital for approval, disapproval, or
modification by the Hospital an annual operating budget, annual capital
expenditures budget (if appropriate), and annual cash flow projections, all
designed to meet the goals and objectives of the Board. In addition, Quorum will
supply any appropriate revisions to the foregoing to reflect material changes
during the fiscal year. If applicable, Quorum shall also compile, subject to the
review of the Board, any information the Hospital may be required to provide for
the purpose of rate review. Once the Board approves said operating budget,
Quorum shall be entitled to proceed with expenditures contemplated thereby
without further Board approval; provided, however, that the Board may modify
said budget from time to time by written resolution, which modification shall
then become the new authorization for expenditures.
(c) ACCOUNTING. Quorum shall supervise the Hospital's accounting system
and shall supervise the preparation of monthly and annual balance sheets and
statements of income and loss. Annual statements shall be due following the
close of each fiscal year during the Term of this Agreement. Any fees charged by
the Hospital's independent auditors shall be the responsibility of the Hospital.
(d) CHARGES. Quorum shall supervise the issuance of bills and the
collection of accounts, in accordance with charge schedules and collection
policies established by the Board. Quorum shall be entitled to obtain on behalf
of the Hospital the assistance of one or more collection agencies, as approved
by the Board. Quorum shall carry out Board policy and exercise reasonable care
in managing the accounts and available cash of the Hospital by maintaining
accounts and/or certificates of deposit with a financial institution or
institutions authorized by the Hospital and by informing the Hospital of the
availability of any excess cash. The permitted investment of any excess cash
shall be made by Quorum only upon the written direction of the Board.
(e) PAYMENTS. Quorum shall exercise reasonable care in applying the
Hospital's funds to the timely payment of Hospital's liabilities and other
obligations. It is specifically agreed and understood, however, that Quorum's
obligations under this paragraph are subject to availability of funds to make
such payments. Nothing contained herein shall obligate Quorum to make any such
payments from its own funds or resources or to advance any monies whatsoever to
the Hospital. Quorum may utilize Hospital personnel to carry out the functions
described in
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this paragraph. Quorum shall not be liable either primarily or as guarantor for
debts of the Hospital.
(F) EXPENDITURES. Quorum may reasonably rely on recommendations given
to Quorum by the Board or its designee as to the ordering of Medical Equipment
and Supplies used in the diagnosis and treatment of patients. Under purchasing
policies established by the Board, Quorum shall have the authority to commit the
Hospital's funds for the purchase or lease of supplies, goods, and services
reasonably necessary to the operation of the Hospital and to cause the Hospital
to negotiate, enter into, administer, and terminate contracts therefor.
(G) GROUP PURCHASING PROGRAMS.
(i) ACCESS. Quorum will offer the Hospital access to the
volume purchasing programs in which Quorum participates or arranges for
(the "Purchasing Programs"), subject to the requirements of the
Purchasing Programs. Under the Purchasing Programs, participating
hospitals have access to discounted prices on goods and services. The
Hospital may choose to participate in a Purchasing Program or not, but
if the Hospital chooses to participate in a Purchasing Program, the
Hospital may be required to execute a written letter of understanding
with the Purchasing Program under which the Hospital agrees to the
requirements of the Purchasing Program.
(ii) ADMINISTRATIVE FEES. The Hospital acknowledges that
Quorum may receive administrative fees from vendors in connection with
certain products that are purchased, licensed or leased by Hospital
under the Purchasing Programs, including, without limitation,
administrative fees for providing marketing, distribution and promotion
services to the Hospital. Quorum shall disclose to the Hospital in
writing, on an annual basis, and to the Secretary of Health and Human
Services upon his or her request, the administrative fees Quorum
receives as a result of Hospital's purchases.
(iii) LIMITATION OF WARRANTIES. QUORUM MAKES NO AND HEREBY
DISCLAIMS ANY WARRANTIES WHATSOEVER, AND EXPRESSLY DISCLAIMS ALL
IMPLIED WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, WITH REGARD TO ANY GOODS OR SERVICES
PURCHASED OR USED BY THE HOSPITAL UNDER THE PURCHASING PROGRAMS.
(h) MANAGEMENT PLAN AND REPORT. Quorum shall submit to the Board for
its review and approval an annual management plan (the "Management Plan")
designed to implement the goals and objectives of the Hospital which will set
forth the efforts, methods, and resources to be used by Quorum and the timetable
to be observed to achieve such goals and objectives. Upon acceptance of any
Management Plan, the Board hereby agrees to use its best efforts, and to cause
the Medical Staff to use their best efforts, to take or cooperate with the
actions recommended (to the extent such actions are within the control of the
Hospital, the
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Board, or the Medical Staff and not wholly within the control of Quorum).
The initial Management Plan shall be due no later than 90 days
following the date the permanent chief executive officer commences work on site
at the Hospital, and subsequent plans shall be due no later than the last day of
each fiscal year of the Hospital. Furthermore, Quorum shall deliver to the
Hospital a written annual report on the completion of the goals and objectives
set forth in the Management Plan approved by the Board.
(i) LIMITATIONS ON QUORUM'S DUTIES. Quorum shall not have the authority
to:
(i) enter into or terminate contracts with physicians on behalf of
the Hospital, except as the Board may specifically authorize from time to time,
but Quorum shall have the authority on behalf of the Hospital to negotiate and
administer such contracts.
(ii) enter into or terminate contracts with outside consultants on
behalf of the Hospital, except as the Board may specifically authorize from time
to time, but Quorum shall have the authority on behalf of the Hospital to
negotiate and administer such contracts.
(iii) purchase capital assets without the prior approval of the
Board unless such approval is deemed granted as part of an approved annual
budget or within Board policies and procedures.
(iv) enter into any leases of capital assets which, if purchased,
would be described in iii. above without the prior approval of the Board unless
such approval is deemed granted as part of an approved annual budget.
(v) enter into any leases which extend beyond the then current
initial or renewal term of this Agreement without the prior approval of the
Board unless such approval is deemed granted as part of an approved annual
budget.
(vi) negotiate or enter into collective bargaining agreements
covering or purporting to cover employees of the Hospital.
Absent a specific agreement to the contrary, Quorum's services shall
not include such items as legal services, audit services, cost report
preparation, data processing fees, architectural, engineering, MSO, or facility
planning services, feasibility studies, certificate of need applications related
to major capital projects, and similar items; nor shall Quorum perform the
functions of a certified public accounting firm. In addition, the services
included in the management fee do not include those specialized programs
developed and made available by Quorum on a hospital by hospital basis pursuant
to the terms of a separate agreement.
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4. KEY PERSONNEL.
(a) OBLIGATION TO PROVIDE. Quorum shall provide the Hospital with the
services of a hospital administrator and a controller, each of whom shall be
acceptable to the Hospital on a continuing basis. In addition, Quorum may, with
the Board's permission, provide the service of other hospital management
personnel (for example, the chief operating officer). All persons employed by
Quorum whose services are furnished to the Hospital under this section are
referred to as "Key Personnel." All Key Personnel shall be employees of Quorum
throughout the Term of this Agreement. Quorum shall determine the amount and
nature of and shall pay compensation (as hereinafter described) to the Key
Personnel for all services rendered by them in connection with this Agreement.
Nevertheless, the selection of Key Personnel and their replacements shall be
subject to the Board's approval, which shall not be unreasonably withheld.
(b) COVENANT NOT TO HIRE. The Hospital will not, and will not permit
any of its Affiliates to, employ or offer to employ any Key Personnel until one
year following the termination or expiration of the Term of this Agreement
unless (i) such Key Personnel were employees of the Hospital immediately prior
to their becoming Key Personnel or (ii) Quorum gives its written consent
thereto. Likewise, Quorum will not, and will not permit any of its Affiliates
to, employ or offer to employ any Hospital personnel until one year following
the termination or expiration of the Term of this Agreement unless the Hospital
gives its written consent thereto. The parties recognize and agree that monetary
damages are not an adequate remedy for a breach by a party of this covenant not
to hire employees of the other party. The parties agree that irreparable damage
will result to a party and its business from a breach of this covenant by the
other party and that in the event of a breach or a threatened breach of this
covenant, in addition to monetary damages, the injured party shall be entitled
to an injunction enjoining the other party from violating this covenant.
(c) REIMBURSEMENT OF COMPENSATION. In addition to Quorum's management
fee hereunder, the Hospital shall, upon receipt of invoice, reimburse Quorum for
the costs and expenses associated with Quorum's provision of the Key Personnel,
including their salaries, taxes, fringe benefits, and business expenses. The
amount of salary reimbursable hereunder shall be subject to the Board's
approval, which shall not be withheld if the salary is within the range for
similar hospitals covered by the Quorum compensation program. The term "fringe
benefits" as used herein shall include all fringe benefits which are or may
become standard for administrative or managerial personnel of Quorum (such as
health insurance, disability insurance, life insurance, retirement plans and,
with respect to the administrator, automobile and automobile expenses). The
Hospital shall also reimburse Quorum for relocation expenses, severance
expenses, and interim living expenses related to the Key Personnel.
It is specifically understood and agreed that reimbursable compensation
for Key Personnel shall be considered a payroll obligation
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of the Hospital for purposes of setting priorities for payments of Hospital
obligations as described in Paragraph 3(e) hereof.
Except as specifically provided elsewhere in this Agreement, or as
otherwise agreed to by the Board, Quorum shall bear the expense relating to the
salaries, compensation, travel, lodging and out-of-pocket expenses of its
corporate staff necessary to carry out the terms and provisions of this
Agreement, and Quorum's sole compensation shall be the management fees and
reimbursable expenses described in this Agreement.
5. MANAGEMENT FEE.
(a) AMOUNT. The Hospital shall pay Quorum a management fee of
$___________ for the first year of this Agreement. The annual management fee
thereafter shall be calculated as set forth in subsection (b) below.
(b) ADJUSTMENT. The management fee set forth in subsection (a) above
shall be adjusted annually as set forth herein to reflect changes in the Medical
Care Component of the Consumer Price Index for Urban Wage Earners and Clerical
Workers, U.S. All City Average Report, published by the United States Department
of Labor (hereinafter referred to as the "CPI"). If such an index shall no
longer be published on an anniversary date, the substitute index (or comparable
if no substitute) shall be utilized. On each yearly contract anniversary date,
the management fee shall be increased or decreased by a percentage equal to the
percentage increase or decrease in the CPI over the twelve (12) months up to and
including the previous month of ___________.
(c) WHEN DUE. The management fee in each year of the Term shall be paid
in equal monthly installments in advance, payable on the first day of each
month. The first and last monthly payment shall be prorated in accordance with
the number of days during those months. The Hospital agrees to pay Quorum
interest, at the rate of twelve percent (12%) per annum, on all management fees
and reimbursable expenses not paid when due, said interest to accrue from the
date originally due until payment is made. The Hospital agrees to be responsible
for payment of all legal fees and collection fees incurred by Quorum for
collection of all past due management fees and reimbursable expenses.
6. DUTY TO COOPERATE.
The parties acknowledge that the parties' mutual cooperation is
critical to the ability of Quorum to perform its duties hereunder successfully
and efficiently. Accordingly, each party agrees to cooperate with the other
fully in formulating and implementing goals and objectives which are in the
Hospital's best interest.
7. OWNERSHIP OF INFORMATION; CONFIDENTIALITY.
(a) QUORUM SYSTEMS - OWNERSHIP. Quorum retains all ownership and other
rights in all systems, manuals, computer software, materials, and other
information, in whatever form, provided by or developed by Quorum in the
performance of its obligations hereunder (hereinafter
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collectively referred to as "Systems"); and nothing contained in this Agreement
shall be construed as a license or transfer of such Systems or any portion
thereof, either during the Term of this Agreement or thereafter. Upon the
termination or expiration of this Agreement, Quorum shall have the right to
retain all such Systems, and the Hospital shall upon request deliver to Quorum
all such Systems in its possession. Notwithstanding the foregoing, any Systems
specifically tailored or designed for Hospital may be retained by the Hospital
upon the termination or expiration of this Agreement.
(b) QUORUM SYSTEMS-CONFIDENTIALITY. The Hospital acknowledges that
Quorum has invested a significant amount of its resources in developing and
maintaining the Systems and that the value to Quorum of these Systems may be
diminished or destroyed if the Hospital discloses information concerning the
Systems or any portion thereof to a third party. Accordingly, the Hospital shall
maintain the confidentiality of the Systems. The Hospital shall not duplicate or
permit the duplication of any portion of the Systems and shall not permit access
to the Systems by the Hospital's personnel or any third party other than on a
strict "need-to-know" basis and in the ordinary course of business. The Hospital
shall take at least those steps that it would take to protect its own
confidential information. The Hospital shall not loan, lease, or otherwise
permit the use of any of the Systems by any other person or entity, regardless
of its relationship to the Hospital. The Hospital shall notify Quorum of any
suspected or actual breach of these confidentiality requirements. The provisions
of this section shall survive any termination or expiration of this Agreement.
(c) QUORUM PURCHASING PROGRAMS. The Hospital will not disclose the
terms or prices of any agreement under the Quorum Purchasing Program to any
third party unless specifically authorized to do so by Quorum.
(d) HOSPITAL INFORMATION. During the Term of this Agreement the
Hospital shall give Quorum full access to the Hospital, its facilities, and its
records. Quorum shall maintain the confidentiality of patient records, Hospital
charges, wages, marketing strategies, and other confidential information
regarding the Hospital, except to the extent that disclosure is required by law.
8. LICENSING; ACCREDITATION.
The Hospital shall take all steps reasonably necessary to keep the
Hospital fully licensed and, if eligible, duly accredited by the Joint
Commission for Accreditation of Healthcare Organizations, and Quorum shall
cooperate in said endeavors. The Hospital shall do nothing willful to jeopardize
Medicare, Medicaid, or other third-party reimbursement arrangements. Both the
Hospital and Quorum shall abide by all relevant laws, ordinances, rules, and
regulations of state, local, or federal governments.
9. INSURANCE.
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(a) HOSPITAL. The Hospital has and shall maintain throughout the Term
of this Agreement the following minimum insurance coverage:
Worker's Compensation Statutory amount
Employer's Liability $ 100,000
Comprehensive General $1,000,000 per occurrence
Liability $3,000,000 aggregate
Hospital Professional $1,000,000 per occurrence
Liability $3,000,000 aggregate
Automobile Liability $1,000,000
Directors' and Officers'
Liability $1,000,000
Fidelity Bond $ 500,000
Property Insurance Insurable Value
Property damage insurance shall insure against loss or direct physical damage to
Hospital buildings, furnishings, equipment, machinery, and boiler under standard
all-risk coverage (including but not limited to fire, smoke, lightning,
windstorm, explosion, aircraft or vehicle damage, riot, civil commotion,
vandalism, and malicious mischief) and shall also include damage due to flood
and earthquake unless waived by Quorum.
Quorum, its parent company, and their agents, servants, employees,
officers, and directors shall be named as additional insureds, with respect to
this Agreement, under the comprehensive general and hospital professional
liability policies. Their rights to invoke the protection of such policies shall
be severable from and independent of the Hospital's rights, and these policies
shall not be terminable or non-renewable except upon thirty (30) days prior
written notice to Quorum. No later than thirty (30) days following the execution
of this Agreement and thirty (30) days following the end of each policy year,
the Hospital shall give to Quorum a copy of the endorsements naming Quorum and
its parent company as additional insureds. Such insurance policies shall also
contain endorsements which reflect the primary liability of the Hospital's
insurance carrier for all covered losses provided for in this Section 9,
notwithstanding any insurance which may be maintained by Quorum or any Affiliate
thereof covering such loss. The Hospital hereby waives any right of contribution
with respect to a loss covered under such policies (or their deductibles)
against Quorum or any of Quorum's insurance carriers.
(b) QUORUM. Quorum has and shall maintain throughout the Term of this
Agreement Fidelity Insurance in an amount no less than $500,000 insuring against
dishonesty and other wrongdoing by its employees, officers and directors.
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10. ACCESS TO BOOKS AND RECORDS.
Upon the written request of the Secretary of Health and Human Services,
the Comptroller General, or any of their duly authorized representatives, Quorum
will make available those contracts, books, documents, and records necessary to
certify the nature and extent of the costs of providing services under this
Agreement. Such inspection shall be available up to 4 years after the rendering
of such services. If Quorum carries out any of the duties of this Agreement
through a subcontract with a value of $10,000 or more over a 12-month period
with a related individual or organization, Quorum agrees to include this
requirement in any such subcontract. This section is included pursuant to and is
governed by the requirements of Public Law 96-499, Sec. 952, and the regulations
promulgated thereunder.
11. CONFLICT OF INTEREST.
Any member of the Hospital's Board or Medical Staff having any direct
or indirect financial interest or investment in the Hospital, any department
thereof, or any contractor providing goods or services to the Hospital shall
disclose such relationship in writing to Quorum in order to enable Quorum to
discharge its duties under this Agreement effectively and efficiently.
12. BREACH.
In the event of a breach of any obligation or covenant under this
Agreement, other than the obligation to pay money, the nonbreaching party may
give the breaching party written notice of the specifics of the breach, and the
breaching party shall have 60 days (the "Cure Period") in which to cure the
breach. Only if the breach is not cured within said Cure Period shall the
nonbreaching party be entitled to pursue any remedies it may have by reason of
the breach. A waiver of any breach of this Agreement shall not constitute a
waiver of any future breaches of this Agreement, whether of a similar or
dissimilar nature.
13. TERMINATION OF AGREEMENT.
This Agreement may be terminated prior to the expiration of the Term
only as follows, and any such termination shall not affect any rights or
obligations arising prior to the effective date of termination:
(A) BREACH. In the event of a material breach of this Agreement which
is not cured within the Cure Period set forth in Section 12, "Breach," or in the
event of a breach as to which no Cure Period is provided by this Agreement, the
nonbreaching party may terminate this Agreement upon no less than 30 days'
notice; provided that notice of termination must be given no later than 30 days
after the expiration of the Cure Period if one is applicable. This remedy shall
be in addition to any other remedy available at law or in equity. Failure to
terminate this Agreement shall not waive any breach of this Agreement.
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(b) CASUALTY. In the event that the physical plant housing the Hospital
is destroyed or is so damaged that it is reasonably anticipated that the
Hospital will not within 90 days commence repair or reconstruction with a view
toward resuming full operation, then either party may terminate this Agreement
upon no less than 30 days notice, provided that such notice is given within 30
days following the destruction or damage.
(c) INSOLVENCY. Quorum may terminate this Agreement upon 30 days notice
in the event the Hospital becomes insolvent or fails to pay, or admits in
writing its inability to pay, its debts as they mature; or a trustee, receiver
or other custodian is appointed for the Hospital for all or a substantial part
of the Hospital's property and is not discharged within 30 days; or any
bankruptcy reorganization, debt, arrangement, or other proceeding under any
bankruptcy or insolvency law or any dissolution or liquidation proceeding is
instituted by or against the Hospital and if instituted against the Hospital is
consented to or acquiesced in by the Hospital or remains for 60 days
undismissed; or any warrant or attachment is issued against any substantial
portion of the property of the Hospital which is not released within 30 days of
service.
(d) REORGANIZATION. In the event that the Hospital undergoes a
reorganization which materially alters Quorum's duties or is reasonably
anticipated to have a material effect on Quorum's ability to perform
satisfactorily its duties hereunder, then Quorum may terminate this Agreement
upon no less than 30 days notice given no later than 60 days following the
effective date of the reorganization.
(e) REPRESENTATIONS. Quorum may terminate this Agreement upon 30 days
written notice in the event any representation made by the Hospital or the Board
herein is found to be untrue in any respect which would have a material adverse
effect upon the financial condition or business operations of the Hospital, or
would have a material adverse effect upon the ability of the Hospital or Quorum
to perform under this Agreement.
(f) LITIGATION. Quorum may terminate this Agreement upon 30 days
written notice in the event there is entered against the Hospital one or more
judgments or decrees which would have a material adverse effect upon the
financial condition or business operations of the Hospital or the Hospital's
ability to perform under this Agreement.
(g) LICENSES. Quorum may terminate this Agreement upon 30 days written
notice in the event any material license or certification required by Hospital
to operate cannot be obtained or is suspended, terminated, or revoked.
14. EFFECTS OF TERMINATION.
In the event of the termination of this Agreement Quorum shall
immediately be paid all management fees theretofore earned and reimbursed for
all expenses incurred for which reimbursement is required under this Agreement
and otherwise. This remedy shall be in addition to any other
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remedy available at law or in equity. The termination of this Agreement for any
reason shall be without prejudice to any payments or obligations which may have
accrued or become due hereunder prior to the date of termination or which may
become due after such termination. If either party commences legal action
alleging any violation of this Agreement, the non-prevailing party shall pay all
costs and reasonable attorneys' fees incurred by the prevailing party in
connection with such action.
15. INDEMNIFICATION AND HOLD HARMLESS. The provisions of this Section 15 shall
survive the termination or expiration of this Agreement.
(a) INDEMNIFICATION BY HOSPITAL. Hospital agrees to indemnify and hold
harmless Quorum, its Affiliates, and each of their shareholders, directors,
officers, employees, and agents ("Quorum Indemnified Party") from and against
any and all losses, claims, damages, liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses related to the defense of any claims),
joint or several, which may be asserted against any of the Quorum Indemnified
Parties or for which they may now or hereafter become subject arising in
connection with the activity of the Hospital ("Quorum Claim"), including but not
limited to: (i) alleged or actual failure by the Board to perform any of its
duties hereunder, (ii) any pending or threatened medical malpractice or other
tort claims asserted against Quorum; (iii) any action against Quorum brought by
any of the Hospital's current or former employees or Medical Staff members; (iv)
any act or omission by any Hospital employee, Medical Staff member, or other
personnel; and (v) any violation of any requirement applicable to Hospital under
any federal, state, or local environmental, hazardous waste or similar law or
regulation; provided that such claims have not been caused by the gross
negligence or willful or wanton misconduct of the Quorum Indemnified Party
seeking indemnification pursuant to this Agreement.
(b) INDEMNIFICATION BY QUORUM. Quorum agrees to indemnify and hold
harmless the Hospital and its shareholders, directors, officers or trustees
("Hospital Indemnified Party") from and against all losses, claims, damages,
liabilities, costs and expenses (including reasonable attorneys fees and
expenses related to the defense of any claims), joint or several, which may be
asserted against any Hospital Indemnified Party ("Hospital Claim"), as a result
of (1) any personnel or other action brought against any Hospital Indemnified
Party by any Key Person relating to any acts performed by such Key Person within
the scope of his or her employment by Quorum; or (2) the sole negligence of
Quorum outside the scope of its employment under this Agreement; provided that
such Hospital Claims have not been caused by the gross negligence or willful or
wanton misconduct of the Hospital Indemnified Party seeking indemnification
pursuant to this Agreement.
(c) NOTICE AND DEFENSE OF CLAIMS. The Hospital and Quorum agree to
notify each other promptly of commencement of or indication that any Claim may
be asserted against any Indemnified Party or of any litigation or proceedings
which could give rise to a Claim by any Indemnified Party. The Indemnitor shall
be entitled to participate in the defense of any such action at Indemnitor's own
expense, but such defense shall be
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conducted by counsel of recognized standing and satisfactory to the Indemnified
Party. Unless the Indemnitor timely assumes the defense thereof, the Indemnified
Party may through its own or independent counsel defend such Claim(s). Each
Indemnitor agrees that no settlement of any Claim involving its Indemnified
Party will be made without the consent of such Indemnified Party. Likewise, each
Indemnified Party agrees that it will not settle any Claim without the consent
of its Indemnitor. The Indemnitor will furnish to the Indemnified Party copies
of all pleadings in any action hereunder, permit the Indemnified Party to be an
observer therein, and apprise the Indemnified Party of all developments therein,
all at the Indemnitor's expense.
(d) PAYMENT OF CLAIMS. Each Indemnitor covenants that, immediately upon
demand, it will pay its Indemnified Parties any and all sums of money which any
or all of such Indemnified Parties shall pay or become liable to pay by reason
of the Claim(s), including any and all costs incurred in connection with the
investigation or defense of any Claim (whether successful or unsuccessful)
including attorneys fees and costs incurred by reason of any litigation
(including any appeals or the cost of other action taken in connection with
judgments or orders rendered in any such litigation). In the event judgment is
rendered against any Indemnified Party in any such litigation or in the event a
settlement is made , its Indemnitor shall pay the full amount of such judgment
or settlement sum together with any interest, attorneys fees and other costs due
or payable by the Indemnified Party in connection therewith to the party in
whose favor the judgment is rendered within thirty (30) days of the date of the
final adjudication ("Final Adjudication") or, as to an Indemnified Party with
whom a settlement is made, on or before the date for payment under the
settlement agreement. "Final Adjudication" as used herein shall mean the
decision of the trial court, but in the event of appeal then it shall mean the
decision of the Appellate Court after petition for re-hearing has been denied or
the time for filing such petition (or for the filing of further appeal) has
expired (provided that as to an appeal the Indemnitor hereby agrees at its sole
cost and expense to post the requisite bond to stay enforcement of the
judgment).
(e) NON-PAYMENT OF CLAIMS. In the event an Indemnitor fails to pay,
timely and fully, any amounts due relative to any Claims, its Indemnified Party
may pay such Claim to a third party. In such event, such Indemnified Party may
recover from its Indemnitor in addition to the amount so paid, interest on the
amount claimed at the higher of 12% per annum or such maximum amount of interest
as is permitted by law and also recover the costs of such Indemnified Party's
reasonable attorneys fees in connection with the enforcement of this Agreement.
16. NOTICES.
All notices permitted or required by this Agreement shall be deemed
given when in writing and delivered personally or deposited in the United States
mail, postage prepaid, return receipt requested, addressed to the other party at
the address set forth below or such other address as the party may designate in
writing:
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TO QUORUM: Quorum Health Resources, Inc.
105 Continental Place
Brentwood, Tennessee 37027
Attn.: President
TO THE HOSPITAL:
Attn.:
17. AFFILIATES.
As used in this Agreement the term "Affiliate" means any corporation
owning 50% or more of the voting stock of Quorum or the Hospital, any subsidiary
corporation of which Quorum or the Hospital owns 50% or more of the voting
stock, and any subsidiary of a parent corporation (owning 50% or more of the
voting stock of Quorum or the Hospital) of which the parent corporation owns 50%
or more of the voting stock.
18. BINDING EFFECT.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their heirs, executors, administrators, assigns,
subtenants, successors in interest, and successors in ownership, operation, or
control of the Hospital.
19. LIMITATION OF LIABILITY.
Quorum's liability, if any, for loss or damages arising out of any
breach by Quorum of the provisions hereof shall in no event exceed the aggregate
management fees paid Quorum by Hospital hereunder.
20. WAIVER OF TRIAL BY JURY.
Each party hereto hereby irrevocably waives any and all rights it may
have to demand that any action, proceeding or counterclaim arising out of or in
any way related to this Agreement or the relationships of the parties hereto be
tried by jury. This waiver extends to any and all rights to demand a trial by
jury arising form any source including, but not limited to, the Constitution of
the United States or any state therein, common law or any applicable statute or
regulations. Each party hereto acknowledges that it is knowingly and voluntarily
waiving its right to demand trial by jury.
21. CONFIDENTIALITY OF AGREEMENT.
Quorum and the Hospital agree that the terms and conditions of this
Agreement shall remain confidential. Neither Quorum nor the Hospital shall
distribute this Agreement, or any part thereof, to any third party unless
required by law to do so.
22. MISCELLANEOUS.
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(a) HEADINGS. Section headings are for convenience of reference only
and shall not be used to construe the meaning of any provision of this
Agreement.
(b) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one agreement.
(c) SEVERANCE. Should any part of this Agreement be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
and enforceability of the remaining portions.
(d) AUTHORITY. Each individual signing this Agreement warrants that
such execution has been duly authorized by the party for which he or she is
signing. The execution and performance of this Agreement by each party has been
duly authorized by all applicable laws and regulations and all necessary
corporate action, and this Agreement constitutes the valid and enforceable
obligation of each party in accordance with its terms.
(e) LAW. This Agreement shall be construed in accordance with the laws
of the State of _____________.
(f) AMENDMENT. This Agreement may not be modified except in a written
document executed by the party to be charged.
(g) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties hereto and supersedes all prior agreements and representations
with respect to the subject matter hereof.
ATTEST:
HOSPITAL
By:_________________________ By:_________________________
Title: _____________________ Name:_______________________
Chairman, Board of Directors
QUORUM HEALTH RESOURCES, INC.
By:_________________________ By:_________________________
Assistant Secretary Name:_______________________
Vice President - Marketing
By:_________________________ By:_________________________
Assistant Secretary Sheldon L. Krizelman
Executive Vice President -
Marketing
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EXHIBIT 10.31
FIRST AMENDMENT
TO
GROUP PURCHASING ORGANIZATION PARTICIPATION AGREEMENT
THIS FIRST AMENDMENT (this "First Amendment") to the Group Purchasing
Organization Participation Agreement (the "Agreement") dated November 30, 1995
by and between Quorum Health Group, Inc. ("Quorum"), a Delaware corporation, and
Premier Purchasing Partners, L.P., f/k/a APS Healthcare Purchasing Partners,
L.P. (the "Partnership"), a California limited partnership, is made and entered
into as of June 1, 1997.
WITNESSETH
WHEREAS, Quorum and the Partnership entered into the Agreement pursuant to
which Member Facilities of Quorum would have access to the Partnership Group
Purchasing Programs;
WHEREAS, certain issues have arisen with respect to the implementation and
interpretation of the Agreement; and
WHEREAS, the parties desire to amend the Agreement as set forth herein so as
to resolve such issues.
NOW THEREFORE, Quorum and the Partnership, in consideration of the terms,
conditions, covenants, and agreements set forth herein, and other good and
valuable consideration, and intending to be legally bound, mutually agree as
follows:
1. Definitions.
1.1 APS Plans. Subsequent to the execution of the Agreement, APS Healthcare
Plans, Inc. changed its name to Premier Plans, Inc., and shall be known
hereinafter as Premier Plans. The definition of APS Plans set forth in Section
1.2 of the Agreement shall be clarified insofar as references to APS Plans shall
mean Premier Plans.
1.2 APS. Subsequent to the execution of the Agreement, APS Healthcare Systems
changed its name to Premier, Inc. and shall be known hereinafter as Premier. The
definition of APS set forth in Section 1.3 of the Agreement shall be clarified
insofar as references to APS shall mean Premier.
1.3 Member Facilities. Section 1.5 of the Agreement shall be amended by
deleting the existing Section 1.5 in its entirety and inserting in its place the
following new Section 1.5:
1.5 "Member Facilities" whether used in the singular or plural,
means those hospitals and other health care
<PAGE> 2
facilities and/or providers (other than Quorum Physicians) that are
owned, managed, operated, leased or otherwise affiliated with
Quorum, now and in the future, which have been approved by the
Partnership and Premier and granted access to Partnership's Group
Purchasing Program. Facilities "managed" by Quorum shall include any
facility having a contract calling for Quorum to manage or provide
management service(s) or other purchasing services to such facility.
The current list of Member Facilities as of the date of this First
Amendment is contained in Exhibit A to this First Amendment. From
time to time, Quorum may request in writing that Premier and the
Partnership consider approving additional hospitals and other health
care facilities and providers as Member Facilities and adding any
approved new Member Facility to Exhibit A. Premier and the
Partnership shall consider, pursuant to their respective policies
and procedures, any such written request of Quorum, and shall
decide, in their sole discretion, upon any such requests within a
reasonable period of time, not to exceed sixty (60) days from the
date of the receipt of Quorum's written request.
1.4 Contract Year. Article 1 of the Agreement shall be amended to include the
following new Section 1.7:
1.7 "Contract Year" means the initial thirteen (13)
month period beginning on November 30, 1995, and ending on December
31, 1996, and thereafter each twelve (12) month period beginning on
January 1 and ending on December 31 of the same calendar year. A
specific Contract Year will be designated by the calendar year of
commencement, except that the first Contract Year which begins on
November 30, 1995, shall be Contract Year 1996.
1.5 Applicant Facilities. Article 1 of the Agreement shall be amended to
include the following new Section 1.8:
1.8 "Applicant Facilities" are those hospitals and other
health care facilities and/or providers that are owned, managed,
operated, leased or otherwise affiliated with Quorum which are not
listed on Exhibit A hereto (as it may be amended from time to time)
and which Quorum has requested, in writing, that Premier and the
Partnership approve as Member Facilities. Quorum shall not submit
such a written request with respect to any such potential Applicant
Facility until such time as Quorum has entered into a binding
arrangement with that potential Applicant Facility. Once an
Applicant Facility has been approved as a Member Facility, it will
cease to be an Applicant Facility. Once an Applicant Facility has
been denied Membership Status, it will cease to be an Applicant
Facility and will be an Overlap Provider.
<PAGE> 3
1.6 Overlap Providers. Article 1 of the Agreement shall be amended to include
the following new Section 1.9:
1.9 "Overlap Provider," whether used in the singular or
plural, means a hospital or other health care facility or provider
that is owned, managed, operated, leased or otherwise affiliated
with Quorum, now and in the future, which Quorum has requested be
approved as a Member Facility and has been denied by Premier or the
Partnership for reasons including, but not limited to, an objection
by a Premier owner or Partnership member located within fifty (50)
miles of such Quorum hospital or other health care facility.
1.7 Quorum Physicians. Article 1 of the Agreement shall be amended to include
the following new Section 1.10:
1.10 "Quorum Physician," whether used in the singular or
plural, means any physician or physician practice affiliated with
Quorum, a Member Facility, or an Overlap Provider and designated by
Quorum as a Quorum Physician. "Quorum Physician" shall not include
corporations, partnerships, organizations or other business entities
that employ, manage, contract on behalf of, or otherwise affiliate
with, physicians or physician practices. Quorum Physicians shall not
be Member Facilities or Overlap Providers, as such terms are defined
herein. Periodically or upon the Partnership's request, Quorum shall
provide the Partnership with an updated list of Quorum Physicians.
Quorum may add or delete physicians or physician practices from the
list of Quorum Physicians without the approval of Premier or the
Partnership.
1.8 Purchase Volume. Article 1 of the Agreement shall be amended to include
the following new Section 1.11:
1.11 "Purchasing Volume" means for any portion of
Contract Year 1996 the total dollar volume of purchases made by
Member Facilities and Overlap Providers during that time period
under group purchasing agreements of the Partnership or its
predecessor American Healthcare Systems Purchasing Partners, L.P.,
that pay Group Purchasing Fees. For any Contract Year after Contract
1996, "Purchasing Volume" means the total volume of purchases made
by Member Facilities and Overlap Providers during the applicable
Contract Year under group purchasing agreements of the Partnership
that pay Group Purchasing Fees. Notwithstanding the foregoing
sentence, the volume of purchases made by Member Facilities and
Overlap Providers pursuant to any agreement between the Partnership
and a distributor shall only be included in Purchasing Volume in the
same proportion
<PAGE> 4
as the Group Purchasing Fee under such distribution agreement as
compared to the average Group Purchasing Fee received by the
Partnership pursuant to all of its group purchasing agreements. By
way of example only, if the Group Purchasing Fee under such
distribution agreement were 1.1% and the Partnership's average Group
Purchasing Fee were 2.2%, the applicable proportion would be fifty
percent (50%) and fifty percent (50%) of Quorum's purchases under
such distribution agreement would be included in the applicable
Purchasing Volume.
1.9 Group Purchasing Fees and Administrative Fees. The parties acknowledge
and agree that, as defined and used in the Agreement and this First Amendment,
Administrative Fees constitute that portion of Group Purchasing Fees that
vendors will be obligated to pay directly to Quorum and other eligible owners
and affiliates of Premier pursuant to group purchasing agreements between the
Partnership and such vendors. Administrative Fees do not include that portion of
the Group Purchasing Fees paid by the vendors directly to the Partnership. The
parties acknowledge that such Administrative Fees were sometimes referred to by
the Partners and its predecessor, American Healthcare Systems Purchasing
Partners, L.P., as system payments.
2. Duties and Responsibilities of Partnership. Article 4 of the Agreement shall
be amended to include the following new Section 4.3:
4.3 During the term of the Agreement, the Partnership shall
make available to Quorum Physicians the Partnership's existing group
purchasing contracts for physicians and physician offices for health
related supplies, equipment, and services that are currently known
as the "Premier Docs" program. Quorum shall require all Quorum
Physicians to comply with all policies, procedures and terms of the
Premier Docs program. Quorum acknowledges and agrees that the
Partnership may, in its sole discretion, alter or discontinue the
Premier Docs program or its policies, procedures, and terms
regarding participation of Quorum Physicians without amending this
Agreement or causing a breach hereof; provided, however, that the
Partnership will give Quorum the same notice of any discontinuation
of the Premier Docs program that the Partnership gives any other
participant in the program. Unless otherwise agreed to in writing by
Premier, no Quorum Physician shall be considered a Member Facility
or Overlap Provider or have access to the Partnership's group
purchasing contracts that are accessed by Member Facilities and
Overlap Facilities. Notwithstanding the foregoing, purchases of the
Quorum Physicians pursuant to the Premier Docs program during a
Contract Year shall be included in Quorum's Purchase Volume for that
Contract Year for the sole purpose of determining whether Quorum
achieved the Participant Benchmark for that Contract Year.
<PAGE> 5
3. Regional Materials Managers Compensation. Section 7.1 of the Agreement shall
be amended by adding the following to the end of the existing Section 7.1:
Where the Participant Benchmark (as defined hereinafter) is not reached
for any Contract Year, the amount of reimbursement due to Quorum from the
Partnership pursuant to this Section 7.1 shall be reduced in the same
proportion as the shortfall between the actual Purchasing Volume for the
applicable time period and the applicable Participant Benchmark expressed
as a percentage of the Participant Benchmark. On or before the last day of
each calendar quarter of a Contract Year, the Partnership shall make an
estimated payment of the amount of such reimbursement pursuant to this
Section 7.1 for that calendar quarter. Within one hundred and fifty (150)
days of the last day of each Contract Year, the Partnership and Quorum
shall reconcile the amount of such estimated payments with the actual
amount of reimbursement due pursuant to this Section 7.1. If either party
owes the other party any amount based on such reconciliation, that party
shall pay the other party such amount within thirty (30) days of the date
of the reconciliation, such date not to be later than one hundred and
eighty (180) days after the last day of the applicable Contract Year.
4. Guarantee of Administrative Fees.
4.1 Contract Year 1996. The parties agree and acknowledge that, as of the
date of this First Amendment, the Purchasing Volume for Contract Year 1996 has
not been finally determined and reconciled to the satisfaction of both parties.
Further, Quorum acknowledges and agrees that, for Contract Year 1996, it has
received as of the date of this First Amendment five hundred thousand dollars
($500,000) from the Partnership pursuant to Section 7.1 of the Agreement,
approximately five hundred thousand dollars ($500,000) in Administrative Fees
directly from vendors, approximately eight hundred thousand dollars ($800,000)
in Administrative Fees directly from Johnson & Johnson, and three million
dollars ($3,000,000) from the Partnership pursuant to Section 7.3.1 of the
Agreement. To resolve and settle outstanding issues regarding Contract Year
1996, including without limitation the amount of Purchasing Volume and whether
the guarantee in Section 7.3.1 of the Agreement was triggered, the parties agree
as follows:
(a) Quorum may retain for its own use approximately eight
hundred thousand dollars ($800,000) in Administrative Fee payments
it recently received directly from Johnson & Johnson and
attributable to purchases by Member Facilities during Contract Year
1996;
(b) Premier shall pay to Quorum eight hundred thousand dollars
($800,000) within three (3) business days of the date of execution
of this First Amendment by Quorum;
<PAGE> 6
and
(c) Premier shall pay to Quorum an additional Five Hundred
Thousand Dollars ($500,000) within three (3) business days of the
date of execution of this First Amendment by Quorum. Said amount
shall represent an estimate of Administrative Fees earned by Quorum
for purchases by Member Facilities from Johnson & Johnson during
Contract Year 1996. On or before June 30, 1997, the parties shall
determine the actual Administrative Fees earned by Quorum for
purchases by Member Facilities from Johnson & Johnson during
Contract Year 1996 and a corresponding reconciliation payment shall
be made.
4.1.1 Quorum hereby agrees that if it provides notice of termination
pursuant to Section 6.2 of the Agreement, as amended hereby, prior to
January 1, 1999, Quorum shall, prior to the effective date of such
termination, repay to the Partnership the eight hundred thousand dollars
($800,000) paid to Quorum pursuant to subsection (b) above, except as
otherwise provided in Section 4.1.4 hereof. Further, if the Partnership
terminates the Agreement pursuant to Section 6.3 of the Agreement as a
result of Quorum's breach thereof prior to January 1, 1999, Quorum shall
repay, except as otherwise provided in Section 4.1.4 hereof, to the
Partnership such eight hundred thousand dollars ($800,000) prior to the
effective date of such termination. If, however, the Partnership
terminates the Agreement pursuant to Section 6.2 thereof, Quorum shall not
be required to repay to the Partnership such eight hundred thousand
dollars ($800,000).
4.1.2 The Partnership and Quorum acknowledge and agree that Baxter
Healthcare (the predecessor to Baxter and Allegiance) did not pay Group
Purchasing Fees or other similar fees to either the Partnership or Quorum
for purchases from Baxter by Quorum and its Member Facilities during all
or a portion of Contract Year 1996 ("Unpaid Baxter Group Purchasing
Fees"). Quorum hereby agrees that it will cooperate and work closely with
the Partnership for the purpose of attempting to collect from Baxter
and/or Allegiance such Unpaid Baxter Group Purchasing Fees. Quorum shall
direct Baxter and Allegiance to pay any Unpaid Baxter Group Purchasing
Fees or other similar fees to the Partnership, and Quorum shall notify the
Partnership in writing of any payments of Unpaid Baxter Group Purchasing
Fees that Quorum receives directly from Baxter or Allegiance.
4.1.3 The Partnership shall have the right to retain as its own and
for its own use the first eight hundred thousand dollars ($800,000) of
Unpaid Baxter Group Purchasing Fees that are paid by Baxter or Allegiance
directly to the Partnership or to Quorum. Quorum hereby assigns all of its
rights, title and interests in and to such first eight hundred thousand
dollars ($800,000) to the Partnership, and agrees to pay promptly to the
<PAGE> 7
Partnership any Unpaid Baxter Group Purchasing Fees paid to Quorum which
comprise any part of such first eight hundred thousand dollars ($800,000).
To the extent that the Partnership collects any amount of Unpaid Baxter
Group Purchasing Fees in excess of the first eight hundred thousand
dollars ($800,000), the Partnership shall pay to Quorum any such amount up
to but not to exceed the amount necessary to cause Quorum to receive a
total of six million nine hundred thousand dollars ($6.9 million) from the
Partnership or directly as Administrative Fees from vendors for Contract
year 1996. To the extent that the Partnership collects any amount of
Unpaid Baxter Group Purchasing Fees in excess of such amount payable to
Quorum, the Partnership and Quorum shall share equally any such excess
amount.
4.1.4 The obligation of Quorum to repay the eight hundred thousand
dollars ($800,000) to the Partnership pursuant to Section 4.1.1 hereof
shall be reduced on a dollar for dollar basis by the amount of any Unpaid
Baxter Group Purchasing Fees paid to the Partnership subsequent to the
Effective Date of this First Amendment.
4.2 Annual Administrative Fee Guarantee. Commencing with Contract Year 1997
and for each Contract Year hereafter, the Partnership shall guarantee that
Quorum receive Administrative Fees from vendors for Purchasing Volume made
during the applicable Contract Year in the amount of Six Million Four Hundred
Thousand Dollars ($6,400,000), so long as the Purchasing Volume for the
applicable Contract Year equals or exceeds the applicable Participant Benchmark
set forth in Section 4.4 below. If the applicable Participant Benchmark is not
satisfied, the guarantee of Administrative Fees set forth in this Section 4.2
shall be reduced in the same proportion as the shortfall between the actual
Purchasing Volume for the applicable Contract Year and the applicable
Participant Benchmark expressed as a percentage of the Participant Benchmark.
For example only, if the Purchasing Volume for Contract Year 1997 is
$200,000,000 (50% of the Participant Benchmark for that Contract Year), the
Administrative Fee guarantee shall be reduced by fifty percent (50%) to
$3,200,000 (50% of $6,400,000). If the Agreement is terminated before its annual
anniversary date, the guarantee regarding Administrative Fees under this Section
4.2 shall be prorated for the period of time during which the Agreement was in
effect during such Contract Year. Any amount of Administrative Fees owed by the
Partnership to Quorum for a particular Contract Year pursuant to this Section
4.2 shall be reduced and offset by those Administrative Fees paid by the vendors
directly to Quorum for such Contract Year's Purchasing Volume. In the event the
Purchasing Volume exceeds the Participant Benchmark for any Contract Year,
Quorum will be entitled to any Administrative Fees generated by such excess
Purchasing Volume only to the extent Administrative Fees actually received by
Quorum directly from vendors and/or from the Partnership exceed six million four
hundred thousand dollars ($6.4 million) in any Contract year. No later than one
hundred and twenty (120) days after the end of a Contract Year (except Contract
Year 1996), the
<PAGE> 8
Partnership will furnish Quorum with a full accounting of the Purchasing Volume
for that Contract Year, by Member Facility and Overlap Provider and by vendor
contract, and of the Group Purchasing Fees, including Administrative Fees paid
by each vendor as a result of the purchases of each Member Facility and Overlap
Provider. Within ninety (90) days after the end of each Contract Year, Quorum
shall provide the Partnership with a written report setting forth the amounts
and sources of all Administrative Fees paid to Quorum and due to be paid to
Quorum by vendors for such Contract Year Purchasing Volume. The Partnership
shall provide Quorum with reasonable access to its books and records for the
sole purpose of verifying the Purchasing Volume for a Contract Year and the
amount of Administrative Fees to which Quorum is entitled for that Contract
Year. Quorum shall provide the Partnership with reasonable access to its books
and records for the sole purpose of verifying the Purchasing Volume for a
Contract Year and the amount of Administrative Fees paid to Quorum by vendors
for that Contract Year Purchasing Volume.
4.3 Guarantee in Section 7.3.1 of the Amendment. The payments provided for in
Section 4.1 above are in lieu of any payment or claim for payment under Section
7.3.1 of the Agreement and, once payments have been made pursuant to Section 4.1
(b) and (c) above, the Partnership has hereby satisfied any obligation arising
out of or related to such Section 7.3.1. Once payments have been made pursuant
to Section 4.1 (b) and (c) above, Quorum hereby waives and releases any right,
claim, action, or cause of action against the Partnership related to or arising
out of Section 7.3.1 of the Agreement.
4.4 Participant Benchmarks. For the purpose of this First Amendment, the
Participant Benchmarks shall be as follows for the specified time period and
Contract Years:
4.4.1 For Contract Year 1997, the Participant Benchmark shall be
Four Hundred Million Dollars ($400,000,000) of Purchasing Volume;
4.4.2 For Contract Year 1998, the Participant Benchmark shall be
Four Hundred Forty Million Dollars ($440,000,000) of Purchasing Volume;
4.4.3 For Contract Year 1999, the Participant Benchmark shall be
Four Hundred Eighty-Four Million Dollars ($484,000,000) of Purchasing
Volume; and
4.4.4 For Contract Year 2000, the Participant Benchmark shall be
Five Hundred Thirty-Two Million Four Hundred Thousand Dollars
($532,400,000) of Purchasing Volume.
<PAGE> 9
5. Rebate Guarantee. Quorum hereby acknowledges and agrees that the Partnership
has fully satisfied any and all obligations arising out of or related to Section
7.4.1 of the Agreement for Contract Year 1996. Section 7.4.1.3 of the Agreement
is hereby deleted in its entirety, and the Partnership shall not provide, and
has not provided, any guarantee with respect to Member Facility rebates for any
time period after Contract Year 1996. Further, Quorum hereby waives and releases
any right, claim, action, or cause of action against the Partnership related to
or arising out of Section 7.4.1 of the Agreement. Notwithstanding the foregoing,
the Member Facilities and the Overlap Facilities shall be entitled to rebates
paid by vendors to the same extent that other Premier-affiliated facilities are
entitled to rebates paid by vendors.
6. Applicant Facilities. Commencing forty-five (45) days after the Partnership's
receipt of written notice from Quorum with respect to an Applicant Facility,
such Applicant Facility shall have access to the Partnership's group purchasing
contracts for health related supplies, equipment, and services including without
limitation pharmaceuticals, dietary, medical-surgical, and capital equipment
items, subject to any and all of the Partnership's current and future
requirements, policies, and procedures, including without limitation its
compliance policy. If any such Applicant Facility is not accepted as a Member
Facility, Quorum shall include all of such Applicant Facility's purchases under
the Partnership's group purchasing contracts in the calculation of the Annual
Overlap Fee, as described in Section 7 hereof.
7. Overlap Providers. Any Overlap Provider shall have access to the
Partnership's group purchasing contracts for health related supplies, equipment,
and services including without limitation pharmaceuticals, dietary,
medical-surgical, and capital equipment items, subject to any and all of the
Partnership's current and future requirements, policies, and procedures,
including without limitation its compliance policy. For each Overlap Provider
that has access to the Partnership's group purchasing contracts, Quorum shall
pay the Partnership an annual fee in an amount equal to four percent (4%) of the
value of purchases made by such Overlap Providers under such contracts during
the subject Contract Year ("Annual Overlap Fee(s)"). Quorum shall pay the Annual
Overlap Fees for all Overlap Providers applicable to a Contract Year within one
hundred twenty (120) days of the end of that Contract Year. The Annual Overlap
Fee shall not exceed One Hundred Fifty Thousand Dollars ($150,000) for any one
Overlap Provider per Contract Year, and the total Annual Overlap Fees for all
Overlap Providers regardless of their number shall not exceed One Million
Dollars ($1,000,000) per Contract Year. The Partnership use reasonable efforts
to work with Quorum to minimize the number of Overlap Providers. Upon approval
of any Overlap Facility as a Member Facility, purchases of such facility shall
not be subject to the Annual Overlap Fee. Within ninety (90) days of the end of
each Contract Year, Quorum shall provide the Partnership with a written
<PAGE> 10
report setting forth the amount of purchases under the Partnership's contracts
for that Contract Year and the amounts of Annual Overlap Fees owed to the
Partnership by Quorum. Quorum shall provide the Partnership with reasonable
access to its books and records for the sole purpose of verifying such purchases
and the amount of Annual Overlap Fees owed to the Partnership.
8. Access to Partnership's Group Purchasing Program. Quorum agrees that it will
not, without Partnership's prior written consent, contract or otherwise agree to
make access to the Partnership's Group Purchasing Programs or any group
purchasing contract of the Partnership available on any basis, including without
limitation a wholesale, nationwide, or regional basis, to any corporation,
partnership, limited partnership, joint venture, organization, association,
system, network, or other entity which currently engages in any health care
related business on a nationwide, regional, or statewide basis, including
without limitation entities that provide physician practice management services.
Notwithstanding the foregoing, Quorum may submit to the Partnership for
consideration as potential Member Facilities individual locations, members, or
participants in any such nationwide company or other entity.
9. Term and Termination.
9.1 Section 6.1 of the Agreement is hereby deleted in its entirety and the
following new Section 6.1 shall be inserted in lieu thereof:
6.1 This Agreement shall become effective as of the Effective
Date and shall continue thereafter to and including December 31,
2000, and for successive one year terms thereafter. Upon termination
of this Agreement for any reason, the ability of each Member
Facility and Overlap Provider to purchase through the Partnership's
contracts shall immediately cease.
9.2 Section 6.2 of the Agreement is hereby deleted in its entirety and the
following new Section 6.2 shall be inserted in lieu thereof:
6.2 Either Party may terminate the Agreement, without cause,
upon twelve (12) months' prior written notice to the other Party.
9.3 Section 6.4.2 and subsections 6.4.2.1, 6.4.2.2, and 6.4.2.3 are deleted
in their entirety and the following new Section 6.4.2 and subsections shall be
inserted in lieu thereof:
6.4.2 To remove a Member Facility or Overlap Provider from
participation in any Group Purchasing Program; however, prior to
such removal, the Partnership shall immediately notify Quorum of the
issue that warrants removal of the Member Facility or Overlap
Provider. Quorum shall have a period of sixty (60) days from receipt
of notice from
<PAGE> 11
the Partnership in which to use its best efforts to correct the
problem that causes potential removal. Written notice of removal
shall be sent to Quorum. Removal shall be effective upon Quorum's
receipt of such notice. Reasons for possible removal of Quorum or a
Member Facility or Overlap Provider for cause under this Section
6.4.2 shall include, but not be limited to, the following:
6.4.2.1 An attempt by Quorum, a Member Facility or an
Overlap Provider to manipulate, alter or use as a "levering device"
or negotiating tactic, any purchasing contract between the
Partnership, or Premier, and vendors.
6.4.2.2 Quorum negotiates or solicits contracts covering
items covered in the Group Purchasing Program without the knowledge
or consent of the Partnership.
6.4.2.3 Quorum is, or a Member Facility or Overlap
Provider becomes a member of, or participates in, a national
purchasing program providing purchasing contracts with vendors
similar to the type provided by the Partnership, and Quorum is
unable, after a reasonable time, to eliminate the unacceptable
arrangement.
10. Notices. Quorum's address in Section 9 of the Agreement shall be amended as
follows:
Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attn: President
11. Capitalized Terms. All capitalized terms that are not defined in this First
Amendment shall have the same meaning as such terms in the Agreement.
12. Other Terms and Conditions. Except as specifically modified or amended by
this First Amendment, the terms and conditions of the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of the
day and year first above written.
PREMIER PURCHASING PARTNERS, L.P.
BY ITS GENERAL PARTNER
PREMIER PLANS, INC.
By:____________________________________
Alan Weinstein
Chairman
<PAGE> 12
QUORUM HEALTH GROUP, INC.
By:____________________________________
Name:__________________________________
Title:___________________________________
<PAGE> 1
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
---------------------------------
1997 1996 1995
-------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 73,442 72,191 70,865
Net effect of dilutive stock options based on the treasury
stock method using average market price 2,484 2,448 2,872
-------- -------- --------
Totals 75,926 74,639 73,737
======== ======== ========
Income before extraordinary item $ 84,082 $ 69,232 $ 55,955
Extraordinary charges (8,197) -- --
-------- -------- --------
Net income $ 75,885 $ 69,232 $ 55,955
======== ======== ========
Per share amounts:
Income before extraordinary item $ 1.11 $ 0.93 $ 0.76
Extraordinary charges (0.11) -- --
-------- -------- --------
Net income $ 1.00 $ 0.93 $ 0.76
======== ======== ========
FULLY DILUTED
Average shares outstanding 73,442 72,191 70,865
Net effect of dilutive stock options based on the treasury
stock method using the higher of ending or average
market price 2,622 2,505 2,917
-------- -------- --------
Totals 76,064 74,696 73,782
======== ======== ========
Income before extraordinary item $ 84,082 $ 69,232 $ 55,955
Extraordinary charges (8,197) -- --
-------- -------- --------
Net income $ 75,885 $ 69,232 $ 55,955
======== ======== ========
Per share amounts:
Income before extraordinary item $ 1.11 $ 0.93 $ 0.76
Extraordinary charges (0.11) -- --
-------- -------- --------
Net income $ 1.00 $ 0.93 $ 0.76
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
DIRECT AND INDIRECT SUBSIDIARIES OF QUORUM HEALTH GROUP, INC.
Name State of
- ---- Organization
------------
Barberton Health System LLC Delaware
(d/b/a Barberton Citizens Hospital)
Carolinas Medical Alliance, Inc. South Carolina
Clinton County Health System LLC Delaware
(d/b/a Clinton County Hospital)
Desert Physicians Network, Inc. Nevada
Desert Surgery Center Limited Partnership Nevada
Frankfort Health Partner, Inc. Indiana
Gadsden Regional Primary Care, Inc. Alabama
Health Systems Associates, Inc. Tennessee
Hospital Management Professionals, Inc. Tennessee
IOM Health System, L.P. Indiana
(d/b/a Lutheran Hospital of Indiana)
Macon Industrial Medicine Center, Inc. Georgia
Mary Black Health System LLC Delaware
(d/b/a Mary Black Memorial Hospital)
Mary Black Holding Co., Inc. South Carolina
Massillon Health System LLC Delaware
(d/b/a Doctors Hospital of Stark County)
Middle Georgia MOB, Inc. Georgia
Midlands Medical Associates, L.P. Nebraska
(d/b/a Midlands Community Hospital)
NC-CNH, Inc. Georgia
(d/b/a Macon Northside Hospital)
NC-CSH, Inc. California
NC-DSH, Inc. Nevada
(d/b/a Desert Springs Hospital)
NC-MGH, Inc. Georgia
(d/b/a Middle Georgia Hospital)
NC-SCHI, Inc. Georgia
(d/b/a Abilene Regional Medical Center)
Northside MOB, Inc. Georgia
Northside VL, Inc. Georgia
Pee Dee Family Practice, Inc. South Carolina
Plaza Surgery Center Limited Partnership Nevada
QHG of Alabama, Inc. Alabama
(d/b/a Flowers Hospital)
<PAGE> 2
QHG of Barberton, Inc. Ohio
QHG of Clinton County, Inc. Indiana
QHG of Enterprise, Inc. Alabama
(d/b/a Medical Center Enterprise)
QHG of Forrest County, Inc. Mississippi
QHG of Fort Wayne, Inc. Indiana
QHG of Gadsden, Inc. Alabama
(d/b/a Gadsden Regional Medical Center)
QHG of Indiana, Inc. Indiana
QHG of Jacksonville, Inc. Alabama
(d/b/a Jacksonville Hospital)
QHG of Lake City, Inc. South Carolina
(d/b/a Carolinas Hospital System - Lake City)
(d/b/a Carolinas Hospital System - Kingstree)
QHG of Massillon, Inc. Ohio
QHG of Nebraska, Inc. Nebraska
QHG of Ohio, Inc. Ohio
(d/b/a Park Medical Center)
QHG of South Carolina, Inc. South Carolina
(d/b/a Carolinas Hospital System)
QHG of Spartanburg, Inc. South Carolina
QHG of Texas, Inc. Texas
QHR of Delaware, Inc. Delaware
Quorum Health Group of Vicksburg, Inc. Tennessee
Quorum Health Resources, Inc. Delaware
Quorum Health Services, Inc. Delaware
Quorum, Inc. Delaware
River Region Medical Corporation Mississippi
(d/b/a ParkView Regional Medical Center)
Software Sales Corp. Tennessee
Spartanburg Physician Services, Inc. South Carolina
Summit Medical Group, Inc. Nevada
Vicksburg Clinic, Inc. Mississippi
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
on Form S-8 pertaining to the Quorum Health Group, Inc. Stock Option and
Restated Stock Purchase Plan (No. 33-38817), the Employee Stock Purchase
Plan (No. 33-44474), the Directors Stock Option Plan (No. 33-46542), the
Directors Stock Option Plan (No. 33-89272), the Restated Stock Option Plan
(No. 33-54868), the Restated Stock Option Plan (No. 33-73288), the Restated
Stock Option Plan (No. 33-89274), the Non-qualified Employee Stock Purchase
Plan (No. 333-384) and the Restated Stock Option Plan (No. 333-24339), of
our report dated August 4, 1997, except for Note 12, as to which the date is
August 19, 1997, with respect to the consolidated financial statements and the
schedule of Quorum Health Group, Inc. included in the Annual Report (Form 10-K)
the year ended June 30, 1997.
/s/ Ernst & Young LLP
Nashville, Tennessee
September 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 AND THE AUDITED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 19,008
<SECURITIES> 0
<RECEIVABLES> 304,092
<ALLOWANCES> 55,360
<INVENTORY> 31,622
<CURRENT-ASSETS> 331,101
<PP&E> 870,477
<DEPRECIATION> 183,705
<TOTAL-ASSETS> 1,278,991
<CURRENT-LIABILITIES> 150,619
<BONDS> 519,940
0
0
<COMMON> 741
<OTHER-SE> 517,374
<TOTAL-LIABILITY-AND-EQUITY> 1,278,991
<SALES> 0
<TOTAL-REVENUES> 1,413,946
<CGS> 0
<TOTAL-COSTS> 1,063,112
<OTHER-EXPENSES> 75,875
<LOSS-PROVISION> 89,919
<INTEREST-EXPENSE> 45,601
<INCOME-PRETAX> 139,439
<INCOME-TAX> 55,357
<INCOME-CONTINUING> 84,082
<DISCONTINUED> 0
<EXTRAORDINARY> (8,197)
<CHANGES> 0
<NET-INCOME> 75,885
<EPS-PRIMARY> 1.00<F1>
<EPS-DILUTED> 1.00<F1>
<FN>
<F1>EPS-PRIMARY and EPS-DILUTED before extraordinary item are $1.11
</FN>
</TABLE>
