<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 33-31717-A
QUORUM HEALTH GROUP, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1406040
-------- ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
103 Continental Place, Brentwood, Tennessee 37027
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(615) 371-7979
--------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at February 10, 1998
- ----- --------------------------------
Common Stock, $.01 Par Value 74,837,246 Shares
- -------------------------------------------------------------------------------
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenue:
Net patient service revenue $373,503 $ 308,806
Hospital management/professional services 19,743 18,821
Reimbursable expenses 15,649 14,510
-------- ---------
Net operating revenue 408,895 342,137
Expenses:
Salaries and benefits 162,947 136,455
Reimbursable expenses 15,649 14,510
Supplies 55,338 46,619
Fees 37,479 31,544
Other operating expenses 33,302 27,680
Provision for doubtful accounts 29,474 22,259
Depreciation and amortization 22,533 18,297
Interest 10,859 11,435
Minority interest 832 (8)
-------- ---------
368,413 308,791
-------- ---------
Income before income taxes 40,482 33,346
Provision for income taxes 16,071 13,238
-------- ---------
Net income $ 24,411 $ 20,108
======== =========
Net income per common share:
Basic $ 0.33 $ 0.27
======== =========
Diluted $ 0.32 $ 0.27
======== =========
Weighted average common shares :
Basic 74,406 73,148
======== =========
Diluted 76,800 75,413
======== =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31
------------------------
1997 1996
-------- --------
<S> <C> <C>
Revenue:
Net patient service revenue $730,620 $590,856
Hospital management/professional services 39,438 38,192
Reimbursable expenses 31,658 29,090
-------- --------
Net operating revenue 801,716 658,138
Expenses:
Salaries and benefits 318,544 261,886
Reimbursable expenses 31,658 29,090
Supplies 110,010 91,200
Fees 71,866 58,890
Other operating expenses 66,580 54,289
Provision for doubtful accounts 59,884 41,579
Depreciation and amortization 44,062 36,108
Interest 21,229 22,428
Minority interest 1,976 257
-------- --------
725,809 595,727
-------- --------
Income before income taxes 75,907 62,411
Provision for income taxes 30,135 24,777
-------- --------
Net income $ 45,772 $ 37,634
======== ========
Net income per common share:
Basic $ 0.62 $ 0.51
======== ========
Diluted $ 0.60 $ 0.50
======== ========
Weighted average common shares:
Basic 74,309 73,096
======== ========
Diluted 76,726 75,217
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1997
---------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,929 $ 19,008
Accounts receivable, less allowance for doubtful
accounts of $74,892 at December 31, 1997
and $55,360 at June 30, 1997 289,472 248,732
Supplies 34,432 31,622
Other 46,287 31,739
---------- ----------
Total current assets 385,120 331,101
Property, plant and equipment, at cost:
Land 63,185 62,109
Buildings and improvements 321,883 324,450
Equipment 479,784 462,726
Construction in progress 52,327 21,192
---------- ----------
917,179 870,477
Less accumulated depreciation 218,032 183,705
---------- ----------
699,147 686,772
Cost in excess of net assets acquired, net 190,860 185,932
Unallocated purchase price 72,151 7,831
Other 70,010 67,355
---------- ----------
Total assets $1,417,288 $1,278,991
========== ==========
</TABLE>
4
<PAGE> 5
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1997
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 84,951 $ 77,225
Accrued salaries and benefits 66,715 61,936
Other current liabilities 9,939 9,589
Current maturities of long-term debt 1,200 1,869
---------- ----------
Total current liabilities 162,805 150,619
Long-term debt, less current maturities 602,886 519,940
Deferred income taxes 28,778 38,249
Other liabilities and deferrals 28,188 25,450
Minority interests in consolidated entities 26,195 26,618
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value;
300,000 shares authorized; 74,515
issued and outstanding at December 31,
1997 and 74,137 at June 30, 1997 745 741
Additional paid-in capital 277,237 272,692
Retained earnings 290,454 244,682
---------- ----------
568,436 518,115
---------- ----------
Total liabilities and stockholders' equity $1,417,288 $1,278,991
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31
-----------------------------
1997 1996
---------- ------------
<S> <C> <C>
Net cash provided by operating activities $ 51,673 $ 72,801
Investing activities:
Purchase of acquired companies (83,467) (170,413)
Purchase of property, plant and equipment (68,190) (35,881)
Proceeds from sale of assets 14,695 --
Other (3,447) (1,335)
---------- ----------
Net cash used in investing activities (140,409) (207,629)
Financing activities:
Borrowings under bank debt 250,200 241,000
Repayments of bank debt (164,100) (113,000)
Proceeds from issuance of common stock, net 3,263 1,493
Other (4,706) 500
---------- ----------
Net cash provided by financing activities 84,657 129,993
---------- ----------
Decrease in cash and cash equivalents (4,079) (4,835)
Cash and cash equivalents at beginning of period 19,008 20,382
---------- ----------
Cash and cash equivalents at end of period $ 14,929 $ 15,547
========== ==========
Supplemental cash flow information:
Interest paid $ (22,027) $ (21,111)
========== ==========
Income taxes paid $ (37,597) $ (23,975)
========== ==========
</TABLE>
See accompanying notes.
6
<PAGE> 7
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and six months ended
December 31, 1997, are not necessarily indicative of the results that may be
expected for the year ending June 30, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1997. Certain
reclassifications have been made to the fiscal 1997 financial presentation to
conform with fiscal 1998.
2. NEWLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes reporting standards for
operating segment information disclosed in annual financial statements and in
interim financial reports issued to shareholders. Under existing accounting
standards, the Company has reported its operations as one line of business since
its inception because substantially all of its revenues and operating profits
have been derived from its acute care hospitals, affiliated health care entities
and health care management services. The Company will adopt SFAS No. 131
beginning with its fiscal year ending June 30, 1999 and is presently evaluating
the new standard in order to determine its effect, if any, on the way the
Company might report its operations in the future.
3. ACQUISITIONS AND DIVESTITURES
During the six months ended December 31, 1997, the Company acquired one hospital
and affiliated health care entities and sold its remaining interest in a
hospital. During the six months ended December 31, 1996, the Company acquired
four hospitals and affiliated health care entities. Hospital and affiliated
business acquisitions are summarized as follows (in thousands):
7
<PAGE> 8
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31
------------
1997 1996
---- ----
<S> <C> <C>
Fair value of assets acquired $ 90,066 $ 205,809
Fair value of liabilities assumed (6,599) (21,675)
Contributions from minority investors -- (13,721)
-------- ---------
Net cash used for acquisitions $ 83,467 $ 170,413
======== =========
</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. The operating results of the
acquired entities have been included in the accompanying condensed 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 1998 and 1997 as if
the respective transactions had occurred at the beginning of the periods
presented (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net operating revenue $ 405,632 $ 377,813 $ 803,796 $ 743,960
Net income 21,892 19,071 42,001 35,513
Net income per common share:
Basic .29 .26 .57 .49
Diluted .29 .25 .55 .47
</TABLE>
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 periods presented or to project the Company's
results of operations in any future period.
4. LONG-TERM DEBT
On December 15, 1997, the Company redeemed its remaining $2.2 million 11.875%
Senior Subordinated Notes at 1.05875%.
8
<PAGE> 9
5. STOCKHOLDERS' EQUITY AND STOCK BENEFIT PLANS
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.
On November 10, 1997, the Company's stockholders approved an amendment to
increase the number of authorized shares of common stock from 100,000,000 to
300,000,000. The additional shares of common stock are identical to the shares
of common stock previously authorized.
On November 10, 1997, the Company's stockholders approved an amendment to the
Company's qualified employee stock purchase plan to increase the number of
shares reserved for issuance from 3,000,000 to 3,750,000.
On November 10, 1997, the Company's stockholders approved the 1997 Stock Option
Plan. Under the plan, non-qualified and incentive stock options to purchase
common stock may be granted to executive officers, other key employees and
consultants. Stock options are generally granted at an exercise price equal to
the fair market value at the date of grant and are exercisable over a period not
to exceed ten years. The number of shares initially reserved for issuance was
3,000,000. No further options will be granted pursuant to the Company's Restated
Stock Option Plan.
6. NET INCOME PER COMMON SHARE
In 1997, the FASB issued SFAS No. 128, "Earnings per Share." Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
9
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
------------ -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $24,411 $20,108 $45,772 $37,634
======= ======= ======= =======
Denominator:
Basic earnings per share -
weighted-average shares 74,406 73,148 74,309 73,096
Effect of dilutive stock options 2,394 2,265 2,417 2,121
------- ------- ------- -------
Diluted earnings per share -
adjusted weighted-average shares 76,800 75,413 76,726 75,217
======= ======= ======= =======
Basic earnings per share $ 0.33 $ 0.27 $ 0.62 $ 0.51
======= ======= ======= =======
Diluted earnings per share $ 0.32 $ 0.27 $ 0.60 $ 0.50
======= ======= ======= =======
</TABLE>
7. LEASES
On November 26, 1997, the Company entered into a five-year $150 million End
Loaded Lease Financing (ELLF) agreement to provide a financing option for future
acquisitions and/or construction. This financing option is in addition to the
Company's $850 million revolving line of credit. The ELLF interest rate margins
and facility fee rates are substantially the same as the Company's revolving
line of credit. All lease payments under the agreement are guaranteed by the
Company. In connection with the ELLF, the Company amended its unsecured
revolving line of credit to extend the credit agreement expiration date by six
months to November 26, 2002 to coincide with the expiration date of the ELLF.
8. INCOME TAXES
The income tax provision recorded for the three months and six months ended
December 31, 1997 and 1996 differs from the expected income tax provision due to
permanent differences and the provision for state income taxes.
9. CONTINGENCIES
Management continually evaluates contingencies based on the best available
evidence and believes that adequate 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.
10
<PAGE> 11
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.
Income Taxes
The Internal Revenue Service (IRS) is in the process of conducting examinations
of the Company's federal income tax returns for the fiscal years ended June 30,
1993 through 1995. The Company has reached a settlement with the IRS in
connection with its examination of the Company's federal income tax returns for
the fiscal years ended June 30, 1990 through 1992. The settlement did not have a
material effect on the Company's results of operations or financial position.
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 million each from
fixed-rate to floating-rate through September 16, 2001 and December 1, 2001,
respectively. In addition, the Company entered into interest rate swap
agreements which effectively convert $100 million and $200 million of
floating-rate borrowings to fixed-rate borrowings through December 12, 2001 and
March 20, 2002, respectively. During the six months ended December 31, 1997, the
Company entered into interest rate swap agreements which effectively convert two
borrowings of $50 million each from floating-rate to fixed-rate through December
30, 2002. For the six months ended December 31, 1997 and 1996, the Company
received a weighted average rate of 5.8% and 5.8%, respectively, and paid a
weighted average rate of 6.1% and 5.6%, respectively.
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
11
<PAGE> 12
information and is cooperating fully with the investigation. The Company cannot
predict whether the government will commence litigation regarding this matter.
10. SUBSEQUENT EVENTS
Effective February 1, 1998, the Company and Universal Health Services, Inc.
(UHS) formed Valley Health System LLC and Summerlin Hospital Medical Center LLC.
UHS contributed Valley Hospital Medical Center and the Company contributed
Desert Springs Hospital in exchange for equity interests of 72.5 percent and
27.5 percent, respectively, in Valley Health System LLC. The Company paid
approximately $23 million in exchange for a 26.1 percent interest in Summerlin
Hospital Medical Center LLC. There will be working capital settlements to
maintain the respective ownership interests of each party. The Company will
account for its investment in the joint ventures using the equity method of
accounting and anticipates a $15 to $17 million charge after taxes related to
the writedown of goodwill.
In January 1998, the Company entered into interest rate swap agreements
effective March 1998 to replace its existing $100 million and $200 million
agreements. The new five year agreements allow the Company to convert $100
million and $200 million of floating-rate borrowings to fixed-rate borrowings
with effective rates of 5.71% and 5.97%, respectively, and allow the
counterparty a one-time option at the end of the initial term to extend the
swaps for an incremental five years.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
IMPACT OF ACQUISITIONS
During the six months ended December 31, 1997, the Company acquired one
hospital and affiliated health care entities and sold its remaining interest in
a hospital. During fiscal 1997, the Company acquired five hospitals and
affiliated health care entities (four during the six months ended December 31,
1996).
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 periods presented. In addition,
due to the current number of owned hospitals, each additional hospital
acquisition can 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.
SELECTED OPERATING STATISTICS - OWNED HOSPITALS
The following table sets forth certain operating statistics for the
Company's owned hospitals for each of the periods presented. The results of the
owned hospitals for the three months ended December 31, 1997 include three
months of operations for nineteen hospitals and a partial period for one
hospital divested during such period. The results of the owned hospitals for the
three months ended December 31, 1996 include three months of operations for
sixteen hospitals and a partial period for two hospitals acquired during such
period. The results of the owned hospitals for the six months ended December 31,
1997 include six months of operations for eighteen hospitals and a partial
period for one hospital acquired and one hospital divested during such period.
The results of the owned hospitals for the six months ended December 31, 1996
include six months of operations for fifteen hospitals and a partial period for
three hospitals acquired during such period.
13
<PAGE> 14
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31 December 31
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of hospitals at end of period 19 18 19 18
Licensed beds at end of period 4,202 4,113 4,202 4,113
Beds in service at end of period 3,466 3,416 3,466 3,416
Admissions 33,350 28,881 65,416 55,621
Average length of stay (days) 5.5 5.5 5.5 5.5
Patient days 182,412 160,043 358,442 307,524
Adjusted patient days 299,705 250,400 590,887 482,022
Occupancy rates (average licensed beds) 46.4% 45.6% 45.6% 45.3%
Occupancy rates (average beds in service) 56.0% 55.2% 55.1% 55.1%
Gross inpatient revenues (in thousands) $401,417 $346,075 $791,031 $667,807
Gross outpatient revenues (in thousands) $258,103 $195,378 $512,973 $378,933
</TABLE>
RESULTS OF OPERATIONS
The table below reflects the percentage of net operating revenue
represented by various categories in the Condensed Consolidated Statements of
Income and the percentage change in the related dollar amounts. The results of
operations for the periods presented include hospitals from their acquisition
dates as discussed above.
<TABLE>
<CAPTION>
Percentage
Three Months Increase
Ended (Decrease)
December 31 of Dollar
----------- Amounts
1997 1996 -------
---- ----
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 19.5%
Operating expenses (1) 81.7 81.6 19.8
----- ----- ----
EBITDA (2) 18.3 18.4 18.4
Depreciation and amortization 5.5 5.3 23.2
Interest 2.7 3.3 (5.0)
Minority interest 0.2 0.0
----- ----- ----
Income before income taxes 9.9 9.8 21.4
Provision for income taxes 3.9 3.9 21.4
----- ----- ----
Net income 6.0% 5.9% 21.4%
===== ===== ====
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Percentage
Six Months Increase
Ended (Decrease)
December 31 of Dollar
----------- Amounts
-------
1997 1996
---- ----
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 21.8%
Operating expenses (1) 82.1 81.6 22.6
----- ----- ----
EBITDA (2) 17.9 18.4 18.1
Depreciation and amortization 5.5 5.5 22.0
Interest 2.7 3.4 (5.3)
Minority interest 0.2 0.0 --
----- ----- ----
Income before income taxes 9.5 9.5 21.6
Provision for income taxes 3.8 3.8 21.6
----- ----- ----
Net income 5.7% 5.7% 21.6%
===== ===== ====
</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. 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.
Three Months Ended December 31, 1997 Compared to Three Months Ended
December 31, 1996
The Company's net operating revenue was $408.9 million for the three
months ended December 31, 1997, compared to $342.1 million for the comparable
period of fiscal 1996, an increase of $66.8 million or 20%. This increase was
attributable to, among other things, four hospital acquisitions, an 8% 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), including additional revenues from Medicare and Medicaid
programs, and a 6% increase in management services revenue.
Operating expenses as a percent of net operating revenue increased to
81.7% for the three months ended December 31, 1997 from 81.6% for the three
months ended December 31, 1996 which was primarily attributable to the fiscal
1997 and 1998 acquisitions of owned hospitals. Operating expenses as a
percentage of net operating revenue for the Company's owned hospitals increased
to 82.4% for the three months ended December
15
<PAGE> 16
31, 1997 from 82.0% for the three months ended December 31, 1996. For the
Company's hospitals owned during both periods, operating expenses as a
percentage of net operating revenue decreased to 82.0% for the three months
ended December 31, 1997 from 82.1% for the three months ended December 31, 1996.
EBITDA as a percent of net operating revenue was 18.3% for the three
months ended December 31, 1997 compared to 18.4% for the three months ended
December 31, 1996. EBITDA as a percent of net operating revenue for the
Company's owned hospitals was 17.6% for the three months ended December 31, 1997
compared to 18.0% for the three months ended December 31, 1996. EBITDA as a
percent of net operating revenue for the Company's hospitals owned during both
periods was 18.0% for the three months ended December 31, 1997 compared to 17.9%
for the three months ended December 31, 1996. EBITDA as a percent of net
operating revenue for the Company's management services business was 25.5% for
the three months ended December 31, 1997 compared to 22.1% for the three months
ended December 31, 1996.
Depreciation and amortization expense as a percent of net operating
revenue increased to 5.5% for the three months ended December 31, 1997 from 5.3%
for the three months ended December 31, 1996 primarily due to the completion of
various construction and renovation projects. Interest expense as a percent of
net operating revenue decreased to 2.7% for the three months ended December 31,
1997 from 3.3% for the three months ended December 31, 1996 due to the
replacement of subordinated debt with bank debt in fiscal 1997, 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
was 3.9% for the three months ended December 31, 1997 and 1996. Minority
interest expense as a percent of net operating revenue increased to 0.2% for the
three months ended December 31, 1997 from 0.0% for the three months ended
December 31, 1996 which was primarily attributable to the fiscal 1997
acquisitions.
Net income as a percent of net operating revenue was 6.0% for the three
months ended December 31, 1997 compared to 5.9% for the three months ended
December 31, 1996.
Six Months Ended December 31, 1997 compared to Six Months Ended December
31, 1996
The Company's net operating revenue was $801.7 million for the six
months ended December 31, 1997 compared to $658.1 million for the comparable
period of fiscal 1997, an increase of $143.6 million or 22%. This increase was
attributable to, among other things, five hospital acquisitions, a 9% increase
in revenue generated by hospitals owned during both periods, including
additional revenues from Medicare and Medicaid programs, and a 6% increase in
management services revenue.
16
<PAGE> 17
Operating expenses as a percent of net operating revenue increased to
82.1% for the six months ended December 31, 1997 from 81.6% for the six months
ended December 31, 1996 which was primarily attributable to the fiscal 1997 and
1998 acquisitions of owned hospitals and an increase in bad debt expense.
Operating expenses as a percentage of net operating revenue for the Company's
owned hospitals increased to 82.7% for the six months ended December 31, 1997
from 81.9% for the six months ended December 31, 1996. For the Company's
hospitals owned during both periods, operating expenses as a percentage of net
operating revenue increased to 82.3% for the six months ended December 31, 1997
from 82.1% for the six months ended December 31, 1996 which was primarily
attributable to an increase in bad debt expense.
EBITDA as a percent of net operating revenue was 17.9% for the six
months ended December 31, 1997 compared to 18.4% for the six months ended
December 31, 1996. EBITDA as a percent of net operating revenue for the
Company's owned hospitals was 17.3% for the six months ended December 31, 1997
compared to 18.1% for the six months ended December 31, 1996. EBITDA as a
percent of net operating revenue for the Company's hospitals owned during both
periods was 17.7% for the six months ended December 31, 1997 compared to 17.9%
for the six months ended December 31, 1996. EBITDA as a percent of net operating
revenue for the Company's management services business was 23.9% for the six
months ended December 31, 1997 compared to 21.3% for the six months ended
December 31, 1996.
Depreciation and amortization expense as a percent of net operating
revenue was 5.5% for the six months ended December 31, 1997 and 1996. Interest
expense as a percent of net operating revenue decreased to 2.7% for the six
months ended December 31, 1997 from 3.4% for the six months ended December 31,
1996 due to the replacement of subordinated debt with bank debt in fiscal 1997,
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 was 3.8% for the six months ended December 31, 1997 and 1996.
Minority interest expense as a percent of net operating revenue increased to .2%
for the six months ended December 31, 1997 from 0.0% for the six months ended
December 31, 1996 which was primarily attributable to the fiscal 1997
acquisitions.
Net income as a percent of net operating revenue was 5.7% for the six
months ended December 31, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $222.3
million, including cash and cash equivalents of $14.9 million. The ratio of
current assets to current liabilities was 2.4 to 1.0 at December 31, 1997
compared to 2.2 to 1.0 at June 30, 1997.
17
<PAGE> 18
The Company's cash requirements excluding acquisitions have
historically been funded by cash generated from operations. Cash generated from
operations was $50.4 million and $72.8 million for the six months ended December
31, 1997 and 1996, respectively. The decrease is primarily due to a fiscal 1998
increase in accounts receivable at three hospitals, which the Company is
addressing.
Capital expenditures excluding acquisitions for the six months ended
December 31, 1997 and 1996 were $68.2 million and $35.9 million, respectively.
Capital expenditures may vary from year to year depending on facility
improvements and service enhancements undertaken by the owned 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 $130 million to $150 million, including the
replacement hospital and excluding acquisitions.
Effective February 1, 1998, the Company and Universal Health Services,
Inc. (UHS) formed Valley Health System LLC and Summerlin Hospital Medical Center
LLC. UHS contributed Valley Hospital Medical Center and the Company contributed
Desert Springs Hospital in exchange for equity interests of 72.5 percent and
27.5 percent, respectively, in Valley Health System LLC. The Company paid
approximately $23 million in exchange for a 26.1 percent interest in Summerlin
Hospital Medical Center LLC. There will be working capital settlements to
maintain the respective ownership interests of each party. The Company will
account for its investment in the joint ventures using the equity method of
accounting and anticipates a $15 to $17 million charge after taxes related to
the writedown of goodwill.
During the six months ended December 31, 1997, the Company acquired one
hospital and affiliated health care entities for approximately $90.1 million and
sold the remaining interest in an acute care hospital in Papillion, Nebraska.
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 the hospital in Nebraska in fiscal 1997.
The Company intends to acquire additional acute care facilities, and is
actively seeking out such acquisitions. The Company is continually evaluating
various structures to serve existing local healthcare delivery markets. These
structures could include joint ventures with other hospital owners or
physicians.
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 December 31, 1997, the Company had $450
million outstanding under its Revolving Line of Credit.
18
<PAGE> 19
On November 26, 1997, the Company entered into a five-year $150 million
End Loaded Lease Financing (ELLF) agreement to provide a financing option for
future acquisitions and/or construction. This financing option is in addition to
the Company's $850 million revolving line of credit. The ELLF interest rate
margins and facility fee rates are substantially the same as the Company's
revolving line of credit. All lease payments under the agreement are guaranteed
by the Company. In connection with the ELLF, the Company amended its unsecured
revolving line of credit to extend the credit agreement expiration date by six
months to November 26, 2002 to coincide with the expiration date of the ELLF.
On December 15, 1997, the Company redeemed its remaining $2.2 million
11.875% Senior Subordinated Notes at 1.05875%.
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.
On November 10, 1997, the Company's stockholders approved an amendment
to increase the number of authorized shares of common stock from 100,000,000 to
300,000,000. The additional shares of common stock are identical to the shares
of common stock previously authorized.
On November 10, 1997, the Company's stockholders approved an amendment
to the Company's qualified employee stock purchase plan to increase the number
of shares reserved for issuance from 3,000,000 to 3,750,000.
On November 10, 1997, the Company's stockholders approved the 1997
Stock Option Plan. Under the plan, non-qualified and incentive stock options to
purchase common stock may be granted to executive officers, other key employees
and consultants. Stock options are generally granted at an exercise price equal
to the fair market value at the date of grant and are exercisable over a period
not to exceed ten years. The number of shares initially reserved for issuance
was 3,000,000. No further options will be granted pursuant to the Company's
Restated Stock Option Plan.
The Internal Revenue Service (IRS) is in the process of conducting
examinations of the Company's federal income tax returns for the fiscal years
ended June 30, 1993 through 1995. The Company has reached a settlement with the
IRS in connection with its examination of the Company's federal income tax
returns for the fiscal years ended June 30, 1990 through 1992. The settlement
did not have a material effect on the Company's results of operations or
financial position.
19
<PAGE> 20
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 million each from
fixed-rate to floating-rate through September 16, 2001 and December 1, 2001,
respectively. In addition, the Company entered into interest rate swap
agreements which effectively convert $100 million and $200 million of
floating-rate borrowings to fixed-rate borrowings through December 12, 2001 and
March 20, 2002, respectively. During the six months ended December 31, 1997, the
Company entered into interest rate swap agreements which effectively convert two
borrowings of $50 million each from floating-rate to fixed-rate through December
30, 2002. For the six months ended December 31, 1997 and 1996, the Company
received a weighted average rate of 5.8% and 5.8%, respectively, and paid a
weighted average rate of 6.1% and 5.6%, respectively. In January 1998, the
Company entered into interest rate swap agreements effective March 1998 to
replace its existing $100 million and $200 million agreements. The new five year
agreements allow the Company to convert $100 million and $200 million of
floating-rate borrowings to fixed-rate borrowings with effective rates of 5.71%
and 5.97%, respectively, and allow the counterparty a one-time option at the end
of the initial term to extend the swaps for an incremental five years.
In June 1993, the 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 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 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes reporting standards
for operating segment information disclosed in annual financial statements and
in interim financial reports issued to shareholders. Under existing accounting
standards, the Company has reported its operations as one line of business since
its inception because substantially all of its revenues and operating profits
have been derived from its acute care hospitals, affiliated health care entities
and health care management services. The Company will adopt SFAS No. 131
beginning with its fiscal year ending June 30, 1999 and is
20
<PAGE> 21
presently evaluating the new standard in order to determine its effect, if any,
on the way the Company might report its operations in the future.
In 1997, the FASB issued SFAS No. 128, "Earnings per Share." Statement
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is similar to
the previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform to the Statement 128
requirements.
GENERAL
The federal Medicare program and state Medicaid programs accounted for
approximately 55% and 56% of gross patient service revenue for the years ended
June 30, 1997 and 1996, 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 are 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.
The 1997 Act also includes a managed care option which could direct Medicare
patients to only managed care providers. 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.
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
managed care, may adversely affect hospitals' ability, including the Company's
hospitals, to maintain their current rate of net revenue growth and operating
margins.
The Company's acute care hospitals, like most acute care hospitals
21
<PAGE> 22
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 was
approximately 39.3% and 36.2% of gross patient service revenue for the six
months ended December 31, 1997 and 1996, respectively.
The complexity of the Medicare and Medicaid regulations, increases in
managed care, hospital personnel turnover, the dependence of hospitals on
physician documentation of medical records and the subjective judgment involved
complicates the billing and collections of accounts receivable by hospitals.
There can be no assurance that this complexity will not negatively impact the
Company's future cash flow or results of operations.
The Company's historical financial trend has been favorably impacted by
the Company's ability to successfully acquire acute care hospitals. While the
Company believes that trends in the health care industry described above may
create possible future acquisition opportunities, there can be no assurances
that it can continue to maintain its current growth rate through hospital
acquisitions and successfully integrate the hospitals into its system.
The Company's owned hospitals accounted for 91% of the Company's net
operating revenue for the six months ended December 31, 1997 compared to 90% for
the six months ended December 31, 1996. Carolinas Hospital System, Desert
Springs Hospital, Flowers Hospital, Gadsden Regional Medical Center and Lutheran
Hospital of Indiana accounted for approximately 46% of the Company's net
operating revenue for the six months ended December 31, 1997.
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.
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
22
<PAGE> 23
possible violations, could have a material adverse effect on the Company.
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 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.
23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 10, 1997, the annual meeting of the stockholders of the
Company was held to elect directors, to vote on four other proposals presented
by the Company, and to ratify the selection of the Company's independent
auditors. Voting results are given below.
Election of Directors. The following were elected to serve as directors until
the next annual meeting of the stockholders:
<TABLE>
<CAPTION>
Name For Against Abstain
---- --- ------- -------
<S> <C> <C> <C>
Sam A. Brooks, Jr. 61,194,715 32,357
Russell L. Carson 61,200,552 26,520
James E. Dalton, Jr. 61,197,473 29,599
C. Edward Floyd, M.D. 61,197,555 29,517
Joseph C. Hutts 61,197,559 29,513
Kenneth J. Melkus 61,201,405 25,667
Thomas J. Murphy, Jr 61,201,555 29,517
Rocco A. Ortenzio 61,174,243 52,829
S. Douglas Smith 61,197,323 29,749
Colleen Conway Welch, Ph.D. 61,182,038 45,034
</TABLE>
Increase in Authorized Shares. Stockholders approved an increase in the shares
authorized for issuance by the Company, to a total of 300,000,000 shares of
common stock. The votes cast were as follows: 42,229,134 shares voted for the
increase; 18,967,411 shares against; and 30,527 shares abstained.
Amendment of Article NINTH of Certificate of Incorporation. The amendment of
Article NINTH, to provide for indemnification of the Company's officers,
directors, employees and agents to the fullest extent permitted by the Delaware
General Corporation Law, was approved. Votes cast on this matter were:
60,514,447 shares voted for; 678,003 shares against; and 34,622 shares
abstained.
Adoption of 1997 Stock Option Plan. Stockholders adopted a new stock option plan
which will be the vehicle for future employee stock option grants. A total of
40,488,947 votes were cast for approval of this Plan; 13,821,323 shares
against; 80,355 shares abstained; and 6,836,447 broker non-vote shares.
Amendment of Employee Stock Purchase Plan. Stockholders approved an amendment
which will increase the shares authorized for issuance under this Plan to a
total of 3,750,000 shares. Voting on this matter was as follows: 50,906,971
shares for; 3,423,333 shares against; 24,320 shares abstained; and 6,851,448
broker non-vote shares.
Independent Auditor. The accounting firm of Ernst & Young was ratified as the
Company's independent auditors for the fiscal year ending June 30, 1998, with
61,181,300 shares voted for ratification; 28,575 shares voted against; and
17,197 shares abstained.
24
<PAGE> 25
ITEM 5. OTHER INFORMATION.
The following information is included in this Item 5 by the Registrant
in lieu of a filing on Form 8-K.
INFORMATION REQUIRED BY ITEM 2 OF FORM 8-K:
Formation of Joint Ventures
Effective February 1, 1998, subsidiaries of the Registrant and
Universal Health Services, Inc. ("UHS") completed the formation of two joint
ventures for the operation of acute care hospitals in Las Vegas, Nevada. In the
first transaction, a subsidiary of the Registrant contributed substantially all
of the assets used in the operation of Desert Springs Hospital (a 241-bed
facility) and a UHS subsidiary contributed substantially all of the assets
comprising Valley Hospital (a 400-bed facility), to a newly-formed limited
liability company ("LLC1"). The Registrant and UHS subsidiary received interests
of 27.5% and 72.5%, respectively, in LLC1 in exchange for their respective asset
contributions.
Simultaneously, an affiliate of UHS contributed the assets of
Summerlin Hospital (a 148-bed facility) to a newly formed limited liability
company ("LLC2"), and a subsidiary of Registrant paid to the UHS affiliate
approximately $23 million in cash. As a result, the affiliate of UHS and the
subsidiary of Registrant own interests in LLC2 of approximately 73.9% and 26.1%
respectively.
The Quorum and UHS subsidiaries may make additional cash contributions
to LLC1 and LLC2 with respect to adjustments of inventories, accounts
receivable, accounts payable, and accrued liabilities pertaining to the
contributed facilities. Such cash contributions are intended to maintain the
respective ownership interests of each party in LLC1 and LLC2.
A UHS subsidiary will manage the operations of LLC1 and LLC2 pursuant
to a management agreement with each joint venture. The UHS subsidiary will
receive an annual fee equal to $1.5 million plus one percent (1%) of the
combined annual net revenues of LLC1 and LLC2 in excess of $300 million. Each
LLC has a five person governing board, on which the Registrant has two
representatives. Certain actions of each LLC require concurrence of the
Registrant's representatives.
The Registrant has the right to put its interest in LLC1 and LLC2 for
the fair market value of such interest upon the occurrence of certain events,
including failure to achieve certain financial operating results, failure to
make minimum cash distributions and failure to comply with certain provisions
of the management agreement. Such put rights generally begin to be exercisable
in March, 1999.
INFORMATION REQUIRED BY ITEM 7 OF FORM 8-K:
Item 7 (b) The following pro forma financial information for the
Registrant is included with this report immediately following the signatures
section:
Pro Forma Condensed Consolidated Financial Statements (Unaudited)
Pro Forma Condensed Consolidated Statement of Income for the Year
Ended June 30, 1997 (Unaudited)
25
<PAGE> 26
Pro Forma Condensed Consolidated Statement of Income for the Six
Months Ended December 31, 1997 (Unaudited)
Pro Forma Condensed Consolidated Balance Sheet at December 31, 1997
(Unaudited)
Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
Item 7 (c) Exhibits
The required exhibits for the transaction are listed on the Exhibit
Index to this Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits filed as part of this Report are listed in
the Index to Exhibits immediately following the pro forma financials.
(b) Reports on Form 8-K No Reports on Form 8-K were filed during the
quarter ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUORUM HEALTH GROUP, INC.
(Registrant)
Date: February 16, 1998 By: /s/ Steve B. Hewett
--------------------
Steve B. Hewett
Vice President/Chief
Financial Officer
26
<PAGE> 27
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Effective February 1, 1998, the Company divested Desert Springs
Hospital in exchange for a 27.5 percent equity interest in Valley Health System
LLC (a joint venture combining Desert Springs Hospital and Universal Health
System, Inc.'s Valley Medical Center).
The unaudited pro forma condensed consolidated statements of income
for the year ended June 30, 1997 and the six months ended December 31, 1997
give effect to the divestiture of Desert Springs Hospital, as if such
transaction had been completed as of the beginning of the periods presented.
The pro forma results of operations do not take into account the operations of
the joint venture. The pro forma condensed consolidated statements of income
for the year ended June 30, 1997 and the six months ended December 31, 1997 are
based on the historical financial statements of the Company and its
subsidiaries.
The unaudited pro forma condensed consolidated balance sheet as of
December 31, 1997 gives effect to the disposition of Desert Springs Hospital as
if such transaction had been completed as of December 31, 1997.
The pro forma condensed consolidated financial information presented
herein does not purport to represent what the Company's results of operations
or financial position would have been had such transaction in fact occurred at
the beginning of the period presented or to project the Company's results of
operations in any future period. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the audited financial
statements, including the notes thereto, of the Company.
27
<PAGE> 28
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
------------------------------------------------
HOSPITAL
DISPOSITION
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(a) CONSOLIDATED
------ -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net operating revenue ............................... $1,413,946 $ (122,182) $1,291,764
Operating expenses .................................. 1,063,112 (94,199) 968,913
Provision for doubtful accounts ..................... 89,919 (14,695) 75,224
Depreciation and amortization ....................... 75,134 (6,353) 68,781
Interest expense .................................... 45,601 (22) 45,579
Minority interest ................................... 741 60 801
---------- ---------- ----------
Income before income taxes and
extraordinary item ............................... 139,439 (6,973) 132,466
Provision for income taxes .......................... 55,357 (2,441) 52,916
---------- ---------- ----------
Income before extraordinary item .................... $ 84,082 $ (4,532) $ 79,550
========== ========== ==========
Income before extraordinary item per common share:
Basic $ 1.14 $ 1.08
========== ==========
Diluted $ 1.11 $ 1.05
========== ==========
Weighted average common shares:
Basic 73,442 73,442
========== ==========
Diluted 75,677 75,677
========== ==========
</TABLE>
28
<PAGE> 29
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1997
-------------------------------------------
HOSPITAL
DISPOSITION
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(a) CONSOLIDATED
------ -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net operating revenue .............................. $801,716 $(61,420) $740,296
Operating expenses ................................. 598,658 (49,445) 549,213
Provision for doubtful accounts .................... 59,884 (5,113) 54,771
Depreciation and amortization ...................... 44,062 (3,763) 40,299
Interest expense ................................... 21,229 21,229
Minority interest .................................. 1,976 35 2,011
-------- -------- --------
Income before income taxes ......................... 75,907 (3,134) 72,773
Provision for income taxes ......................... 30,135 (1,097) 29,038
-------- -------- --------
Net income ......................................... $ 45,772 $ (2,037) $ 43,735
======== ======== ========
Income per common share:
Basic $ 0.62 $ 0.59
======== ========
Diluted $ 0.60 $ 0.57
======== ========
Weighted average common shares:
Basic 74,309 74,309
======== ========
Diluted 76,726 76,726
======== ========
</TABLE>
29
<PAGE> 30
QUORUM HEALTH GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
HOSPITAL
DISPOSITION
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(b) CONSOLIDATED
------ -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,929 $ $ 14,929
Accounts receivable, less allowance for
doubtful accounts 289,472 (28,548) 260,924
Supplies 34,432 (3,862) 30,570
Other 46,287 2,116 48,403
----------- ----------- -----------
Total current assets 385,120 (30,294) 354,826
Property, plant and equipment, at cost 917,179 (78,090) 839,089
Less accumulated depreciation 218,032 (16,651) 201,381
----------- ----------- -----------
699,147 (61,439) 637,708
Cost in excess of net assets acquired, net 190,860 (65,009) 125,851
Unallocated purchase price 72,151 72,151
Investment in affiliates 9,779 (409) 9,370
Investment in joint venture 131,585 131,585
Other 60,231 (3,537) 56,694
----------- ----------- -----------
Total assets $ 1,417,288 $ (29,103) $ 1,388,185
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 84,951 $ (12,225) $ 72,726
Accrued salaries and benefits 66,715 (1,863) 64,852
Other current liabilities 9,939 9,939
Current maturities of long-term debt 1,200 1,200
----------- ----------- -----------
Total current liabilities 162,805 (14,088) 148,717
Long-term debt, less current maturities 602,886 602,886
Deferred income taxes 28,778 28,778
Other liabilities and deferrals 28,188 (50) 28,138
Minority interests in consolidated entities 26,195 35 26,230
Commitments and contingencies
Stockholders' equity:
Common stock 745 745
Additional paid-in capital 277,237 277,237
Retained earnings 290,454 (15,000) 275,454
----------- ----------- -----------
Total stockholders' equity 568,436 (15,000) 553,436
=========== =========== ===========
Total liabilities and stockholders' equity $ 1,417,288 $ (29,103) $ 1,388,185
=========== =========== ===========
</TABLE>
30
<PAGE> 31
QUORUM HEALTH GROUP, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(a) Reflects the elimination of revenues and expenses as a result of the
disposition.
(b) Reflects the elimination of assets and liabilities divested as a result
of the disposition, the contribution of such assets and liabilities to
acquire an investment in the joint venture and the related writedown of
goodwill of approximately $15 million after taxes.
31
<PAGE> 32
Exhibit Index
Exhibit No.
4.1 Participation Agreement dated November 26, 1997, among Quorum
ELF, Inc. As Construction Agent and Lessee; First Security
Bank, National Association as Owner Trustee under the Quorum
Real Estate Trust 1997-1; Various other banks and lending
institutions which are parties from time to time as Holders or
Lenders; and First Union National Bank as Agent for the
Lenders and Holders.
4.2 Second Amendment to Credit Agreement, dated November 26,
1997, by and among Quorum Health Group, Inc. as Borrower,
Lenders as referred to in the Credit Agreement, and First
Union National Bank as Agent for the Lenders.
10.1 Contribution Agreement dated as of February 1, 1998, by and
between Valley Hospital Medical System, Inc. and NC-DSH, Inc.
10.2 Limited Liability Company Agreement of Valley Health System
LLC, dated as of January 19, 1998.
10.3 Contribution Agreement dated as of February 1, 1998, by and
among Summerlin Hospital Medical Center, L.P., UHS Holding
Company, Inc. And NC-DSH, Inc.
10.4 Limited Liability Company Agreement of Summerlin Hospital
Medical Center LLC, dated as of January 19, 1998.
Exhibits to the Exhibits have been omitted but Registrant shall furnish
supplementally a copy of any omitted exhibit to the Commission upon request.
32
<PAGE> 1
EXHIBIT 4.1
PARTICIPATION AGREEMENT
Dated as of November 26, 1997
among
QUORUM ELF, INC.,
as the Construction Agent and as the Lessee,
THE VARIOUS PARTIES HERETO
FROM TIME TO TIME,
as the Guarantors
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually, except as expressly
stated herein, but solely as the Owner Trustee
under the Quorum Real Estate Trust 1997-1,
THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE
PARTIES HERETO FROM TIME TO TIME, as the Holders,
THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE
PARTIES HERETO FROM TIME TO TIME, as the Lenders,
and
FIRST UNION NATIONAL BANK,
as the Agent for the Lenders
and respecting the Security Documents,
as the Agent for the Lenders and the Holders,
to the extent of their interests
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. THE LOANS...................................................................1
SECTION 2. HOLDER ADVANCES.............................................................2
SECTION 3. SUMMARY OF TRANSACTIONS.....................................................2
3.1. Operative Agreements..........................................................2
3.2. Property Purchase.............................................................2
3.3. Construction of Improvements; Commencement of Basic Rent Obligations..........3
SECTION 4. THE CLOSINGS................................................................3
4.1. Initial Closing Date..........................................................3
4.2. Initial Closing Date; Property Closing Dates; Acquisition Advances;
Construction Advances.........................................................3
SECTION 5. FUNDING OF ADVANCES; CONDITIONS PRECEDENT;
REPORTING REQUIREMENTS ON COMPLETION DATE;
THE LESSEE'S DELIVERY OF NOTICES; RESTRICTIONS ON LIENS.....................3
5.1. General.......................................................................3
5.2. Procedures for Funding........................................................4
5.3. Conditions Precedent for the Lessor, the Agent, the Lenders and the
Holders Relating to the Initial Closing Date and the Advance of Funds
for the Acquisition of a Property.............................................6
5.4. Conditions Precedent for the Lessor, the Agent, the Lenders and the
Holders Relating to the Advance of Funds after the Acquisition Advance.......11
5.5. Additional Reporting and Delivery Requirements on Completion Date and
on Construction Period Termination Date......................................13
5.6. The Construction Agent Delivery of Construction Budget Modifications.........14
5.7. Restrictions on Liens........................................................14
5.8. Additional Availability under Commitments and Holder Commitments.............15
5.9. Joinder Agreement Requirements...............................................15
SECTION 6. REPRESENTATIONS AND WARRANTIES.............................................16
6.1. Representations and Warranties of the Holders................................16
6.2. Representations and Warranties of the Borrower...............................17
6.3. Representations and Warranties of the Construction Agent and the Lessee......20
6.4. Representations and Warranties of the Agent..................................25
6B.1. Guaranty of Payment and Performance.........................................26
6B.2. Obligations Unconditional...................................................26
6B.3. Modifications...............................................................27
6B.4. Waiver of Rights............................................................28
6B.5. Reinstatement...............................................................28
6B.6. Remedies....................................................................29
6B.7. Limitation of Guaranty......................................................29
6B.9. Release of Guarantors.......................................................29
SECTION 7. PAYMENT OF CERTAIN EXPENSES................................................30
7.1. Transaction Expenses.........................................................30
7.2. [Intentionally Omitted]......................................................31
7.3. Certain Fees and Expenses....................................................31
7.4. Unused Fee...................................................................31
7.5. Administrative Fee...........................................................32
SECTION 8. OTHER COVENANTS AND AGREEMENTS.............................................32
8.1. Cooperation with the Construction Agent or the Lessee........................32
8.2. Covenants of the Owner Trustee and the Holders...............................32
8.3. Credit Party Covenants, Consent and Acknowledgment...........................34
8.4. Sharing of Certain Payments..................................................37
8.5. Grant of Easements, etc......................................................37
8.6. Appointment by the Agent, the Lenders, the Holders and the Owner Trustee.....38
8.7. Collection and Allocation of Payments and Other Amounts......................38
8.8. Release of Properties, etc...................................................42
SECTION 9. CREDIT AGREEMENT AND TRUST AGREEMENT.......................................42
9.1. The Construction Agent's and the Lessee's Credit Agreement Rights............42
9.2. The Construction Agent's and the Lessee's Trust Agreement Rights.............43
SECTION 10. TRANSFER OF INTEREST......................................................43
10.1. Restrictions on Transfer....................................................43
10.2. Effect of Transfer..........................................................44
SECTION 11. INDEMNIFICATION...........................................................44
11.1. General Indemnity...........................................................44
11.2. General Tax Indemnity.......................................................47
11.3. Increased Costs, Illegality, etc............................................51
11.4. Funding/Contribution Indemnity..............................................53
SECTION 12. MISCELLANEOUS.............................................................54
12.1. Survival of Agreements......................................................54
12.2. No Broker, etc..............................................................54
12.3. Notices.....................................................................54
12.4. Counterparts................................................................56
12.5. Terminations, Amendments, Waivers, Etc.; Unanimous Vote Matters.............56
12.6. Headings, etc...............................................................57
12.7. Parties in Interest.........................................................58
12.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
VENUE; ARBITRATION..........................................................58
12.9. Severability................................................................60
12.10. Liability Limited..........................................................60
12.11. Rights of the Credit Parties...............................................61
12.12. Further Assurances.........................................................62
12.13. Calculations under Operative Agreements....................................62
12.14. Confidentiality............................................................62
12.15. Financial Reporting/Tax Characterization...................................63
</TABLE>
<PAGE> 3
EXHIBITS
A - Form of Requisition - Sections 4.2, 5.2, 5.3 and 5.4
B - Form of Outside Counsel Opinion for the Lessee - Section 5.3(j)
C - [Intentionally Omitted]
D - Form of Officer's Certificate - Section 5.3(aa)
E - Form of Officer's Certificate - Section 5.3(bb)
F - Form of Officer's Certificate - Section 5.3(dd)
G - Form of Officer's Certificate - Section 5.3(ee)
H - Form of Outside Counsel Opinion for the Owner Trustee - Section 5.3(ff)
I - Form of Outside Counsel Opinion for the Lessee - Section 5.3(gg)
J - Form of Officer's Certificate - Section 5.5
K - Description of Material Litigation - Section 6.3(d)
L - Form of Joinder Agreement - Section 5.9
M - States of Incorporation/Formation and Principal Place of Business of Each
Guarantor - Section 6.3(i)
N - Form of Officer's Compliance Certificate - Section 8.3(k)
Appendix A - Rules of Usage and Definitions
<PAGE> 4
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT dated as of November 26, 1997 (as amended,
modified, extended, supplemented, restated and/or replaced from time to time,
this "Agreement") is by and among QUORUM ELF, INC., a Delaware corporation (the
"Lessee" or the "Construction Agent"); the various parties hereto from time to
time as guarantors (subject to the definition of Guarantors in Appendix A
hereto, individually, a "Guarantor" and collectively, the "Guarantors"); FIRST
SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not
individually (in its individual capacity, the "Trust Company"), except as
expressly stated herein, but solely as the Owner Trustee under the Quorum Real
Estate Trust 1997-1 (the "Owner Trustee", the "Borrower" or the "Lessor"); the
various banks and other lending institutions which are parties hereto from time
to time as lenders (subject to the definition of Lenders in Appendix A hereto,
individually, a "Lender" and collectively, the "Lenders"); FIRST UNION NATIONAL
BANK, a national banking association, as the agent for the Lenders and
respecting the Security Documents, as the agent for the Lenders and the Holders,
to the extent of their interests (in such capacity, the "Agent"); the various
banks and other lending institutions which are parties hereto from time to time
as holders of certificates issued with respect to the Quorum Real Estate Trust
1997-1 (subject to the definition of Holders in Appendix A hereto, individually,
a "Holder" and collectively, the "Holders"). Capitalized terms used but not
otherwise defined in this Agreement shall have the meanings set forth in
Appendix A hereto.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto hereby agree as follows:
SECTION 1. THE LOANS.
Subject to the terms and conditions of this Agreement and in reliance
on the representations and warranties of each of the parties hereto contained
herein or made pursuant hereto, the Lenders have agreed to make Loans to the
Lessor from time to time in an aggregate principal amount of up to the aggregate
amount of the Commitments of the Lenders in order for the Lessor to acquire the
Properties and certain Improvements, to develop and construct certain
Improvements in accordance with the Agency Agreement and the terms and
provisions hereof to construct Modifications and for the other purposes
described herein, and in consideration of the receipt of proceeds of the Loans,
the Lessor will issue the Notes. The Loans shall be made and the Notes shall be
issued pursuant to the Credit Agreement. Pursuant to Section 5 of this Agreement
and Section 2 of the Credit Agreement, the Loans will be made to the Lessor from
time to time at the request of (a) the Construction Agent in consideration for
the Construction Agent agreeing for the benefit of the Lessor, pursuant to the
Agency Agreement, to acquire the Properties, to acquire the Equipment, to
construct certain Improvements and to cause the Lessee to lease the Properties,
each in accordance with the Agency Agreement and the other Operative Agreements
or (b) the Lessee in consideration for the Lessee agreeing for the benefit of
the Lessor, pursuant to the Lease, to construct Modifications in accordance with
the Lease and the other Operative Agreements. The Loans and the obligations of
the
<PAGE> 5
Lessor under the Credit Agreement shall be secured by the Collateral.
SECTION 2. HOLDER ADVANCES.
Subject to the terms and conditions of this Agreement and in reliance
on the representations and warranties of each of the parties hereto contained
herein or made pursuant hereto, on each date Advances are requested to be made
in accordance with Section 5 hereof, each Holder shall make a Holder Advance on
a pro rata basis to the Lessor with respect to the Quorum Real Estate Trust
1997-1 based on its Holder Commitment in an amount in immediately available
funds such that the aggregate of all Holder Advances on such date shall be three
percent (3%) of the amount of the Requested Funds on such date; provided, that
no Holder shall be obligated for any Holder Advance in excess of its pro rata
share of the Available Holder Commitment. The aggregate amount of Holder
Advances shall be up to the aggregate amount of the Holder Commitments. No
prepayment or any other payment with respect to any Advance shall be permitted
such that the Holder Advance with respect to such Advance is less than three
percent (3%) of the outstanding amount of such Advance, except in connection
with termination or expiration of the Term or in connection with the exercise of
remedies relating to the occurrence of a Lease Event of Default. The
representations, warranties, covenants and agreements of the Holders herein and
in the other Operative Agreements are several, and not joint or joint and
several.
SECTION 3. SUMMARY OF TRANSACTIONS.
3.1. OPERATIVE AGREEMENTS.
On the date hereof, each of the respective parties hereto and thereto
shall execute and deliver this Agreement, the Lease, each applicable Ground
Lease, the Agency Agreement, the Credit Agreement, the Notes, the Trust
Agreement, the Certificates, the Security Agreement, each applicable Mortgage
Instrument and such other documents, instruments, certificates and opinions of
counsel as agreed to by the parties hereto.
3.2. PROPERTY PURCHASE.
On each Property Closing Date and subject to the terms and conditions
of this Agreement (a) the Holders will each make a Holder Advance in accordance
with Sections 2 and 5 of this Agreement and the terms and provisions of the
Trust Agreement, (b) the Lenders will each make Loans in accordance with
Sections 1 and 5 of this Agreement and the terms and provisions of the Credit
Agreement, (c) the Lessor will purchase and acquire good and marketable title to
or ground lease pursuant to a Ground Lease the applicable Property, in each case
pursuant to a Deed, Bill of Sale or Ground Lease, as the case may be, and grant
the Agent a lien on such Property by execution of the required Security
Documents, (d) the Agent, the Lessee and the Lessor shall execute and deliver a
Lease Supplement relating to such Property and (e) the Term shall commence with
respect to such Property.
3.3. CONSTRUCTION OF IMPROVEMENTS; COMMENCEMENT OF BASIC RENT
OBLIGATIONS.
Construction Advances will be made with respect to particular
Improvements to be constructed and with respect to ongoing Work regarding the
Equipment and construction of particular Improvements, in each case, pursuant to
the terms and conditions of this Agreement, the Agency Agreement or Section
11.1(c) of the Lease. The Construction Agent (or, respecting Section 11.1(c) of
the Lease, the Lessee) will act
<PAGE> 6
as a construction agent on behalf of the Lessor respecting the Work regarding
the Equipment, the construction of such Improvements (or, respecting Section
11.1(c) of the Lease, the Modifications) and the expenditures of the
Construction Advances related to the foregoing. The Construction Agent shall
promptly notify the Lessor and the Agent upon Completion of the Improvements and
the Lessee shall commence to pay Basic Rent as of the Rent Commencement Date.
The Lessee shall promptly notify the Lessor and the Agent upon completion of
each Modification.
SECTION 4. THE CLOSINGS.
4.1. INITIAL CLOSING DATE.
All documents and instruments required to be delivered on the Initial
Closing Date shall be delivered at the offices of Moore & Van Allen, PLLC,
Charlotte, North Carolina, or at such other location as may be determined by the
Lessor, the Agent and the Lessee.
4.2. INITIAL CLOSING DATE; PROPERTY CLOSING DATES; ACQUISITION
ADVANCES; CONSTRUCTION ADVANCES.
The Construction Agent (or, respecting Section 11.1(c) of the Lease,
the Lessee) shall deliver to the Agent a requisition (a "Requisition"), in the
form attached hereto as EXHIBIT A or in such other form as is satisfactory to
the Agent, in its reasonable discretion, in connection with (a) the Transaction
Expenses and other fees, expenses and disbursements payable, pursuant to Section
7.1, by the Lessor and (b) each Acquisition Advance pursuant to Section 5.3 and
(c) each Construction Advance pursuant to Section 5.4.
SECTION 5. FUNDING OF ADVANCES; CONDITIONS PRECEDENT;
REPORTING REQUIREMENTS ON COMPLETION DATE;
THE LESSEE'S DELIVERY OF NOTICES; RESTRICTIONS ON LIENS.
5.1. GENERAL.
(a) To the extent funds have been advanced to the Lessor as
Loans by the Lenders and to the Lessor as Holder Advances by the
Holders, the Lessor will use such funds from time to time in accordance
with the terms and conditions of this Agreement and the other Operative
Agreements (i) at the direction of the Construction Agent to acquire
the Properties in accordance with the terms of this Agreement, the
Agency Agreement and the other Operative Agreements, (ii) to make
Advances to the Construction Agent to permit the acquisition, testing,
engineering, installation, development, construction, modification,
design, and renovation, as applicable, of the Properties (or components
thereof) in accordance with the terms of the Agency Agreement and the
other Operative Agreements, (iii) to make Advances to the Lessee to
fund Modifications pursuant to Section 11.1(c) of the Lease, and (iv)
to pay Transaction Expenses, fees, expenses and other disbursements
payable by the Lessor under Sections 7.1(a) and 7.1(b).
(b) In lieu of the payment of interest on the Loans and
Holder Yield on the Holder Advances on any Scheduled Interest Payment
Date with respect to any Property during the period prior to the Rent
Commencement Date with respect to such Property, (i) each Lender's Loan
shall automatically be increased by the amount of interest accrued and
unpaid on such Loan for such period (except to the extent that at any
time such increase would cause such Lender's Loan to exceed
<PAGE> 7
such Lender's Available Commitment, in which case the Lessee shall pay
such excess amount to such Lender in immediately available funds on the
date such Lender's Available Commitment was exceeded), and (ii) each
Holder's Holder Advance shall automatically be increased by the amount
of Holder Yield accrued and unpaid on such Holder Advance for such
period (except to the extent that at any time such increase would cause
the Holder Advance of such Holder to exceed such Holder's Available
Holder Commitment, in which case the Lessee shall pay such excess
amount to such Holder in immediately available funds on the date the
Available Holder Commitment of such Holder was exceeded). Such
increases in a Lender's Loan and a Holder's Holder Advance shall occur
without any disbursement of funds by any Person.
5.2. PROCEDURES FOR FUNDING.
(a) The Construction Agent (or, respecting Section 11.1(c) of
the Lease, the Lessee) shall designate the date for Advances hereunder
in accordance with the terms and provisions hereof; provided, however,
it is understood and agreed that no more than two (2) Advances may be
requested during any calendar month. Not less than (i) three (3)
Business Days prior to the Initial Closing Date and (ii) three (3)
Business Days prior to the date on which any Acquisition Advance or
Construction Advance is to be made, the Construction Agent shall
deliver to the Agent, (A) with respect to the Initial Closing Date and
each Acquisition Advance, a Requisition as described in Section 4.2
hereof (including without limitation a legal description of the Land, a
schedule of the Improvements, if any, and a schedule of the Equipment,
if any, acquired or to be acquired on such date, and a schedule of the
Work, if any, to be performed, each of the foregoing in a form
reasonably acceptable to the Agent) and (B) with respect to each
Construction Advance, a Requisition identifying (among other things)
the Property to which such Construction Advance relates.
(b) Each Requisition shall: (i) be irrevocable, (ii) request
funds in an amount that is not in excess of the total aggregate of the
Available Commitments plus the Available Holder Commitments at such
time, and (iii) request that the Holders make Holder Advances and that
the Lenders make Loans to the Lessor for the payment of Transaction
Expenses, Property Acquisition Costs (in the case of an Acquisition
Advance) or other Property Costs (in the case of a Construction
Advance) that have previously been incurred or are to be incurred on
the date of such Advance to the extent such were not subject to a prior
Requisition, in each case as specified in the Requisition.
(c) Subject to the satisfaction of the conditions precedent
set forth in Sections 5.3 or 5.4, as applicable, on each Property
Closing Date or the date on which the Construction Advance is to be
made, as applicable, (i) the Lenders shall make Loans based on their
respective Lender Commitments to the Lessor in an aggregate amount
equal to ninety-seven percent (97%) of the Requested Funds specified in
any Requisition (ratably between the Tranche A Lenders and the Tranche
B Lenders with the Tranche A Lenders funding eighty-five percent (85%)
of the Requested Funds and the Tranche B Lenders funding twelve percent
(12%) of the Requested Funds), up to an aggregate principal amount
equal to the aggregate of the Available Commitments, (ii) each Holder
shall make a Holder Advance based on its Holder Commitment in an amount
such that the aggregate of all Holder Advances at such time shall be
three percent (3%) of the balance of the Requested Funds specified in
such Requisition, up to the aggregate advanced amount equal to the
aggregate of the Available Holder Commitments; and (iii) the
<PAGE> 8
total amount of such Loans and Holder Advances made on such date shall
(x) be used by the Lessor to pay Property Costs and/or Transaction
Expenses within three (3) Business Days of the receipt by the Lessor of
such Advance or (y) be advanced by the Lessor on the date of such
Advance to the Construction Agent or the Lessee to pay Property Costs,
as applicable. Notwithstanding that the Operative Agreements state that
Advances shall be directed to the Lessor, each Advance shall in fact be
directed to the Agent (for the benefit of the Lessor) and applied by
the Agent (for the benefit of the Lessor) pursuant to the requirements
imposed on the Lessor under the Operative Agreements. The Construction
Agent or the Lessee, as the case may be, may retain up to five percent
(5%) of any Advance to the extent such retained amount is thereafter
applied to the Property Cost of the applicable Property on or prior to
the date of the next Advance regarding such Property and in any event
such amount shall be applied prior to the Expiration Date.
(d) With respect to an Advance obtained by the Lessor to pay
for Property Costs and/or Transaction Expenses or other costs payable
under Section 7.1 hereof and not expended by the Lessor for such
purpose on the date of such Advance, such amounts shall be held by the
Lessor (or the Agent on behalf of the Lessor) until the applicable
closing date or, if such closing date does not occur within three (3)
Business Days of the date of the Lessor's receipt of such Advance,
shall be applied regarding the applicable Advance to repay the Lenders
and the Holders and, subject to the terms hereof, and of the Credit
Agreement and the Trust Agreement, shall remain available for future
Advances. Any such amounts held by the Lessor (or the Agent on behalf
of the Lessor) shall be subject to the lien of the Security Agreement.
(e) All Operative Agreements which are to be delivered to the
Lessor, the Agent, the Lenders or the Holders shall be delivered to the
Agent, on behalf of the Lessor, the Agent, the Lenders or the Holders,
and such items (except for Notes, Certificates and chattel paper
originals, with respect to which in each case there shall be only one
original) shall be delivered with originals sufficient for the Lessor,
the Agent, each Lender and each Holder. All other items which are to be
delivered to the Lessor, the Agent, the Lenders or the Holders shall be
delivered to the Agent, on behalf of the Lessor, the Agent, the Lenders
or the Holders, and such other items shall be held by the Agent. To the
extent any such other items are requested in writing from time to time
by the Lessor, any Lender or any Holder, the Agent shall provide a copy
of such item to the party requesting it.
(f) Notwithstanding the completion of any closing under this
Agreement pursuant to Sections 5.3 or 5.4, each condition precedent in
connection with any such closing may be subsequently enforced by the
Agent (unless such has been expressly waived in writing by the Agent).
5.3. CONDITIONS PRECEDENT FOR THE LESSOR, THE AGENT, THE LENDERS AND
THE HOLDERS RELATING TO THE INITIAL CLOSING DATE AND THE ADVANCE
OF FUNDS FOR THE ACQUISITION OF A PROPERTY.
The obligations (i) on the Initial Closing Date of the Lessor, the
Agent, the Lenders and the Holders to enter into the transactions contemplated
by this Agreement, including without limitation the obligation to execute and
deliver the applicable Operative Agreements to which each is a party on the
Initial Closing Date, (ii) on the Initial Closing Date of the Holders to make
Holder Advances, and of the Lenders to make Loans in order to pay Transaction
Expenses, fees, expenses and other disbursements
<PAGE> 9
payable by the Lessor under Section 7.1(a) of this Agreement and (iii) on a
Property Closing Date for the purpose of providing funds to the Lessor necessary
to pay the Transaction Expenses, fees, expenses and other disbursements payable
by the Lessor under Section 7.1(b) of this Agreement and to acquire or ground
lease a Property (an "Acquisition Advance"), in each case (with regard to the
foregoing Sections 5.3(i), (ii) and (iii)) are subject to the satisfaction or
waiver of the following conditions precedent on or prior to the Initial Closing
Date or the applicable Property Closing Date, as the case may be (To the extent
such conditions precedent require the delivery of any agreement, certificate,
instrument, memorandum, legal or other opinion, appraisal, commitment, title
insurance commitment, lien report or any other document of any kind or type,
such shall be in form and substance satisfactory to the Agent, in its reasonable
discretion. Notwithstanding the foregoing, the obligations of each party shall
not be subject to any conditions contained in this Section 5.3 which are
required to be performed by such party.):
(a) the correctness of the representations and warranties
contained herein, in each of the other Operative Agreements and each
certificate delivered pursuant to any Operative Agreement (including
without limitation the Incorporated Representations and Warranties) on
each such date of the parties to this Agreement;
(b) the performance by the parties to this Agreement of their
respective agreements contained herein and in the other Operative
Agreements to be performed by them on or prior to each such date;
(c) the Agent shall have received a fully executed counterpart
copy of the Requisition, appropriately completed;
(d) title to each such Property shall conform to the
representations and warranties set forth in Section 6.3(l) hereof;
(e) the Construction Agent shall have delivered to the Agent a
good standing certificate for the Construction Agent in the state where
each such Property is located, the Deed with respect to the Land and
existing Improvements (if any), a copy of the Ground Lease (if any),
and a copy of the Bill of Sale with respect to the Equipment (if any),
respecting such of the foregoing as are being acquired or ground leased
on each such date with the proceeds of the Loans and Holder Advances or
which have been previously acquired or ground leased with the proceeds
of the Loans and Holder Advances;
(f) there shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Agreements and
no Default or Event of Default under any of the Operative Agreements
will have occurred after giving effect to the Advance requested by each
such Requisition;
(g) the Construction Agent shall have delivered to the Agent
title insurance commitments to issue policies respecting each such
Property in favor of the Lessor and the Agent from a title insurance
company acceptable to the Agent, with such title exceptions thereto as
are acceptable to the Agent;
(h) the Construction Agent shall have delivered to the Agent a
Phase I environmental site assessment respecting each such Property
prepared by an independent recognized professional acceptable to the
Agent;
<PAGE> 10
(i) the Construction Agent shall have delivered to the Agent a
survey (with a flood hazard certification) respecting each such
Property prepared by an independent recognized professional acceptable
to the Agent;
(j) unless such an opinion has previously been delivered with
respect to a particular state, the Construction Agent shall have caused
to be delivered to the Agent a legal opinion in the form attached
hereto as EXHIBIT B or in such other form as is acceptable to the Agent
with respect to local law real property issues respecting the state in
which each such Property is located addressed to the Lessor, the Agent,
the Lenders and the Holders, from counsel located in the state where
each such Property is located, prepared by counsel acceptable to the
Agent;
(k) the Agent shall be satisfied that the acquisition, ground
leasing and/or holding of each such Property and the execution of the
Mortgage Instrument and the other Security Documents will not
materially and adversely affect the rights of the Lessor, the Agent,
the Holders or the Lenders under or with respect to the Operative
Agreements;
(l) the Construction Agent shall have delivered to the Agent
invoices for, or other reasonably satisfactory evidence of, the various
Transaction Expenses and other fees, expenses and disbursements
referenced in Sections 7.1(a) or 7.1(b) of this Agreement, as
appropriate;
(m) the Construction Agent shall have caused to be delivered
to the Agent a Mortgage Instrument (in such form as is acceptable to
the Agent, with revisions as necessary to conform to applicable state
law), Lessor Financing Statements and Lender Financing Statements
respecting each such Property, all fully executed and in recordable
form;
(n) the Lessee shall have delivered to the Agent with respect
to each such Property a Lease Supplement and a memorandum (or short
form lease) regarding the Lease and such Lease Supplement (such
memorandum or short form lease to be in the form attached to the Lease
as EXHIBIT B or in such other form as is acceptable to the Agent, with
modifications as necessary to conform to applicable state law, and in
form suitable for recording);
(o) with respect to each Acquisition Advance, the sum of the
Available Commitment plus the Available Holder Commitment (after
deducting the Unfunded Amount, if any, and after giving effect to the
Acquisition Advance) will be sufficient to pay all amounts payable
therefrom;
(p) if any such Property is subject to a Ground Lease, the
Construction Agent shall have caused a lease memorandum (or short form
lease) to be delivered to the Agent for such Ground Lease;
(q) counsel (acceptable to the Agent) for the ground lessor of
each such Property subject to a Ground Lease shall have issued to the
Lessor, the Agent, the Lenders and the Holders, its opinion;
(r) the Construction Agent shall have delivered to the Agent a
preliminary Construction Budget for each such Property, if applicable;
(s) the Construction Agent shall have provided evidence to the
Agent of insurance with respect to each such Property as provided in
the Lease;
<PAGE> 11
(t) subject to Section 5.5 of this Agreement, the
Construction Agent shall have caused an Appraisal regarding each such
Property to be provided to the Agent from an appraiser satisfactory to
the Agent;
(u) all necessary (or in the opinion of the Agent or its
counsel, advisable) Governmental Actions with respect to each such
Property, in each case required by any law or regulation enacted,
imposed or adopted on or prior to each such date or by any change in
facts or circumstances on or prior to each such date, shall have been
obtained or made and be in full force and effect;
(v) the Construction Agent shall cause (i) Uniform Commercial
Code lien searches, tax lien searches and judgment lien searches
regarding the Lessee to be conducted (and copies thereof to be
delivered to the Agent) in such jurisdictions as determined by the
Agent by a nationally recognized search company acceptable to the Agent
and (ii) the liens referenced in such lien searches which are
objectionable to the Agent to be either removed or otherwise handled in
a manner satisfactory to the Agent;
(w) all taxes, fees and other charges in connection with the
execution, delivery, recording, filing and registration of the
Operative Agreements and/or documents related thereto shall have been
paid or provisions for such payment shall have been made to the
satisfaction of the Agent;
(x) no action or proceeding shall have been instituted, nor
shall any action or proceeding be overtly threatened, before any
Governmental Authority, nor shall any order, judgment or decree have
been issued or proposed to be issued by any Governmental Authority or
to set aside, restrain, enjoin or prevent the full performance of this
Agreement, any other Operative Agreement or any transaction
contemplated hereby or thereby which, individually or in the aggregate,
has or could reasonably be expected to have a Material Adverse Effect;
(y) in the opinion of the Agent and its respective counsel,
the transactions contemplated by the Operative Agreements do not and
will not violate any Legal Requirements and do not and will not subject
the Lessor, the Lenders, the Agent or the Holders to any adverse
regulatory prohibitions, constraints, penalties or fines;
(z) each of the Operative Agreements to be entered into on
such date shall have been duly authorized, executed and delivered by
the parties thereto, and shall be in full force and effect, and the
Agent shall have received a fully executed copy of each of the
Operative Agreements;
(aa) as of the Initial Closing Date only, the Agent shall have
received an Officer's Certificate, dated as of the Initial Closing
Date, of the Lessee in the form attached hereto as EXHIBIT D or in such
other form as is acceptable to the Agent stating that (i) each and
every representation and warranty of each Credit Party contained in the
Operative Agreements to which it is a party is true and correct on and
as of the Initial Closing Date; (ii) no Default or Event of Default has
occurred and is continuing under any Operative Agreement; (iii) each
Operative Agreement to which any Credit Party is a party is in full
force and effect with respect to it; and (iv) each Credit Party has
duly performed and complied with all covenants, agreements and
conditions contained herein or in any Operative Agreement required to
be performed or complied with by it on or
<PAGE> 12
prior to the Initial Closing Date;
(bb) as of the Initial Closing Date only, the Agent shall have
received (i) a certificate of the Secretary or an Assistant Secretary
of each Credit Party, dated as of the Initial Closing Date, in the form
attached hereto as EXHIBIT E or in such other form as is acceptable to
the Agent attaching and certifying as to (1) the resolutions of the
Board of Directors of such Credit Party duly authorizing the execution,
delivery and performance by such Credit Party of each of the Operative
Agreements to which it is or will be a party, (2) the articles of
incorporation of such Credit Party certified as of a recent date by the
Secretary of State of its state of incorporation and its by-laws and
(3) the incumbency and signature of persons authorized to execute and
deliver on behalf of such Credit Party the Operative Agreements to
which it is or will be a party and (ii) a good standing certificate (or
local equivalent) from the respective states where such Credit Party is
incorporated and where the principal place of business of such Credit
Party is located as to its good standing in each such state;
(cc) as of the Initial Closing Date only, there shall not have
occurred any material adverse change in the consolidated assets,
liabilities, operations, business or condition (financial or otherwise)
of the Guarantors (on a consolidated basis) from that set forth in the
most recent audited consolidated financial statements of the Guarantors
which have been provided to the Agent;
(dd) as of the Initial Closing Date only, the Agent shall have
received an Officer's Certificate of the Lessor dated as of the Initial
Closing Date in the form attached hereto as EXHIBIT F or in such other
form as is acceptable to the Agent, stating that (i) each and every
representation and warranty of the Lessor contained in the Operative
Agreements to which it is a party is true and correct on and as of the
Initial Closing Date, (ii) each Operative Agreement to which the Lessor
is a party is in full force and effect with respect to it and (iii) the
Lessor has duly performed and complied with all covenants, agreements
and conditions contained herein or in any Operative Agreement required
to be performed or complied with by it on or prior to the Initial
Closing Date;
(ee) as of the Initial Closing Date only, the Agent shall have
received (i) a certificate of the Secretary, an Assistant Secretary,
Trust Officer or Vice President of the Trust Company in the form
attached hereto as EXHIBIT G or in such other form as is acceptable to
the Agent, attaching and certifying as to (A) the signing resolutions
duly authorizing the execution, delivery and performance by the Lessor
of each of the Operative Agreements to which it is or will be a party,
(B) its articles of association or other equivalent charter documents
and its by-laws, as the case may be, certified as of a recent date by
an appropriate officer of the Trust Company and (C) the incumbency and
signature of persons authorized to execute and deliver on its behalf
the Operative Agreements to which it is a party and (ii) a good
standing certificate from the Office of the Comptroller of the
Currency;
(ff) as of the Initial Closing Date only, counsel for the
Lessor acceptable to the Agent shall have issued to the Lessee, the
Holders, the Lenders and the Agent its opinion in the form attached
hereto as EXHIBIT H or in such other form as is reasonably acceptable
to the Agent;
(gg) as of the Initial Closing Date only, the Construction
Agent shall have caused to be delivered to the Agent a legal opinion in
the form attached
<PAGE> 13
hereto as EXHIBIT I or in such other form as is acceptable to the
Agent, addressed to the Lessor, the Agent, the Lenders and the Holders,
from counsel acceptable to the Agent; and
(hh) as of the Initial Closing Date only, the Construction
Agent shall cause (i) tax lien searches and judgment lien searches
regarding each Credit Party to be conducted (and copies thereof to be
delivered to the Agent) in such jurisdictions as determined by the
Agent by a nationally recognized search company acceptable to the Agent
and (ii) the liens referenced in such lien searches which are
objectionable to the Agent to be either removed or otherwise handled in
a manner satisfactory to the Agent.
5.4. CONDITIONS PRECEDENT FOR THE LESSOR, THE AGENT, THE LENDERS AND
THE HOLDERS RELATING TO THE ADVANCE OF FUNDS AFTER THE ACQUISITION
ADVANCE.
The obligations of the Holders to make Holder Advances, and the Lenders
to make Loans in connection with all requests for Advances subsequent to the
acquisition of a Property including without limitation amounts respecting
Section 11.1(c) of the Lease (and to pay the Transaction Expenses, fees,
expenses and other disbursements payable by the Lessor under Section 7.1 of this
Agreement in connection therewith) are subject to the satisfaction or waiver of
the following conditions precedent (To the extent such conditions precedent
require the delivery of any agreement, certificate, instrument, memorandum,
legal or other opinion, appraisal, commitment, title insurance commitment, lien
report or any other document of any kind or type, such shall be in form and
substance satisfactory to the Agent, in its reasonable discretion.
Notwithstanding the foregoing, the obligations of each party shall not be
subject to any conditions contained in this Section 5.4 which are required to be
performed by such party.):
(a) the correctness on such date of the representations and
warranties contained herein, in each of the other Operative Agreements
and each certificate delivered pursuant to any Operative Agreement
(including without limitation the Incorporated Representations and
Warranties) of the parties to this Agreement;
(b) the performance by the parties to this Agreement of their
respective agreements contained herein and in the other Operative
Agreements to be performed by them on or prior to each such date;
(c) the Agent shall have received a fully executed
counterpart of the Requisition, appropriately completed;
(d) based upon the applicable Construction Budget which shall
satisfy the requirements of this Agreement, the Available Commitments
and the Available Holder Commitment (after deducting the Unfunded
Amount) will be sufficient to complete the Improvements;
(e) there shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Agreements and
no Default or Event of Default under any of the Operative Agreements
will have occurred after giving effect to the Construction Advance
requested by the applicable Requisition;
(f) the title insurance policy delivered in connection with
the requirements of Section 5.3(g) shall provide for (or shall be
endorsed to provide for) insurance in an amount at least equal to the
maximum total Property Cost
<PAGE> 14
indicated by the Construction Budget referred to in subparagraph (d)
above and there shall be no title change or exception objectionable to
the Agent;
(g) the Construction Agent shall have delivered to the Agent
copies of the Plans and Specifications for the applicable Improvements
or, respecting Section 11.1(c) of the Lease, the Lessee shall have
delivered to the Agent documentation describing each applicable
Modification;
(h) the Construction Agent shall have delivered to the Agent
invoices for, or other reasonably satisfactory evidence of, any
Transaction Expenses and other fees, expenses and disbursements
referenced in Section 7.1(b) that are to be paid with the Advance;
(i) all consents, licenses, permits, authorizations,
assignments and building permits required as of such date by all Legal
Requirements or pursuant to the terms of any contract, indenture,
instrument or agreement for the acquisition, ownership, construction,
completion, occupancy, operation, leasing or subleasing of each such
Property shall have been obtained and shall be in full force and
effect, except to the extent that the failure to so obtain any such
item at such time, individually or in the aggregate, shall not and
could not reasonably be expected to have a Material Adverse Effect;
(j) the Construction Agent or the Lessee, as the case may be,
shall have delivered, or caused to be delivered to the Agent, invoices,
Bills of Sale or other documents acceptable to the Agent, in each case
with regard to any Equipment or other components of such Property then
being acquired with the proceeds of the Loans and Holder Advances and
naming the Lessor as purchaser and transferee;
(k) all taxes, fees and other charges in connection with the
execution, delivery, recording, filing and registration of the
Operative Agreements shall have been paid or provisions for such
payment shall have been made to the satisfaction of the Agent;
(l) all necessary (or in the opinion of the Agent or its
counsel, advisable) Governmental Actions, in each case required by any
law or regulation enacted, imposed or adopted on or prior to the date
hereof or by any change in fact or circumstances on or prior to the
date hereof, shall have been obtained or made and be in full force and
effect;
(m) no action or proceeding shall have been instituted, nor
shall any action or proceeding be overtly threatened, before any
Governmental Authority, nor shall any order, judgment or decree have
been issued or proposed to be issued by any Governmental Authority or
to set aside, restrain, enjoin or prevent the full performance of this
Agreement, any other Operative Agreement or any transaction
contemplated hereby or thereby which, individually or in the aggregate,
has or could reasonably be expected to have a Material Adverse Effect;
and
(n) in the opinion of the Agent and its counsel, the
transactions contemplated by the Operative Agreements do not and will
not violate any Legal Requirements and do not and will not subject the
Lessor, the Lenders, the Agent or the Holders to any adverse regulatory
prohibitions, constraints, penalties or fines.
<PAGE> 15
5.5. ADDITIONAL REPORTING AND DELIVERY REQUIREMENTS ON COMPLETION DATE
AND ON CONSTRUCTION PERIOD TERMINATION DATE.
On or prior to the Completion Date for each Property, the Construction
Agent shall deliver to the Agent an Officer's Certificate in the form attached
hereto as EXHIBIT J or in such other form as is acceptable to the Agent
specifying (a) the address for such Property, (b) the Completion Date for such
Property, (c) the aggregate Property Cost for such Property, (d) detailed,
itemized documentation supporting the asserted Property Cost figures, (e) all
Improvements have been made in accordance with all applicable Legal
Requirements, in a good and workmanlike manner and otherwise in full compliance
with the standards and practices of the Construction Agent with respect to
properties and improvements owned by the Construction Agent (except, in each
case, to the extent that deviation from the foregoing requirements and/or
standards, individually or in the aggregate, shall not and could not be
reasonably expected to have a Material Adverse Effect), (f) all Equipment (if
any) that has been acquired with the proceeds of the Loans and Holder Advances
has been installed and is operational and all Improvements have been made in
accordance with all applicable Legal Requirements in a good and workmanlike
manner in accordance with the Plans and Specifications (except to the extent
that any deviation from the Plans and Specifications could not reasonably be
expected to impair the value, utility, economic life or operation of such
Property) and otherwise in full compliance with the standards and practices of
the Construction Agent with respect to equipment, properties and improvements
owned by the Construction Agent and (g) all consents, licenses, permits,
authorizations, assignments and building permits required as of such date by all
Legal Requirements or pursuant to the terms of any contract, indenture,
instrument or agreement for the acquisition, ownership, construction,
completion, occupancy, operation, leasing or subleasing of such Property have
been obtained and are in full force and effect, except to the extent that the
failure to so obtain, individually or in the aggregate, shall not and could not
reasonably be expected to have a Material Adverse Effect. The Agent shall have
the right to contest the information contained in such Officer's Certificate.
Furthermore, on or prior to the Completion Date for each Property, the
Construction Agent shall deliver or cause to be delivered to the Agent (unless
previously delivered to the Agent) originals of the following, each of which
shall be in form and substance acceptable to the Agent, in its reasonable
discretion: (u) a title insurance endorsement regarding the title insurance
policy delivered in connection with the requirements of Section 5.3(g), but only
to the extent such endorsement is necessary to provide for insurance in an
amount at least equal to the maximum total Property Cost and, if endorsed, the
endorsement shall not include a title change or exception objectionable to the
Agent, (v) an as-built survey for such Property, (w) insurance certificates
respecting such Property as required hereunder and under the Lease Agreement,
(x) a memorandum (or short form) of the Lease and such Lease Supplement (in form
suitable for recording), (y) if requested by the Agent, amendments to the Lessor
Financing Statements executed by the appropriate parties and (z) an Appraisal
regarding such Property provided, however, such an Appraisal shall not be
required if, as of such Completion Date, the Agent has previously received
Appraisal(s) pursuant to Section 5.3(t) for Properties that are then subject to
the Lease and that have an aggregate value (as established by such Appraisal(s))
of at least $30,000,000. In addition, on the Completion Date for such Property
the Construction Agent covenants and agrees that the recording fees, documentary
stamp taxes or similar amounts required to be paid in connection with the
related Mortgage Instrument shall be paid in an amount required by applicable
law, subject, however, to the obligations of the Lenders and the Holders to fund
such costs to the extent required pursuant to Section 7.1.
<PAGE> 16
6. THE CONSTRUCTION AGENT DELIVERY OF CONSTRUCTION BUDGET
MODIFICATIONS.
The Construction Agent covenants and agrees to deliver to the Agent
each month notification of any modification to any Construction Budget regarding
any Property if such modification increases the cost to construct such Property;
provided no Construction Budget may be increased unless (a) the title insurance
policies referenced in Section 5.3(g) are also modified or endorsed, if
necessary, to provide for insurance in an amount that satisfies the requirements
of Section 5.4(f) of this Agreement and (b) after giving effect to any such
amendment, the Construction Budget remains in compliance with the requirements
of Section 5.4(d) of this Agreement.
5.7. RESTRICTIONS ON LIENS.
On each Property Closing Date, the Construction Agent shall cause each
Property acquired by the Lessor on such date to be free and clear of all Liens
except those referenced in Sections 6.3(q)(i) and 6.3(q)(ii). On each date a
Property is either sold to a third party in accordance with the terms of the
Operative Agreements or, pursuant to Section 22.1(a) of the Lease Agreement,
retained by the Lessor, the Lessee shall cause such Property to be free and
clear of all Liens (other than (a) Lessor Liens, (b) such other Liens that are
expressly set forth as title exceptions on the title commitment issued under
Section 5.3(g) with respect to such Property, to the extent such title
commitment has been approved by the Agent and (c) Liens pursuant to Section 8.5
with respect to such Property which have been requested by Lessee and approved
by the Agent).
5.8 ADDITIONAL AVAILABILITY UNDER COMMITMENTS AND HOLDER
COMMITMENTS.
To the extent the Lessee exercises its Purchase Option and purchases
one or more Properties from time to time prior to the Expiration Date, an amount
equal to that portion of the Property Cost for each Property so purchased
payable to (a) the Lenders shall be added ratably to the Available Commitment of
each Lender and (b) the Holders shall be added ratably to the Available Holder
Commitment of each Holder; provided, in no event shall the Available
Commitments, Commitments, Available Holder Commitments and/or the Holder
Commitments ever exceed the amounts therefor on the Initial Closing Date. All
amounts so added to the Available Commitments and the Available Holder
Commitments shall be available for Advances.
5.9 JOINDER AGREEMENT REQUIREMENTS.
Each Wholly-Owned Entity formed or acquired subsequent to the Initial
Closing Date shall become a Guarantor and shall satisfy the following conditions
within thirty (30) days after the formation or acquisition of such Wholly-Owned
Entity:
(a) such Wholly-Owned Entity shall execute and deliver to the
Agent a Joinder Agreement in the form attached hereto as EXHIBIT L;
(b) such Wholly-Owned Entity shall have delivered to the
Agent (x) an Officer's Certificate of such Wholly-Owned Entity in the
form attached hereto as EXHIBIT D, (y) a certificate of the Secretary
or an Assistant Secretary of such Wholly-Owned Entity in the form
attached hereto as EXHIBIT E and (z) good standing certificates (or
local equivalent) from the respective states where such Wholly-Owned
Entity is incorporated and where the principal place of business of
such Wholly-Owned Entity is located as to its good standing in each
such state;
(c) such Wholly-Owned Entity shall have delivered to the
Agent an
<PAGE> 17
opinion of counsel (acceptable to the Agent) in the form attached
hereto as EXHIBIT I; and
(d) the Agent shall have received such other documents,
certificates and information as the Agent shall have reasonably
requested.
5.10 MAINTENANCE OF QUORUM ELF, INC. AS A WHOLLY-OWNED ENTITY.
From the Initial Closing Date and thereafter until such time as all
obligations of all Credit Parties under the Operative Agreements have been
satisfied and performed in full, Quorum shall retain the Lessee as a
Wholly-Owned Entity of Quorum.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
6.1. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS.
Effective as of the Initial Closing Date and the date of each Advance,
each Holder severally as to itself, and not jointly, represents and warrants to
each of the other parties hereto that:
(a) It is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation and has
the power and authority to carry on its business as now conducted and
to enter into and perform its obligations under each Operative
Agreement to which it is or is to be a party and each other agreement,
instrument and document to be executed and delivered by it on or before
each Closing Date in connection with or as contemplated by each such
Operative Agreement to which it is or will be a party;
(b) The execution, delivery and performance of each Operative
Agreement to which it is or will be a party have been duly authorized
by all necessary action on its part and neither the execution and
delivery thereof, nor the consummation of the transactions contemplated
thereby, nor compliance by it with any of the terms and provisions
thereof (i) requires or will require any approval of stockholders of,
or approval or consent of any trustee or holder of any indebtedness or
obligations of, such Holder which have not been obtained, (ii)
contravenes or will contravene any Legal Requirement applicable to or
binding on it (except no representation or warranty is made as to any
Legal Requirement to which it may be subject solely as a result of the
activities of any Credit Party) as of the date hereof, (iii)
contravenes or will contravene or result in any breach of or constitute
any default under, or result in the creation of any Lien upon any
Property, any Equipment or any of the Improvements (other than Liens
created by the Operative Agreements) under its articles of
incorporation or other equivalent charter documents, as the case may
be, by-laws or any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement or
other agreement or instrument to which it is a party or by which it or
its properties is bound or affected or (iv) does or will require any
Governmental Action by any Governmental Authority (other than arising
solely by reason of the business, condition or activities of any Credit
Party or any Affiliate thereof or the construction or use of the
Properties, the Equipment or the Improvements);
(c) Each Operative Agreement to which it is or will be a
party has been, or will be, duly executed and delivered by it and
constitutes, or upon execution and delivery will constitute, a legal,
valid and binding obligation against it in accordance with the terms
thereof;
<PAGE> 18
(d) There is no action or proceeding pending or, to its
knowledge, threatened against it before any Governmental Authority that
questions the validity or enforceability of any Operative Agreement to
which it is or will become a party or that, if adversely determined,
would materially and adversely affect its ability to perform its
obligations under the Operative Agreements to which it is a party;
(e) It has not assigned or transferred any of its right,
title or interest in or under the Lease, except in accordance with the
Operative Agreements;
(f) No Default or Event of Default under the Operative
Agreements attributable to it has occurred and is continuing;
(g) It is not a "holding company" or a "subsidiary company"
of a "holding company" or an "affiliate" of a "holding company' or a
"public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or a "public utility" within the
meaning of the Federal Power Act, as amended. It is not an "investment
company" or a company controlled by an "investment company" within the
meaning of the Investment Company Act or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended;
(h) Except as otherwise contemplated by the Operative
Agreements, it shall not, nor shall it direct the Lessor to, use the
proceeds of any Loan or Holder Advance for any purpose other than the
purchase and/or lease of the Properties, the acquisition, installation
and testing of the Equipment, the construction of Improvements and the
payment of Transaction Expenses and the fees, expenses and other
disbursements referenced in Sections 7.1(a) and 7.1(b) of this
Agreement, in each case which accrue prior to the Rent Commencement
Date with respect to a particular Property; and
(i) It is acquiring its interest in the Trust Estate for its
own account for investment and not with a view to any distribution (as
such term is used in Section 2(11) of the Securities Act) thereof, and
if in the future it should decide to dispose of its interest in the
Trust Estate, it understands that it may do so only in compliance with
the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder and any applicable state securities
laws. Neither it nor anyone authorized to act on its behalf has taken
or will take any action which would subject the issuance or sale of any
interest in the Property, the Trust Estate or the Lease to the
registration requirements of Section 5 of the Securities Act. No
representation or warranty contained in this Section 6.1(i) shall
include or cover any action or inaction of any Credit Party or any
Affiliate thereof whether or not purportedly on behalf of the Holders,
the Borrower or any of their Affiliates.
6.2. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
Effective as of the Initial Closing Date and the date of each Advance,
the Trust Company in its individual capacity and as the Borrower, as indicated,
represents and warrants to each of the other parties hereto as follows,
provided, that the representations in the following paragraphs (h), (j) and (k)
are made solely in its capacity as the Borrower:
<PAGE> 19
(a) It is a national banking association and is duly organized
and validly existing and in good standing under the laws of the United
States of America and has the power and authority to enter into and
perform its obligations under the Trust Agreement and (assuming due
authorization, execution and delivery of the Trust Agreement by the
Holders) has the corporate and trust power and authority to act as the
Owner Trustee and to enter into and perform the obligations under each
of the other Operative Agreements to which the Trust Company or the
Owner Trustee, as the case may be, is or will be a party and each other
agreement, instrument and document to be executed and delivered by it
on or before such Closing Date in connection with or as contemplated by
each such Operative Agreement to which the Trust Company or the Owner
Trustee, as the case may be, is or will be a party;
(b) The execution, delivery and performance of each Operative
Agreement to which it is or will be a party, either in its individual
capacity or (assuming due authorization, execution and delivery of the
Trust Agreement by the Holders) as the Owner Trustee, as the case may
be, has been duly authorized by all necessary action on its part and
neither the execution and delivery thereof, nor the consummation of the
transactions contemplated thereby, nor compliance by it with any of the
terms and provisions thereof (i) does or will require any approval or
consent of any trustee or holders of any of its indebtedness or
obligations, (ii) does or will contravene any Legal Requirement
relating to its banking or trust powers, (iii) does or will contravene
or result in any breach of or constitute any default under, or result
in the creation of any Lien upon any of its property under, (A) its
charter or by-laws, or (B) any indenture, mortgage, chattel mortgage,
deed of trust, conditional sales contract, bank loan or credit
agreement or other agreement or instrument to which it is a party or by
which it or its properties may be bound or affected, which
contravention, breach, default or Lien under clause (B) would
materially and adversely affect its ability, in its individual capacity
or as the Owner Trustee, to perform its obligations under the Operative
Agreements to which it is a party or (iv) does or will require any
Governmental Action by any Governmental Authority regulating its
banking or trust powers;
(c) The Trust Agreement and, assuming the Trust Agreement is
the legal, valid and binding obligation of the Holders, each other
Operative Agreement to which the Trust Company or the Owner Trustee, as
the case may be, is or will be a party have been, or on or before such
Closing Date will be, duly executed and delivered by the Trust Company
or the Owner Trustee, as the case may be, and the Trust Agreement and
each such other Operative Agreement to which the Trust Company or the
Owner Trustee, as the case may be, is a party constitutes, or upon
execution and delivery will constitute, a legal, valid and binding
obligation enforceable against the Trust Company or the Owner Trustee,
as the case may be, in accordance with the terms thereof;
(d) There is no action or proceeding pending or, to its
knowledge, threatened to which it is or will be a party, either in its
individual capacity or as the Owner Trustee, before any Governmental
Authority that, if adversely determined, would materially and adversely
affect its ability, in its individual capacity or as the Owner Trustee,
to perform its obligations under the Operative Agreements to which it
is a party or would question the validity or enforceability of any of
the Operative Agreements to which it is or will become a party;
(e) It has not assigned or transferred any of its right, title
or interest in or under the Lease, the Agency Agreement or its interest
in any Property or any
<PAGE> 20
portion thereof, except in accordance with the Operative Agreements;
(f) No Default of Event of Default under the Operative
Agreements attributable to it has occurred and is continuing;
(g) Except as otherwise contemplated in the Operative
Agreements, the proceeds of the Loans and Holder Advances shall not be
applied by the Owner Trustee for any purpose other than the purchase
and/or lease of the Properties, the acquisition, installation and
testing of the Equipment, the construction of Improvements and the
payment of Transaction Expenses and the fees, expenses and other
disbursements referenced in Sections 7.1(a) and 7.1(b) of this
Agreement, in each case which accrue prior to the Rent Commencement
Date with respect to a particular Property;
(h) Neither the Owner Trustee nor any Person authorized by the
Owner Trustee to act on its behalf has offered or sold any interest in
the Trust Estate or the Notes, or in any similar security relating to a
Property, or in any security the offering of which for the purposes of
the Securities Act would be deemed to be part of the same offering as
the offering of the aforementioned securities to, or solicited any
offer to acquire any of the same from, any Person other than, in the
case of the Notes, the Agent, and neither the Owner Trustee nor any
Person authorized by the Owner Trustee to act on its behalf will take
any action which would subject, as a direct result of such action
alone, the issuance or sale of any interest in the Trust Estate or the
Notes to the provisions of Section 5 of the Securities Act or require
the qualification of any Operative Agreement under the Trust Indenture
Act of 1939, as amended;
(i) The Owner Trustee's principal place of business, chief
executive office and office where the documents, accounts and records
relating to the transactions contemplated by this Agreement and each
other Operative Agreement are kept are located at 79 South Main Street,
Salt Lake City, Utah 84111;
(j) The Owner Trustee is not engaged principally in, and does
not have as one (1) of its important activities, the business of
extending credit for the purpose of purchasing or carrying any margin
stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System of the United States), and no part of the
proceeds of the Loans or the Holder Advances will be used by it to
purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any such margin stock or for any
purpose that violates, or is inconsistent with, the provisions of
Regulations G, T, U, or X of the Board of Governors of the Federal
Reserve System of the United States;
(k) The Owner Trustee is not an "investment company" or a
company controlled by an "investment company" within the meaning of the
Investment Company Act;
(l) Each Property is free and clear of all Lessor Liens
attributable to the Owner Trustee in its individual capacity; and
(m) The Owner Trustee, in its trust capacity, is a party to no
documents, instruments or agreements other than the Operative
Agreements to which it is a party and any other documents delivered by
the Owner Trustee in connection with the Operative Agreements.
<PAGE> 21
6.3. REPRESENTATIONS AND WARRANTIES OF EACH CREDIT PARTY.
Effective as of the Initial Closing Date, the date of each Advance, the
date each Wholly-Owned Entity delivers a Joinder Agreement and the Rent
Commencement Date, each Credit Party represents and warrants to each of the
other parties hereto that:
(a) The Incorporated Representations and Warranties are true
and correct (unless such relate solely to an earlier point in time) and
the Lessee has delivered to the Agent the financial statements and
other reports referred to in Article VII of the Lessee Credit
Agreement;
(b) The execution and delivery by each Credit Party of this
Agreement and the other applicable Operative Agreements as of such date
and the performance by each Credit Party of its respective obligations
under this Agreement and the other applicable Operative Agreements are
within the corporate powers of each Credit Party, have been duly
authorized by all necessary corporate action on the part of each Credit
Party (including without limitation any necessary shareholder action),
have been duly executed and delivered, have received all necessary
governmental approval, and do not and will not (i) violate any Legal
Requirement which is binding on any Credit Party or any of their
Subsidiaries, (ii) contravene or conflict with, or result in a breach
of, any provision of the Articles of Incorporation, By-Laws or other
organizational documents of any Credit Party or any of their
Subsidiaries or of any agreement, indenture, instrument or other
document which is binding on any Credit Party or any of their
Subsidiaries or (iii) result in, or require, the creation or imposition
of any Lien (other than pursuant to the terms of the Operative
Agreements) on any asset of any Credit Party or any of their
Subsidiaries;
(c) This Agreement and the other applicable Operative
Agreements executed prior to and as of such date by any Credit Party,
constitute the legal, valid and binding obligation of such Credit
Party, as applicable, enforceable against such Credit Party, as
applicable, in accordance with their terms. Each Credit Party has
executed the various Operative Agreements required to be executed by
such Credit Party as of such date;
(d) Except as described in EXHIBIT K, there are no material
actions, suits or proceedings pending or to our knowledge, threatened
against any Credit Party in any court or before any Governmental
Authority, that concern any Property or any Credit Party's interest
therein or that question the validity or enforceability of any
Operative Agreement to which any Credit Party is a party or the overall
transaction described in the Operative Agreements to which any Credit
Party is a party or that have or could reasonably be expected to have a
Material Adverse Effect;
(e) No Governmental Action by any Governmental Authority or
authorization, registration, consent, approval, waiver, notice or other
action by, to or of any other Person is required to authorize or is
required in connection with (i) the execution, delivery or performance
of any Operative Agreement, (ii) the legality, validity, binding effect
or enforceability of any Operative Agreement, (iii) the acquisition,
ownership, construction or operation of the Properties or (iv) any
Advance, in each case, except those which have been obtained;
(f) Upon the execution and delivery of each Lease Supplement
to the
<PAGE> 22
Lease, (i) the Lessee will have unconditionally accepted the Property
subject to the Lease Supplement and will have a valid and subsisting
leasehold interest in such Property, subject only to the Permitted
Liens, and (ii) no offset will exist with respect to any Rent or other
sums payable under the Lease (except to the extent the rights of offset
may not be waived under the applicable state law);
(g) Except as otherwise contemplated by the Operative
Agreements, (i) the Construction Agent shall not use the proceeds of
any Holder Advance or Loan for any purpose other than the purchase
and/or lease of the Properties, the acquisition, installation and
testing of the Equipment, the construction of Improvements and the
payment of Transaction Expenses and the fees, expenses and other
disbursements referenced in Sections 7.1(a) and 7.1(b) of this
Agreement, in each case which accrue prior to the Rent Commencement
Date with respect to a particular Property and (ii) the Lessee shall
not use the proceeds of any Holder Advance or Loan for any purpose
other than Modifications;
(h) All information heretofore or contemporaneously herewith
furnished by each Credit Party or their Subsidiaries to the Agent, the
Owner Trustee, any Lender or any Holder for purposes of or in
connection with this Agreement and the transactions contemplated hereby
is, and all information hereafter furnished by or on behalf of each
Credit Party or their Subsidiaries to the Agent, the Owner Trustee, any
Lender or any Holder pursuant hereto or in connection herewith will be,
true and accurate in every material respect on the date as of which
such information is dated or certified, and such information, taken as
a whole, does not and will not omit to state any material fact
necessary to make such information, taken as a whole, not misleading;
(i) The principal place of business, chief executive office
and office of the Construction Agent and the Lessee where the
documents, accounts and records relating to the transactions
contemplated by this Agreement and each other Operative Agreement are
kept are located at Wilmington, New Castle County, Delaware. The states
of incorporation/formation and the principal place of business of each
Guarantor are located in the states set forth on EXHIBIT M;
(j) The representations and warranties of each Credit Party
set forth in any of the Operative Agreements are true and correct in
all material respects on and as of the date of such Advance as if made
on and as of such date. Each Credit Party is in all material respects
in compliance with its obligations under the Operative Agreements and
there exists no Default or Event of Default under any of the Operative
Agreements which is continuing and which has not been cured within any
cure period expressly granted under the terms of the applicable
Operative Agreement or otherwise waived in accordance with the
applicable Operative Agreement. No Default or Event of Default will
occur under any of the Operative Agreements as a result of, or after
giving effect to, the Advance requested by the Requisition on the date
of such Advance;
(k) As of each Property Closing Date and the date of each
subsequent Advance only, each Property has been acquired or ground
leased pursuant to a Ground Lease at a price typically paid by Lessee
or its Affiliates for similar assets in its normal course of business,
and all Properties consist of (i) unimproved Land, or (ii) Land and
existing Improvements thereon which Improvements are either suitable
for occupancy at the time of acquisition or ground leasing or will be
renovated and/or modified in accordance with the terms of this
Agreement. Each Property is located at the location set forth on the
applicable Requisition;
<PAGE> 23
(l) As of each Property Closing Date and the date of each
subsequent Advance only, the Lessor has good and marketable fee simple
title to each Property, or, if any Property is the subject of a Ground
Lease, the Lessor will have a valid ground leasehold interest
enforceable against the ground lessor of such Property in accordance
with the terms of such Ground Lease, subject only to (i) such Liens
referenced in Sections 6.3(q)(i) and 6.3(q)(ii) on the applicable
Property Closing Date and (ii) subject to Section 5.7, Permitted Liens
after the applicable Property Closing Date;
(m) As of each Property Closing Date and the date of each
subsequent Advance only, no portion of any Property is located in an
area identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, or if any such Property
is located in an area identified as a special flood hazard area by the
Federal Emergency Management Agency or other applicable agency, then
flood insurance has been obtained for such Property in accordance with
Section 14.2(b) of the Lease and in accordance with the National Flood
Insurance Act of 1968, as amended;
(n) As of each Property Closing Date and the date of each
subsequent Advance only, the Construction Agent has obtained insurance
coverage for each Property which meets the requirements of the Agency
Agreement and the Lease and all of such coverage is in full force and
effect;
(o) As of each Property Closing Date and the date of each
subsequent Advance only, each Property complies with all Legal
Requirements as of such date (including without limitation all zoning
and land use laws and Environmental Laws), except to the extent that
failure to comply therewith, individually or in the aggregate, shall
not and could not reasonably be expected to have a Material Adverse
Effect;
(p) As of each Property Closing Date and the date of each
subsequent Advance only, all utility services and facilities necessary
for the construction and operation of the Improvements and the
installation and operation of the Equipment regarding each Property
(including without limitation gas, electrical, water and sewage
services and facilities) are available at the applicable Land and will
be constructed prior to the Completion Date for such Property;
(q) (i) The Security Documents create, as security for the
Obligations (as such term is defined in the Security Agreement), valid
and enforceable security interests in, and Liens on, all of the
Collateral, in favor of the Agent, for the ratable benefit of the
Lenders and the Holders, as their respective interests appear in the
Operative Agreements, and such security interests and Liens are subject
to no other Liens other than Liens that are expressly set forth as
title exceptions on the title commitment issued under Section 5.3(g)
with respect to the applicable Property, to the extent such title
commitment has been approved by the Agent. Upon recordation of the
Mortgage Instrument in the real estate recording office in the
applicable state identified by the Construction Agent or the Lessee,
the Lien created by the Mortgage Instrument in the real property
described therein shall be a perfected first priority mortgage Lien on
such real property in favor of the Agent, for the ratable benefit of
the Lenders and the Holders, as their respective interests appear in
the Operative Agreements. To the extent that the security interests in
the portion of the Collateral comprised of personal property can be
perfected by filing in the filing offices in the applicable states or
elsewhere
<PAGE> 24
identified by the Construction Agent or the Lessee, upon filing of the
Lender Financing Statements in such filing offices, the security
interests created by the Security Agreement shall be perfected first
priority security interests in such personal property in favor of the
Agent, for the ratable benefit of the Lenders and the Holders, as their
respective interests appear in the Operative Agreements;
(ii) The Lease Agreement creates, as security for the
obligations of the Lessee under the Lease Agreement, valid and
enforceable security interests in, and Liens on, each Property leased
thereunder, in favor of the Lessor, and such security interests and
Liens are subject to no other Liens other than Liens that are expressly
set forth as title exceptions on the title commitment issued under
Section 5.3(g) with respect to the applicable Property, to the extent
such title commitment has been approved by the Agent. Upon recordation
of the memorandum of the Lease Agreement and the memorandum of a Ground
Lease (or, in either case, a short form lease) in the real estate
recording office in the applicable state identified by the Construction
Agent or the Lessee, the Lien created by the Lease Agreement in the
real property described therein shall be a perfected first priority
mortgage Lien on such real property in favor of the Agent, for the
ratable benefit of the Lenders and the Holders, as their respective
interests appear in the Operative Agreements. To the extent that the
security interests in the portion of any Property comprised of personal
property can be perfected by the filing in the filing offices in the
applicable state or elsewhere identified by the Construction Agent or
the Lessee upon filing of the Lessor Financing Statements in such
filing offices, a security interest created by the Lease Agreement
shall be perfected first priority security interests in such personal
property in favor of the Lessor, which rights pursuant to the Lessor
Financing Statements are assigned to the Agent, for the ratable benefit
of the Lenders and the Holders, as their respective interests appear in
the Operative Agreements;
(r) In the aggregate on the Rent Commencement Date therefor,
each particular Property shall constitute (and for the duration of the
Term shall continue to constitute) all of the equipment, facilities,
rights, other personal property and other real property necessary or
appropriate to operate, utilize, maintain and control each Property for
its originally intended purpose in a commercially reasonable manner.
Furthermore, on the Rent Commencement Date therefor each Property shall
be capable of operating on an independent, stand alone basis;
(s) All consents, licenses, permits, authorizations,
assignments and building permits required as of such date by any
applicable Legal Requirement or pursuant to the terms of any contract,
indenture, instrument or agreement have been obtained and are in full
force and effect, except to the extent that the failure to so obtain,
individually or in the aggregate, shall not and could not reasonably be
expected to have a Material Adverse Effect;
(t) Each Property, as improved in accordance with the
applicable Plans and Specifications, shall comply as of the applicable
Completion Date with all Legal Requirements and Insurance Requirements
(including without limitation all zoning and land use laws and
Environmental Laws), except to the extent the failure to comply
therewith, individually or in the aggregate, shall not and could not
reasonably be expected to have a Material Adverse Effect. The Plans and
Specifications have been or (prior to the commencement of construction)
will be prepared in accordance with all applicable Legal Requirements
(including without limitation all applicable Environmental Laws and
building, planning, zoning and
<PAGE> 25
fire codes), except to the extent the failure to comply therewith,
individually or in the aggregate, shall not and could not reasonably be
expected to have a Material Adverse Effect. Upon completion of the
Improvements for each Property in accordance with the applicable Plans
and Specifications, such Improvements will not encroach in any manner
onto any adjoining land (except as permitted by express written
easements, which have been approved by the Agent);
(u) As of each Property Closing Date and the date of each
subsequent Advance only, Acquisition, installation and testing of the
Equipment (if any) and construction of the Improvements (if any) to
such date have been performed in a good and workmanlike manner,
substantially in accordance with the applicable Plans and
Specifications and in compliance with all Insurance Requirements and
Legal Requirements, except to the extent noncompliance, individually or
in the aggregate, with any Legal Requirement shall not and could not
reasonably be expected to have a Material Adverse Effect;
(v) When completed, the Equipment and the Improvements shall
be wholly within any building restriction lines and otherwise in
compliance with all Insurance Requirements and applicable Legal
Requirements (unless consented to by applicable Government Authorities
or where non-compliance, individually or in the aggregate, with any
Legal Requirement shall not and could not reasonably be expected to
have a Material Adverse Effect);
(w) As of the Initial Closing Date, each Wholly-Owned Entity
(formed prior to or on such date) shall have executed this Agreement in
its capacity as a Guarantor; and
(x) There are no Uniform Commercial Code filings of record in
any jurisdiction with respect to Lessee except such Uniform Commercial
Code filings as are required pursuant to the Operative Agreements.
6.4. REPRESENTATIONS AND WARRANTIES OF THE AGENT.
Effective as of the Initial Closing Date and the date of each Advance,
the Agent represents and warrants to each of the other parties hereto that:
(a) It is a national banking association duly organized and
validly existing under the laws of the United States of America and has
the full power and authority to enter into and perform its obligations
under this Agreement and each other Operative Agreement to which it is
or will be a party;
(b) This Agreement and each other Operative Agreement to
which it is a party have been, or when executed and delivered will be,
duly authorized by all necessary corporate action on the part of the
Agent and have been, or on such Closing Date will have been, duly
executed and delivered by the Agent and, assuming the due
authorization, execution and delivery hereof and thereof by the other
parties hereto and thereto, are, or upon execution and delivery thereof
will be, legal, valid and binding obligations of the Agent, enforceable
against it in accordance with their respective terms;
(c) The execution, delivery and performance by the Agent of
this Agreement and each other Operative Agreement to which it is or
will be a party do not, and will not contravene the articles of
association or by-laws or other charter documents of the Agent or any
applicable Law of the State of North
<PAGE> 26
Carolina or of the United States of America governing its activities
and will not contravene any provision of, or constitute a default under
any indenture, mortgage, contract or other instrument of which it is a
party or by which it or its properties are bound, or require any
consent or approval of any Governmental Authority under any applicable
law, rule or regulation of the State of North Carolina or any federal
law, rule or regulation of the United States of America governing its
activities; and
(d) Except as otherwise contemplated by the Operative
Agreements, the Agent shall not, nor shall it direct the Lessor to, use
the proceeds of any Loan or Holder Advance, as the case may be, for any
purpose other than the purchase and/or lease of the Properties, the
acquisition, installation and testing of the Equipment, the
construction of Improvements and the payment of Transaction Expenses
and the fees, expenses and other disbursements referenced in Sections
7.1(a) and 7.1(b) of this Agreement, in each case which accrue prior to
the Rent Commencement Date with respect to a particular Property.
SECTION 6B. GUARANTY
6B.1. GUARANTY OF PAYMENT AND PERFORMANCE.
Subject to Section 6B.7, each Guarantor hereby, jointly and severally,
unconditionally guarantees to each Financing Party the prompt payment and
performance of the Company Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise) or when such
is otherwise to be performed; provided, notwithstanding the foregoing, the
obligations of the Guarantors under this Section 6B shall not constitute a
direct guaranty of the indebtedness of the Lessor evidenced by the Notes but
rather a guaranty of the Company Obligations arising under the Operative
Agreements. This Section 6B is a guaranty of payment and performance and not of
collection and is a continuing guaranty and shall apply to all Company
Obligations whenever arising. All rights granted to the Financing Parties under
this Section 6B shall be subject to the provisions of Section 8.2(h) and 8.6.
6B.2. OBLIGATIONS UNCONDITIONAL.
Each Guarantor agrees that the obligations of the Guarantors hereunder
are absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Operative Agreements, or
any other agreement or instrument referred to therein, or any substitution,
release or exchange of any other guarantee of or security for any of the Company
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety, guarantor or
co-obligor, it being the intent of this Section 6B.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each Guarantor agrees that this Section 6B may be enforced by the
Financing Parties without the necessity at any time of resorting to or
exhausting any other security or collateral and without the necessity at any
time of having recourse to the Notes, the Certificates or any other of the
Operative Agreements or any collateral, if any, hereafter securing the Company
Obligations or otherwise and each Guarantor hereby waives the right to require
the Financing Parties to proceed against the Construction Agent, the Lessee or
any other Person (including without limitation a co-guarantor) or to require the
Financing Parties to pursue any other remedy or enforce any other right. Each
Guarantor further agrees that it hereby waives any and all right
<PAGE> 27
of subrogation, indemnity, reimbursement or contribution against the Lessee and
the Construction Agent or any other Guarantor of the Company Obligations for
amounts paid under this Section 6B until such time as the Loans, Holder
Advances, accrued but unpaid interest, accrued but unpaid Holder Yield and all
other amounts owing under the Operative Agreements have been paid in full.
Without limiting the generality of the waiver provisions of this Section 6B,
each Guarantor hereby waives any rights to require the Financing Parties to
proceed against the Construction Agent, the Lessee or any co-guarantor or to
require Lessor to pursue any other remedy or enforce any other right, including
without limitation, any and all rights under N.C. Gen, Stat. ss. 26-7 through
26-9. Each Guarantor further agrees that nothing contained herein shall prevent
the Financing Parties from suing on any Operative Agreement or foreclosing any
security interest in or Lien on any collateral, if any, securing the Company
Obligations or from exercising any other rights available to it under any
Operative Agreement, or any other instrument of security, if any, and the
exercise of any of the aforesaid rights and the completion of any foreclosure
proceedings shall not constitute a discharge of any Guarantor's obligations
hereunder; it being the purpose and intent of each Guarantor that its
obligations hereunder shall be absolute, independent and unconditional under any
and all circumstances; provided that any amounts due under this Section 6B which
are paid to or for the benefit of any Financing Party shall reduce the Company
Obligations by a corresponding amount (unless required to be rescinded at a
later date). Neither any Guarantor's obligations under this Section 6B nor any
remedy for the enforcement thereof shall be impaired, modified, changed or
released in any manner whatsoever by an impairment, modification, change,
release or limitation of the liability of the Construction Agent or the Lessee
or by reason of the bankruptcy or insolvency of the Construction Agent or the
Lessee. Each Guarantor waives any and all notice of the creation, renewal,
extension or accrual of any of the Company Obligations and notice of or proof of
reliance by any Financing Party upon this Section 6B or acceptance of this
Section 6B. The Company Obligations shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon this Section 6B. All dealings between the Construction Agent, the
Lessee and any of the Guarantors, on the one hand, and the Financing Parties, on
the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon this Section 6B.
6B.3. MODIFICATIONS.
Each Guarantor agrees that (a) all or any part of the security now or
hereafter held for the Company Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) no Financing Party shall have
any obligation to protect, perfect, secure or insure any such security
interests, liens or encumbrances now or hereafter held, if any, for the Company
Obligations or the properties subject thereto; (c) the time or place of payment
of the Company Obligations may be changed or extended, in whole or in part, to a
time certain or otherwise, and may be renewed or accelerated, in whole or in
part; (d) the Construction Agent, the Lessee and any other party liable for
payment under the Operative Agreements may be granted indulgences generally; (e)
any of the provisions of the Notes, the Certificates or any of the other
Operative Agreements may be modified, amended or waived; (f) any party
(including any co-guarantor) liable for the payment thereof may be granted
indulgences or be released; and (g) any deposit balance for the credit of the
Construction Agent, the Lessee or any other party liable for the payment of the
Company Obligations or liable upon any security therefor may be released, in
whole or in part, at, before or after the stated, extended or accelerated
maturity of the Company Obligations, all without notice to or further assent by
such Guarantor, which shall remain bound thereon, notwithstanding any such
exchange, compromise, surrender, extension, renewal,
<PAGE> 28
acceleration, modification, indulgence or release.
6B.4. WAIVER OF RIGHTS.
Each Guarantor expressly waives to the fullest extent permitted by
applicable law: (a) notice of acceptance of this Section 6B by any Financing
Party and of all extensions of credit or other Advances to the Construction
Agent and the Lessee by the Lenders pursuant to the terms of the Operative
Agreements; (b) presentment and demand for payment or performance of any of the
Company Obligations; (c) protest and notice of dishonor or of default with
respect to the Company Obligations or with respect to any security therefor; (d)
notice of any Financing Party obtaining, amending, substituting for, releasing,
waiving or modifying any security interest, lien or encumbrance, if any,
hereafter securing the Company Obligations, or any Financing Party's
subordinating, compromising, discharging or releasing such security interests,
liens or encumbrances, if any; and (e) all other notices to which such Guarantor
might otherwise be entitled. Notwithstanding anything to the contrary herein,
(i) each Guarantor's payments hereunder shall be due five (5) Business Days
after written demand by the Agent for such payment (unless the Company
Obligations are automatically accelerated pursuant to the applicable provisions
of the Operative Agreements in which case the Guarantors' payments shall be
automatically due) and (ii) any modification of the Operative Agreements which
has the effect of increasing the Company Obligations shall not be enforceable
against a Guarantor unless such Guarantor executes the document evidencing such
modification or otherwise reaffirms its guaranty in writing in connection with
such modification.
6B.5. REINSTATEMENT.
The obligations of the Guarantors under this Section 6B shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Company Obligations is rescinded or
must be otherwise restored by any holder of any of the Company Obligations,
whether as a result of any proceedings in bankruptcy or reorganization or
otherwise, and each Guarantor agrees that it will indemnify each Financing Party
on demand for all reasonable costs and expenses (including, without limitation,
reasonable fees of counsel) incurred by any Financing Party in connection with
such rescission or restoration, including without limitation any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.
6B.6. REMEDIES.
The Guarantors agree that, as between the Guarantors, on the one hand,
and each Financing Party, on the other hand, the Company Obligations may be
declared to be forthwith due and payable as provided in the applicable
provisions of the Operative Agreements (and shall be deemed to have become
automatically due and payable in the circumstances provided therein)
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing such Company Obligations from becoming automatically
due and payable) as against any other Person and that, in the event of such
declaration (or such Company Obligations being deemed to have become
automatically due and payable), such Company Obligations (whether or not due and
payable by any other Person) shall forthwith become due and payable by the
Guarantors in accordance with the applicable provisions of the Operative
Agreements.
<PAGE> 29
6B.7. LIMITATION OF GUARANTY.
Notwithstanding any provision to the contrary contained herein or in
any of the other Operative Agreements, to the extent the obligations of any
Guarantor shall be adjudicated to be invalid or unenforceable for any reason
(including without limitation because of any applicable state or federal law
relating to fraudulent conveyances or transfers) then the obligations of such
Guarantor hereunder shall be limited to the maximum amount that is permissible
under applicable law (whether federal or state and including without limitation
the Bankruptcy Code).
Subject to Section 6B.5, upon the satisfaction of the Company
Obligations in full, regardless of the source of payment, the Guarantors'
obligations hereunder shall be deemed satisfied, discharged and terminated other
than indemnifications set forth herein that expressly survive.
6B.8. PAYMENT OF AMOUNTS TO THE AGENT.
Each Financing Party hereby instructs each Guarantor, and each
Guarantor hereby acknowledges and agrees, that until such time as the Loans and
the Holder Advances are paid in full and the Liens evidenced by the Security
Agreement and the Mortgage Instruments have been released any and all Rent
(excluding Excepted Payments which shall be payable to each Holder or other
Person as appropriate) and any and all other amounts of any kind or type under
any of the Operative Agreements due and owing or payable to any Person shall
instead be paid directly to the Agent (excluding Excepted Payments which shall
be payable to each Holder or other Person as appropriate) or as the Agent may
direct from time to time for allocation and distribution in accordance with the
procedures set forth in Section 8.7 hereof.
6B.9. RELEASE OF GUARANTORS.
Each Financing Party hereby agrees that (a) the Agent shall be
permitted to release any Guarantor from its guaranty obligations under this
Section 6B without the consent of any other Financing Party if the release is
granted in connection with a disposition by the applicable Credit Party of all
the shares of stock or partnership or other equity interest in such Guarantor
and such disposition is permitted pursuant to the applicable provisions of the
Operative Agreements and the Lessee Credit Agreement and (b) the Agent shall be
permitted to release any Guarantor from its guaranty obligations under this
Section 6B.9 without the consent of any other Financing Party if the release is
requested by Quorum in connection with a dissolution of the Guarantor, subject
to Quorum providing to the Agent written representations to the effect that such
Guarantor has no business operations and no assets.
SECTION 7. PAYMENT OF CERTAIN EXPENSES.
7.1. TRANSACTION EXPENSES.
(a) The Lessor agrees on the Initial Closing Date, to pay, or
cause to be paid, all Transaction Expenses arising from the Initial
Closing Date, including without limitation all reasonable fees,
expenses and disbursements of the various legal counsels for the Lessor
and the Agent in connection with the transactions contemplated by the
Operative Agreements and incurred in connection with such Initial
Closing Date, the initial fees and expenses of the Owner Trustee due
and payable on such Initial Closing Date, all fees, taxes and expenses
for the recording, registration and filing of documents and all other
reasonable fees, expenses and disbursements incurred in connection with
such Initial Closing
<PAGE> 30
Date; provided, however, the Lessor shall pay such amounts described in
this Section 7.1(a) only if (i) such amounts are properly described in
a Requisition delivered on or before the Initial Closing Date, and (ii)
funds are made available by the Lenders and the Holders in connection
with such Requisition in an amount sufficient to allow such payment. On
the Initial Closing Date after delivery and receipt of the Requisition
referenced in Section 4.2(a) hereof and satisfaction of the other
conditions precedent for such date, the Holders shall make Holder
Advances and the Lenders shall make Loans to the Lessor to pay for the
Transaction Expenses, fees, expenses and other disbursements referenced
in this Section 7.1(a). The Lessee agrees to timely pay all amounts
referred to in this Section 7.1(a) to the extent not paid by the
Lessor.
(b) Assuming no Default or Event of Default shall have
occurred and be continuing and only for the period prior to the Rent
Commencement Date, the Lessor agrees on each Property Closing Date, on
the date of any Construction Advance and on the Completion Date to pay,
or cause to be paid, all Transaction Expenses including without
limitation all reasonable fees, expenses and disbursements of the
various legal counsels for the Lessor and the Agent in connection with
the transactions contemplated by the Operative Agreements and billed in
connection with such Advance or such Completion Date, all amounts
described in Section 7.1(a) of this Agreement which have not been
previously paid, the annual fees and reasonable out-of-pocket expenses
of the Owner Trustee, all fees, expenses and disbursements incurred
with respect to the various items referenced in Sections 5.3, 5.4
and/or 5.5 (including without limitation any premiums for title
insurance policies and charges for any updates to such policies) and
all other reasonable fees, expenses and disbursements in connection
with such Advance or such Completion Date including without limitation
all expenses relating to and all fees, taxes and expenses for the
recording, registration and filing of documents and during the
Commitment Period, all fees, expenses and costs referenced in Sections
7.3(a), 7.3(b), 7.3(d) and 7.4; provided, however, the Lessor shall pay
such amounts described in this Section 7.1(b) only if (i) such amounts
are properly described in a Requisition delivered on the applicable
date and (ii) funds are made available by the Lenders and the Holders
in connection with such Requisition in an amount sufficient to allow
such payment. On each Property Closing Date, on the date of any
Construction Advance or any Completion Date, after delivery of the
applicable Requisition and satisfaction of the other conditions
precedent for such date, the Holders shall make a Holder Advance and
the Lenders shall make Loans to the Lessor to pay for the Transaction
Expenses, fees, expenses and other disbursements referenced in this
Section 7.1(b). The Lessee agrees to timely pay all amounts referred to
in this Section 7.1(b) to the extent not paid by the Lessor.
7.2. [INTENTIONALLY OMITTED].
7.3. CERTAIN FEES AND EXPENSES.
The Lessee agrees to pay or cause to be paid (a) the initial and annual
Owner Trustee's fee and all reasonable expenses of the Owner Trustee and any
co-trustees (including without limitation reasonable counsel fees and expenses)
or any successor owner trustee and/or co-trustee, for acting as the owner
trustee under the Trust Agreement, (b) all reasonable costs and expenses
incurred by the Credit Parties, the Agent, the Lenders, the Holders or the
Lessor in entering into any Lease Supplement and any future amendments,
modifications, supplements, restatements and/or replacements with respect to any
of the Operative Agreements, whether or not such Lease Supplement,
<PAGE> 31
amendments, modifications, supplements, restatements and/or replacements are
ultimately entered into, or giving or withholding of waivers of consents hereto
or thereto, which have been requested by any Credit Party, the Agent, the
Lenders, the Holders or the Lessor, (c) all reasonable costs and expenses
incurred by the Credit Parties, the Agent, the Lenders, the Holders or the
Lessor in connection with any exercise of remedies under any Operative Agreement
or any purchase of any Property by the Construction Agent, the Lessee or any
third party and (d) all reasonable costs and expenses incurred by the Credit
Parties, the Agent, the Lenders, the Holders or the Lessor in connection with
any transfer or conveyance of any Property, whether or not such transfer or
conveyance is ultimately accomplished.
7.4. UNUSED FEE.
During the Commitment Period, the Lessee agrees to pay or to cause to
be paid to the Agent for the account of (a) the Lenders, respectively, an unused
fee (the "Lender Unused Fee") equal to the product of the average daily
Available Commitment of each Lender during the Commitment Period multiplied by
the Applicable Percentage per annum and (b) the Holders, respectively, an unused
fee (the "Holder Unused Fee") equal to the product of the average daily
Available Holder Commitment of each Holder during the Commitment Period
multiplied by the Applicable Percentage per annum. Such Unused Fees shall be
calculated on the basis of a year of three hundred sixty (360) days for the
actual days elapsed and shall be payable quarterly in arrears on each Unused Fee
Payment Date. If all or a portion of any such Unused Fee shall not be paid when
due, such overdue amount shall bear interest, payable by the Lessee on demand,
at a rate per annum equal to the ABR (or in the case of Holder Yield, the ABR
plus the Applicable Percentage for Eurodollar Holder Advances) plus two percent
(2%) from the date of such non-payment until such amount is paid in full (as
well as before judgment).
7.5. ADMINISTRATIVE FEE.
During the Term, the Lessee agrees to pay or to cause to be paid to the
Agent (for the account of the Agent) an administrative fee pursuant to the terms
of the engagement letter dated October 7, 1997 from First Union Capital Markets
Corp. to Quorum.
SECTION 8. OTHER COVENANTS AND AGREEMENTS.
8.1. COOPERATION WITH THE CONSTRUCTION AGENT OR THE LESSEE.
The Holders, the Lenders, the Lessor (at the direction of the Majority
Secured Parties) and the Agent shall, at the expense of and to the extent
reasonably requested by the Construction Agent or the Lessee (but without
assuming additional liabilities on account thereof and only to the extent such
is acceptable to the Holders, the Lenders, the Lessor (at the direction of the
Majority Secured Parties) and the Agent in their reasonable discretion),
cooperate with the Construction Agent or the Lessee in connection with the
Construction Agent or the Lessee satisfying its covenant obligations contained
in the Operative Agreements including without limitation at any time and from
time to time, promptly and duly executing and delivering any and all such
further instruments, documents and financing statements (and continuation
statements related thereto).
<PAGE> 32
8.2. COVENANTS OF THE OWNER TRUSTEE AND THE HOLDERS.
Each of the Owner Trustee and the Holders hereby agrees that so long as
this Agreement is in effect:
(a) Neither the Owner Trustee (in its trust capacity or in
its individual capacity) nor any Holder will create or permit to exist
at any time, and each of them will, at its own cost and expense,
promptly take such action as may be necessary duly to discharge, or to
cause to be discharged, all Lessor Liens on the Properties attributable
to it; provided, however, that the Owner Trustee and the Holders shall
not be required to so discharge any such Lessor Lien while the same is
being contested in good faith by appropriate proceedings diligently
prosecuted so long as such proceedings shall not materially and
adversely affect the rights of the Lessee under the Lease and the other
Operative Agreements or involve any material danger of impairment of
the Liens of the Security Documents or of the sale, forfeiture or loss
of, and shall not interfere with the use or disposition of, any
Property or title thereto or any interest therein or the payment of
Rent;
(b) Without prejudice to any right under the Trust Agreement
of the Owner Trustee to resign (subject to requirement set forth in the
Trust Agreement that such resignation shall not be effective until a
successor shall have agreed to accept such appointment), or the
Holders' rights under the Trust Agreement to remove the institution
acting as the Owner Trustee (after consent to such removal by the Agent
as provided in the Trust Agreement), each of the Owner Trustee and the
Holders hereby agrees with the Lessee and the Agent (i) not to
terminate or revoke the trust created by the Trust Agreement except as
permitted by Article VIII of the Trust Agreement, (ii) not to amend,
supplement, terminate or revoke or otherwise modify any provision of
the Trust Agreement in such a manner as to adversely affect the rights
of any such party without the prior written consent of such party and
(iii) to comply with all of the terms of the Trust Agreement, the
nonperformance of which would adversely affect such party;
(c) The Owner Trustee or any successor may resign or be
removed by the Holders as the Owner Trustee, a successor Owner Trustee
may be appointed and a corporation may become the Owner Trustee under
the Trust Agreement, only in accordance with the provisions of Article
IX of the Trust Agreement and, with respect to such appointment, with
the consent of the Lessee, which consent shall not be unreasonably
withheld or delayed;
(d) The Owner Trustee, in its capacity as the Owner Trustee
under the Trust Agreement, and not in its individual capacity, shall
not contract for, create, incur or assume any Indebtedness, or enter
into any business or other activity or enter into any contracts or
agreements, other than pursuant to or under the Operative Agreements;
(e) The Holders will not instruct the Owner Trustee to take
any action in violation of the terms of any Operative Agreement;
(f) Neither any Holder nor the Owner Trustee shall (i)
commence any case, proceeding or other action with respect to the Owner
Trustee under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization,
arrangement, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (ii) seek appointment of a
receiver, trustee, custodian or other similar official with respect to
the Owner Trustee or for all or any substantial benefit of the
creditors of the Owner Trustee; and neither any Holder nor the Owner
Trustee shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth
in this paragraph;
<PAGE> 33
(g) The Owner Trustee shall give prompt notice to the Lessee,
the Holders and the Agent if the Owner Trustee's principal place of
business or chief executive office, or the office where the records
concerning the accounts or contract rights relating to any Property are
kept, shall cease to be located at 79 South Main Street, Salt Lake
City, Utah 84111, or if it shall change its name; and
(h) The Owner Trustee shall take or refrain from taking such
actions and grant or refrain from granting such approvals with respect
to the Operative Agreements and/or relating to any Property in each
case as directed in writing by the Agent (until such time as the Loans
are paid in full, and then by the Majority Holders) or, in connection
with Sections 8.5 and 9.2 hereof, the Lessee; provided, however, that
notwithstanding the foregoing provisions of this subparagraph (h) the
Owner Trustee, the Agent, the Lenders and the Holders each acknowledge,
covenant and agree that neither the Owner Trustee nor the Agent shall
act or refrain from acting, regarding each Unanimous Vote Matter, until
such party has received the approval of each Lender and each Holder
affected by such matter.
8.3. CREDIT PARTY COVENANTS, CONSENT AND ACKNOWLEDGMENT.
(a) Each Credit Party acknowledges and agrees that the Owner
Trustee, pursuant to the terms and conditions of the Security Agreement
and the Mortgage Instruments, shall create Liens respecting the various
personal property, fixtures and real property described therein in
favor of the Agent. Each Credit Party hereby irrevocably consents to
the creation, perfection and maintenance of such Liens. Each Credit
Party shall, to the extent reasonably requested by any of the other
parties hereto, cooperate with the other parties in connection with
their covenants herein or in the other Operative Agreements and shall
from time to time duly execute and deliver any and all such future
instruments, documents and financing statements (and continuation
statements related thereto) as any other party hereto may reasonably
request.
(b) The Lessor hereby instructs each Credit Party, and each
Credit Party hereby acknowledges and agrees, that until such time as
the Loans and the Holder Advances are paid in full and the Liens
evidenced by the Security Agreement and the Mortgage Instruments have
been released (i) any and all Rent (excluding Excepted Payments which
shall be payable to each Holder or other Person as appropriate) and any
and all other amounts of any kind or type under any of the Operative
Agreements due and owing or payable to any Person shall instead be paid
directly to the Agent (excluding Excepted Payments which shall be
payable to each Holder or other Person as appropriate) or as the Agent
may direct from time to time for allocation and distribution in
accordance with the procedures set forth in Section 8.7 hereof, (ii)
all rights of the Lessor under the Lease shall be exercised by the
Agent and (iii) each Credit Party shall cause all notices,
certificates, financial statements, communications and other
information which are delivered, or are required to be delivered, to
the Lessor, to also to be delivered at the same time to the Agent.
(c) No Credit Party shall consent to or permit any amendment,
supplement or other modification of the terms or provisions of any
Operative Agreement except in accordance with Section 12.5 of this
Agreement.
(d) Each Credit Party hereby covenants and agrees that,
except for amounts payable as Basic Rent, any and all payment
obligations owing from time
<PAGE> 34
to time under the Operative Agreements by any Person to the Agent, any
Lender, any Holder or any other Person shall (without further action)
be deemed to be Supplemental Rent obligations payable by the Lessee and
guaranteed by the other Credit Parties. Without limitation, such
obligations of the Lessee shall include without limitation arrangement
fees, administrative fees, unused fees, breakage costs, indemnities,
trustee fees and transaction expenses incurred by the parties hereto in
connection with the transactions contemplated by the Operative
Agreements.
(e) The Lessee hereby covenants and agrees to cause an
Appraisal or reappraisal (in form and substance satisfactory to the
Agent and from an appraiser selected by the Agent) to be issued
respecting any Property as requested by the Agent from time to time as
requested by the Agent from time to time (i) at each and every time as
such shall be required to satisfy any regulatory requirements imposed
on the Agent, the Lessor, the Trust Company, any Lender and/or any
Holder and (ii) after the occurrence of an Event of Default.
(f) At any time the Lessor or the Agent is entitled under the
Operative Agreements to possession of a Property or any component
thereof, each of the Construction Agent and the Lessee hereby covenants
and agrees, at its own cost and expense, to assemble and make the same
available to the Agent (on behalf of the Lessor).
(g) The Lessee hereby covenants and agrees that Equipment
(constituting solely personal property which is not and shall at no
time become a fixture or otherwise be deemed to constitute real
property) respecting any individual parcel of Property shall at no time
constitute in excess of twenty percent (20%) of the aggregate Advances
respecting such parcel of Property funded at such time under the
Operative Agreements.
(h) The Lessee hereby covenants and agrees that as of
Completion (i) the Property Cost for each individual parcel of the
Property shall be (A) no less than $5,000,000 (except that up to five
(5) Properties may be purchased or constructed each having a Property
Cost of no less than $2,000,000 and no more than $5,000,000) and (B) no
more than $75,000,000 and (ii) each parcel of the Property shall be a
Facility.
(i) The Lessee hereby covenants and agrees that it shall give
prompt notice to the Agent if the Lessee's principal place of business
or chief executive office, or the office where the records concerning
the accounts or contract rights relating to any Property are kept,
shall cease to be located at the location referenced in Section 6.3(i)
or if it shall change its name.
(j) The Lessee hereby covenants and agrees that the aggregate
Property Cost of Properties purchased for any reason by the Lessee
pursuant to its Purchase Option prior to the Expiration Date shall not
exceed twenty-five percent (25%) of the aggregate Property Cost for all
Properties funded during the Commitment Period (regardless of whether
such Properties are then subject to the Lease).
(k) Until all the obligations of the Credit Parties under the
Operative Agreements have been finally and indefeasibly paid and
satisfied in full, the Commitments and the Holder Commitments
terminated and the Term has expired or been earlier terminated, then
unless consent has been obtained from the
<PAGE> 35
Majority Secured Parties, the Lessee will furnish or cause to be
furnished to each Holder, each Lender and the Agent at their respective
addresses set forth or referenced in Section 12.3 of this Agreement, or
such other office as may be designated by any such Holder, Lender or
the Agent from time to time: (i) 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 Quorum setting forth the Total
Leverage Ratio for the period of four (4) consecutive fiscal quarters
ending with such quarter-end and setting forth the computations
employed in calculating the ratio (the "Margin Certificate") and (ii)
at each time financial statements are delivered or to be delivered
pursuant to Section 28.1 of the Lease, a compliance certificate duly
executed by the president, treasurer, chief financial offer or
controller of Quorum substantially in the form of EXHIBIT N attached
hereto (the "Officer's Compliance Certificate").
(l) The Lessee hereby covenants and agrees that the rights of
the Lessee under this Agreement and the Lease shall not impair or in
any way diminish the obligations of the Construction Agent and/or the
rights of the Lessor under the Agency Agreement.
(m) Each Credit Party hereby covenants and agrees to cause
each Wholly-Owned Entity formed after the Initial Closing Date to
execute a Joinder Agreement and to observe the terms of Section 5.9 of
this Agreement, all within thirty (30) days of the formation of such
Wholly-Owned Entity.
(n) Each Credit Party shall promptly notify the Agent, or
cause the Agent to be promptly notified, upon such Credit Party gaining
knowledge of the occurrence of any Default or Event of Default which is
continuing at such time. In any event, such notice shall be provided to
the Agent within ten (10) days of when the Credit Party gains such
knowledge.
(o) Until all of the obligations under the Operative
Agreements have been finally and indefeasibly paid and satisfied in
full and the Commitments and the Holder Commitments terminated, unless
consent has been obtained from the Majority Secured Parties, each
Credit Party will:
(i) except as permitted by the express provisions of the
Lessee Credit Agreement, 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;
(ii) pay and perform all obligations of the Credit
Parties under the Operative Agreements 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 any Credit Party may contest any item described
in this Section 8.3(o)(ii) in good faith so long as adequate reserves
are maintained with respect thereto in accordance with GAAP;
(iii) to the extent failure to do so would have a
Material Adverse Effect, observe and remain in compliance with all
applicable Laws and maintain
<PAGE> 36
in full force and effect all Governmental Actions, 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 reimbursement program available to any Facility; and
(iv) provided that the Agent, the Lenders and the
Holders use reasonable efforts to minimize disruption to the business
of the Credit Parties, permit representatives of the Agent or any
Lender or Holder, from time to time, to visit and inspect its
properties; inspect, audit and make extracts from its books, records
and files, including without limitation 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.
8.4. SHARING OF CERTAIN PAYMENTS.
Except for Excepted Payments, the parties hereto acknowledge and agree
that all payments due and owing by any Credit Party to the Lessor under the
Lease or any of the other Operative Agreements shall be made by such Credit
Party directly to the Agent as more particularly provided in Section 8.3 hereof.
The Lessor, the Holders, the Agent, the Lenders and the Credit Parties
acknowledge the terms of Section 8.7 of this Agreement regarding the allocation
of payments and other amounts made or received from time to time under the
Operative Agreements and agree, that all such payments and amounts are to be
allocated as provided in Section 8.7 of this Agreement.
8.5. GRANT OF EASEMENTS, ETC.
The Agent, the Lenders and the Holders hereby agree that, so long as no
Event of Default shall have occurred and be continuing, the Owner Trustee shall,
from time to time at the request of the Lessee (and with the prior consent of
the Agent), in connection with the transactions contemplated by the Agency
Agreement, the Lease or the other Operative Agreements, (i) grant easements and
other rights in the nature of easements with respect to any Property, (ii)
release existing easements or other rights in the nature of easements which are
for the benefit of any Property, (iii) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants or releases, and (iv)
execute and deliver to any Person such other documents or materials in
connection with the acquisition, development, construction, testing or operation
of any Property, including without limitation reciprocal easement agreements,
construction contracts, operating agreements, development agreements, plats,
replats or subdivision documents; provided, that each of the agreements referred
to in this Section 8.5 shall be of the type normally executed by the Lessee in
the ordinary course of the Lessee's business and shall be on commercially
reasonable terms so as not to diminish the value of any Property in any material
respect.
8.6. APPOINTMENT BY THE AGENT, THE LENDERS, THE HOLDERS AND
THE OWNER TRUSTEE.
The Holders hereby appoint the Agent to act as collateral agent for the
Holders in connection with the Lien granted by the Security Documents to secure
the Holder Amount. The Lenders and the Holders acknowledge and agree and direct
that the rights and remedies of the beneficiaries of the Lien of the Security
Documents shall be exercised by the Agent on behalf of the Lenders and the
Holders as directed from time to time by the Majority Secured Parties or,
pursuant to Sections 8.2(h) and 12.5, all of the
<PAGE> 37
Lenders and the Holders, as the case may be; provided, in all cases, the Agent
shall allocate payments and other amounts received in accordance with Section
8.7. The Agent is further appointed to provide notices under the Operative
Agreements on behalf of the Owner Trustee (as determined by the Agent, in its
reasonable discretion), to receive notices under the Operative Agreements on
behalf of the Owner Trustee and (subject to Sections 8.5 and 9.2) to take such
other action under the Operative Agreements on behalf of the Owner Trustee as
the Agent shall determine in its reasonable discretion from time to time. The
Agent hereby accepts such appointments. For purposes hereof, the provisions of
Section 7 of the Credit Agreement, together with such other terms and provisions
of the Credit Agreement and the other Operative Agreements as required for the
full interpretation and operation of Section 7 of the Credit Agreement are
hereby incorporated by reference as if restated herein for the mutual benefit of
the Agent and each Holder as if each Holder were a Lender thereunder.
Outstanding Holder Advances and outstanding Loans shall each be taken into
account for purposes of determining Majority Secured Parties. Further, the Agent
shall be entitled to take such action on behalf of the Owner Trustee as is
delegated to the Agent under any Operative Agreement (whether express or
implied) as may be reasonably incidental thereto. The parties hereto hereby
agree to the provisions contained in this Section 8.6. Any appointment of a
successor agent under Section 7.9 of the Credit Agreement shall also be
effective as an appointment of a successor agent for purposes of this Section
8.6.
8.7. COLLECTION AND ALLOCATION OF PAYMENTS AND OTHER AMOUNTS.
(a) Each Credit Party has agreed pursuant to the terms of
this Agreement to pay to (i) the Agent any and all Rent (excluding
Excepted Payments) and any and all other amounts of any kind or type
under any of the Operative Agreements due and owing or payable to any
Person and (ii) each Person as appropriate the Excepted Payments.
Promptly after receipt, the Agent shall apply and allocate, in
accordance with the terms of this Section 8.7, such amounts received
from any Credit Party and all other payments, receipts and other
consideration of any kind whatsoever received by the Agent pursuant to
the Security Agreement or otherwise received by the Agent, the Holders
or any of the Lenders in connection with the Collateral, the Security
Documents or any of the other Operative Agreements. Ratable
distributions among the Lenders and the Holders under this Section 8.7
shall be made based on (in the case of the Lenders) the ratio of the
outstanding Loans to the aggregate Property Cost and (in the case of
the Holders) the ratio of the outstanding Holder Advances to the
aggregate Property Cost. Ratable distributions among the Tranche A
Lenders under this Section 8.7 shall be made based on the ratio of the
individual Tranche A Lender's Commitment for Tranche A Loans to the
aggregate of all the Tranche A Lenders' Commitments for Tranche A
Loans. Ratable distributions among the Tranche B Lenders under this
Section 8.7 shall be made based on the ratio of the individual Tranche
B Lender's Commitment for Tranche B Loans to the aggregate of all the
Tranche B Lenders' Commitments for Tranche B Loans. Ratable
distributions among the Lenders (in situations where the Tranche A
Lenders are not differentiated from the Tranche B Lenders) shall be
made based on the ratio of the individual Lender's Commitment to the
aggregate of all the Lenders' Commitments. Ratable distributions among
the Holders under this Section 8.7 shall be based on the ratio of the
individual Holder's Holder Commitment to the aggregate of all the
Holders' Holder Commitments.
(b) Payments and other amounts received by the Agent from time
to time in accordance with the terms of subparagraph (a) shall be
applied and allocated as follows:
<PAGE> 38
(i) Any such payment or amount identified as or deemed
to be Basic Rent shall be applied and allocated by the Agent
first, ratably to the Lenders and the Holders for application
and allocation to the payment of interest on the Loans and
thereafter the principal of the Loans which is due and payable
on such date and to the payment of accrued Holder Yield with
respect to the Holder Advances and thereafter the portion of
the Holder Advances which is due on such date; and second, if
no Default or Event of Default is in effect, any excess shall
be paid to such Person or Persons as the Lessee may designate;
provided, that if a Default or Event of Default is in effect,
such excess (if any) shall instead be held by the Agent until
the earlier of (I) the first date thereafter on which no
Default or Event of Default shall be in effect (in which case
such payments or returns shall then be made to such other
Person or Persons as the Lessee may designate) and (II) the
Maturity Date or the Expiration Date, as the case may be (or,
if earlier, the date of any Acceleration), in which case such
amounts shall be applied and allocated in the manner
contemplated by Section 8.7(b)(iv).
(ii) If on any date the Agent or the Lessor shall receive
any amount in respect of (A) any Casualty or Condemnation
pursuant to Sections 15.1(a) or 15.1(g) of the Lease
(excluding any payments in respect thereof which are payable
to the Lessee in accordance with the Lease), or (B) the
Termination Value in connection with the delivery of a
Termination Notice pursuant to Article XVI of the Lease, or
(C) the Termination Value in connection with the exercise of
the Purchase Option under Section 20.1 of the Lease or the
exercise of the option of the Lessor to transfer the
Properties to the Lessee pursuant to Section 20.3 of the
Lease, or (D) any payment required to be made or elected to be
made by the Construction Agent to the Lessor pursuant to the
terms of the Agency Agreement, then in each case, the Lessor
shall be required to pay such amount received (1) if no
Acceleration has occurred, to prepay the principal balance of
the Loans and the Holder Advances, on a pro rata basis, a
portion of such amount to be distributed to the Lenders and
the Holders or (2) if an Acceleration has occurred, to apply
and allocate the proceeds respecting Sections 8.7(b)(ii)(A)
through 8.7(b)(ii)(D) in accordance with Section 8.7(b)(iii)
hereof.
(iii) Subject to Section 8.7(c), an amount equal to any
payment identified as proceeds of the sale or other
disposition (or lease upon the exercise of remedies) of the
Properties or any portion thereof, whether pursuant to Article
XXII of the Lease or the exercise of remedies under the
Security Documents or otherwise, the execution of remedies set
forth in the Lease and any payment in respect of excess wear
and tear pursuant to Section 22.3 of the Lease (whether such
payment relates to a period before or after the Construction
Period Termination Date) shall be applied and allocated by the
Agent first, ratably to the payment of the principal and
interest of the Tranche B Loans then outstanding, second,
ratably to the payment to the Holders of the outstanding
principal balance of all Holder Advances plus all outstanding
Holder Yield with respect to such outstanding Holder Advances,
third, to the extent such amount exceeds the maximum amount to
be returned pursuant to the foregoing provisions of this
paragraph (iii), ratably to the payment of the principal and
interest of the Tranche A Loans then outstanding, fourth, to
any and all other amounts owing under the Operative Agreements
to the Lenders under the
<PAGE> 39
Tranche B Loans, fifth, to any and all other amounts owing
under the Operative Agreements to the Holders, sixth, to any
and all other amounts owing under the Operative Agreements to
the Lenders under the Tranche A Loans, and seventh, to the
extent moneys remain after application and allocation pursuant
to clauses first through sixth above, to the Owner Trustee for
application and allocation to any and all other amounts owing
to the Holders or the Owner Trustee and as the Holders shall
determine; provided, where no Event of Default shall exist and
be continuing and a prepayment is made for any reason with
respect to less than the full amount of the outstanding
principal amount of the Loans and the outstanding Holder
Advances, the proceeds shall be applied and allocated ratably
to the Lenders and to the Holders.
(iv) Subject to Section 8.7(c), an amount equal to (A)
any such payment identified as a payment pursuant to Section
22.1(b) of the Lease (or otherwise) of the Maximum Residual
Guarantee Amount (and any such lesser amount as may be
required by Section 22.1(b) of the Lease) in respect of the
Properties, (B) any other amount payable upon any exercise of
remedies after the occurrence of an Event of Default not
covered by Sections 8.7(b)(i) or 8.7(b)(iii) above (including
without limitation any amount received in connection with an
Acceleration which does not represent proceeds from the sale
or liquidation of the Properties) and (C) any other amount
payable by any Guarantor pursuant to Section 6B shall be
applied and allocated by the Agent first, ratably, to the
payment of the principal and interest balance of Tranche A
Loans then outstanding, second, ratably to the payment of the
principal and interest balance of the Tranche B Loans then
outstanding, third, ratably to the payment of the principal
balance of all Holder Advances plus all outstanding Holder
Yield with respect to such outstanding Holder Advances,
fourth, to the payment of any other amounts owing to the
Lenders hereunder or under any of the other Operative
Agreement, and fifth, to the extent moneys remain after
application and allocation pursuant to clauses first through
fourth above, to the Owner Trustee for application and
allocation to Holder Advances and Holder Yield and any other
amounts owing to the Holders or the Owner Trustee as the
Holders shall determine.
(v) An amount equal to any such payment identified as
Supplemental Rent shall be applied and allocated by the Agent
to the payment of any amounts then owing to the Agent, the
Lenders, the Holders and the other parties to the Operative
Agreements (or any of them) (other than any such amounts
payable pursuant to the preceding provisions of this Section
8.7(b)) as shall be determined by the Agent in its reasonable
discretion; provided, however, that Supplemental Rent received
upon the exercise of remedies after the occurrence and
continuance of an Event of Default in lieu of or in
substitution of the Maximum Residual Guarantee Amount or as a
partial payment thereon shall be applied and allocated as set
forth in Section 8.7(b)(iv).
(vi) The Agent in its reasonable judgment shall identify
the nature of each payment or amount received by the Agent and
apply and allocate each such amount in the manner specified
above.
(c) Upon the termination of the Commitments and the payment in
full of the Loans and all other amounts owing by the Owner Trustee
hereunder or
<PAGE> 40
under any Credit Document and the payment in full of all amounts owing
to the Holders and the Owner Trustee under the Trust Agreement, any
moneys remaining with the Agent shall be returned to the Owner Trustee
or such other Person or Persons as the Holders may designate for
application and allocation to any and all other amounts owing to the
Holders or the Owner Trustee and as the Holders shall determine. In the
event of an Acceleration it is agreed that, prior to the application
and allocation of amounts received by the Agent in the order described
in Section 8.7(b) above, any such amounts shall first be applied and
allocated to the payment of (i) any and all sums advanced by the Agent
in order to preserve the Collateral or to preserve its Lien thereon,
(ii) the expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing or realizing on the Collateral, or of
any exercise by the Agent of its rights under the Security Documents,
together with reasonable attorneys' fees and expenses and court costs
and (iii) any and all other amounts reasonably owed to the Agent under
or in connection with the transactions contemplated by the Operative
Agreements (including without limitation any accrued and unpaid
administration fees).
8.8. RELEASE OF PROPERTIES, ETC.
If the Lessee shall at any time purchase any Property pursuant to the
Lease, or the Construction Agent shall purchase any Property pursuant to the
Agency Agreement, or if any Property shall be sold in accordance with Article
XXII of the Lease, then, upon satisfaction by the Owner Trustee of its
obligation to prepay the Loans, Holder Advances and all other amounts owing to
the Lenders and the Holders under the Operative Agreements, the Agent is hereby
authorized and directed to release such Properties from the Liens created by the
Security Documents to the extent of its interest therein. In addition, upon the
termination of the Commitments and the Holder Commitments and the payment in
full of the Loans, the Holder Advances and all other amounts owing by the Owner
Trustee hereunder or under any other Operative Agreement the Agent is hereby
authorized and directed to release all of the Properties from the Liens created
by the Security Documents to the extent of its interest therein. Upon request of
the Owner Trustee following any such release, the Agent shall, at the sole cost
and expense of the Lessee, execute and deliver to the Owner Trustee and the
Lessee such documents as the Owner Trustee or the Lessee shall reasonably
request to evidence such release.
SECTION 9. CREDIT AGREEMENT AND TRUST AGREEMENT.
9.1. THE CONSTRUCTION AGENT'S AND THE LESSEE'S CREDIT
AGREEMENT RIGHTS.
Notwithstanding anything to the contrary contained in the Credit
Agreement, the Agent, the Lenders, the Holders, the Credit Parties and the Owner
Trustee hereby agree that, prior to the occurrence and continuation of any
Default or Event of Default, the Construction Agent or the Lessee, as the case
may be, shall have the following rights:
(a) the right to designate an account to which amounts funded
under the Operative Agreements shall be credited pursuant to Section
2.3(a) of the Credit Agreement;
(b) the right to terminate or reduce the Commitments pursuant
to Section 2.5(a) of the Credit Agreement;
(c) the right to exercise the conversion and continuation
options pursuant to Section 2.7 of the Credit Agreement;
<PAGE> 41
(d) the right to receive any notice and any certificate, in
each case issued pursuant to Section 2.11(a) of the Credit Agreement;
(e) the right to replace any Lender pursuant to Section
2.11(b) of the Credit Agreement;
(f) the right to approve any successor agent pursuant to
Section 7.9 of the Credit Agreement; and
(g) the right to consent to any assignment by a Lender to
which the Lessor has the right to consent pursuant to Section 9.8 of
the Credit Agreement.
9.2. THE CONSTRUCTION AGENT'S AND THE LESSEE'S TRUST AGREEMENT
RIGHTS.
Notwithstanding anything to the contrary contained in the Trust
Agreement, the Credit Parties, the Owner Trustee and the Holders hereby agree
that, prior to the occurrence and continuation of any Default or Event of
Default, the Construction Agent or the Lessee, as the case may be, shall have
the following rights:
(a) the right to exercise the conversion and continuation
options pursuant to Section 3.8 of the Trust Agreement;
(b) the right to receive any notice and any certificate, in
each case issued pursuant to Section 3.9(a) of the Trust Agreement;
(c) the right to replace any Holder pursuant to Section
3.9(b) of the Trust Agreement;
(d) the right to exercise the removal options contained in
Section 3.9 of the Trust Agreement; and
(e) no removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to Section 9.1 of the Trust Agreement
shall be made without the prior written consent (not to be unreasonably
withheld or delayed) of the Lessee.
SECTION 10. TRANSFER OF INTEREST.
10.1. RESTRICTIONS ON TRANSFER.
Each Lender may participate, assign or transfer all or a portion of its
interest hereunder and under the other Operative Agreements in accordance with
Sections 9.7 and 9.8 of the Credit Agreement; provided, at such time each
participant, assignee or transferee must obtain the same ratable interest in
Tranche A Loans, Tranche B Loans and the Lessee Credit Agreement. The Holders
may, directly or indirectly, assign, convey or otherwise transfer any of their
right, title or interest in or to the Trust Estate or the Trust Agreement with
the prior written consent of the Agent and the Lessee (which consent shall not
be unreasonably withheld or delayed) and in accordance with the terms of Section
11.8(b) of the Trust Agreement. The Owner Trustee may, subject to the rights of
the Lessee under the Lease and the other Operative Agreements and to the Lien of
the applicable Security Documents but only with the prior written consent of the
Agent (which consent may be withheld by the Agent in its sole discretion) and
(provided, no
<PAGE> 42
Default or Event of Default has occurred and is continuing) with the consent of
the Lessee, directly or indirectly, assign, convey, appoint an agent with
respect to enforcement of, or otherwise transfer any of its right, title or
interest in or to any Property, the Lease, the Trust Agreement and the other
Operative Agreements (including without limitation any right to indemnification
thereunder), or any other document relating to a Property or any interest in a
Property as provided in the Trust Agreement and the Lease. The provisions of the
immediately preceding sentence shall not apply to the obligations of the Owner
Trustee to transfer Property to the Lessee or a third party purchaser pursuant
to Article XXII of the Lease upon payment for such Property in accordance with
the terms and conditions of the Lease. No Credit Party may assign any of the
Operative Agreements or any of their respective rights or obligations thereunder
or with respect to any Property in whole or in part to any Person without the
prior written consent of the Agent, the Lenders, the Holders and the Lessor.
10.2. EFFECT OF TRANSFER.
From and after any transfer effected in accordance with this Section
10, the transferor shall be released, to the extent of such transfer, from its
liability hereunder and under the other documents to which it is a party in
respect of obligations to be performed on or after the date of such transfer;
provided, however, that any transferor shall remain liable hereunder and under
such other documents to the extent that the transferee shall not have assumed
the obligations of the transferor thereunder. Upon any transfer by the Owner
Trustee, a Holder or a Lender as above provided, any such transferee shall
assume the obligations of the Owner Trustee, the Holder or the Lender, as the
case may be, and shall be deemed an "Owner Trustee", "Holder", or "Lender", as
the case may be, for all purposes of such documents and each reference herein to
the transferor shall thereafter be deemed a reference to such transferee for all
purposes, except as provided in the preceding sentence. Notwithstanding any
transfer of all or a portion of the transferor's interest as provided in this
Section 10, the transferor shall be entitled to all benefits accrued and all
rights vested prior to such transfer including without limitation rights to
indemnification under any such document.
SECTION 11. INDEMNIFICATION.
11.1. GENERAL INDEMNITY.
Whether or not any of the transactions contemplated hereby shall be
consummated, the Indemnity Provider hereby assumes liability for and agrees to
defend, indemnify and hold harmless each Indemnified Person on an After Tax
Basis from and against any Claims, which may be imposed on, incurred by or
asserted against an Indemnified Person by any third party, including without
limitation Claims arising from the negligence of an Indemnified Person (but not
to the extent such Claims arise from the gross negligence or willful misconduct
of such Indemnified Person itself, as determined by a court of competent
jurisdiction, as opposed to gross negligence or willful misconduct imputed to
such Indemnified Person) in any way relating to or arising or alleged to arise
out of the execution, delivery, performance or enforcement of this Agreement,
the Lease or any other Operative Agreement or on or with respect to any Property
or any component thereof, including without limitation Claims in any way
relating to or arising or alleged to arise out of (a) the financing,
refinancing, purchase, acceptance, rejection, ownership, design, construction,
refurbishment, development, delivery, acceptance, nondelivery, leasing,
subleasing, possession, use, occupancy, operation, maintenance repair,
modification, transportation, condition, sale, return, repossession (whether by
summary proceedings or otherwise), or any other disposition of any Property or
any part thereof, including without limitation the acquisition, holding or
<PAGE> 43
disposition of any interest in the Property, lease or agreement comprising a
portion of any thereof; (b) any latent or other defects in any Property or any
portion thereof whether or not discoverable by an Indemnified Person or the
Indemnity Provider; (c) a violation of Environmental Laws, Environmental Claims
or other loss of or damage to any property or the environment relating to the
Property, the Lease, the Agency Agreement or the Indemnity Provider; (d) the
Operative Agreements, or any transaction contemplated thereby; (e) any breach by
the Indemnity Provider of any of its representations or warranties under the
Operative Agreements to which the Indemnity Provider is a party or failure by
the Indemnity Provider to perform or observe any covenant or agreement to be
performed by it under any of the Operative Agreements; (f) the transactions
contemplated hereby or by any other Operative Agreement, in respect of the
application of Parts 4 and 5 of Subtitle B of Title I of ERISA; and (g) personal
injury, death or property damage, including without limitation Claims based on
strict or absolute liability in tort.
If a written Claim is made against any Indemnified Person or if any
proceeding shall be commenced against such Indemnified Person (including without
limitation a written notice of such proceeding), for any Claim, such Indemnified
Person shall promptly notify the Indemnity Provider in writing and shall not
take action with respect to such Claim without the consent of the Indemnity
Provider for thirty (30) days after the receipt of such notice by the Indemnity
Provider; provided, however, that in the case of any such Claim, if action shall
be required by law or regulation to be taken prior to the end of such period of
thirty (30) days, such Indemnified Person shall endeavor to, in such notice to
the Indemnity Provider, inform the Indemnity Provider of such shorter period,
and no action shall be taken with respect to such Claim without the consent of
the Indemnity Provider before seven (7) days before the end of such shorter
period; provided, further, that the failure of such Indemnified Person to give
the notices referred to in this sentence shall not diminish the Indemnity
Provider's obligation hereunder except to the extent such failure precludes in
all respects the Indemnity Provider from contesting such Claim.
If, within thirty (30) days of receipt of such notice from the
Indemnified Person (or such shorter period as the Indemnified Person has
notified the Indemnity Provider is required by law or regulation for the
Indemnified Person to respond to such Claim), the Indemnity Provider shall
request in writing that such Indemnified Person respond to such Claim, the
Indemnified Person shall, at the expense of the Indemnity Provider, in good
faith conduct and control such action (including without limitation by pursuit
of appeals) (provided, however, that (A) if such Claim, in the Indemnity
Provider's reasonable discretion, can be pursued by the Indemnity Provider on
behalf of or in the name of such Indemnified Person, the Indemnified Person, at
the Indemnity Provider's request, shall allow the Indemnity Provider to conduct
and control the response to such Claim and (B) in the case of any Claim (and
notwithstanding the provisions of the foregoing subsection (A)), the Indemnified
Person may request the Indemnity Provider to conduct and control the response to
such Claim (with counsel to be selected by the Indemnity Provider and consented
to by such Indemnified Person, such consent not to be unreasonably withheld;
provided, however, that any Indemnified Person may retain separate counsel at
the expense of the Indemnity Provider in the event of a conflict)) by, in the
sole discretion of the Person conducting and controlling the response to such
Claim (1) resisting payment thereof, (2) not paying the same except under
protest, if protest is necessary and proper, (3) if the payment be made, using
reasonable efforts to obtain a refund thereof in appropriate administrative and
judicial proceedings, or (4) taking such other action as is reasonably requested
by the Indemnity Provider from time to time.
The party controlling the response to any Claim shall consult in good
faith with the non-controlling party and shall keep the non-controlling party
reasonably informed as
<PAGE> 44
to the conduct of the response to such Claim; provided, that all decisions
ultimately shall be made in the discretion of the controlling party. The parties
agree that an Indemnified Person may at any time decline to take further action
with respect to the response to such Claim and may settle such Claim if such
Indemnified Person shall waive its rights to any indemnity from the Indemnity
Provider that otherwise would be payable in respect of such Claim (and any
future Claim, the pursuit of which is precluded by reason of such resolution of
such Claim) and shall pay to the Indemnity Provider any amount previously paid
or advanced by the Indemnity Provider pursuant to this Section 11.1 by way of
indemnification or advance for the payment of an amount regarding such Claim.
Notwithstanding the foregoing provisions of this Section 11.1, an
Indemnified Person shall not be required to take any action and no Indemnity
Provider shall be permitted to respond to any Claim in its own name or that of
the Indemnified Person unless (A) the Indemnity Provider shall have agreed to
pay and shall pay to such Indemnified Person on demand and on an After Tax Basis
all reasonable costs, losses and expenses that such Indemnified Person actually
incurs in connection with such Claim, including without limitation all
reasonable legal, accounting and investigatory fees and disbursements and, if
the Indemnified Person has informed the Indemnity Provider that it intends to
contest such Claim (whether or not the control of the contest is then assumed by
the Indemnity Provider), the Indemnity Provider shall have agreed that the Claim
is an indemnifiable Claim hereunder, (B) in the case of a Claim that must be
pursued in the name of an Indemnified Person (or an Affiliate thereof), the
amount of the potential indemnity (taking into account all similar or logically
related Claims that have been or could be raised for which the Indemnity
Provider may be liable to pay an indemnity under this Section 11.1) exceeds
$25,000 (or such lesser amount as may be subsequently agreed between the
Indemnity Provider and the Indemnified Person), (C) the Indemnified Person shall
have reasonably determined that the action to be taken will not result in any
material danger of sale, forfeiture or loss of the Property, or any part thereof
or interest therein, will not interfere with the payment of Rent, and will not
result in risk of criminal liability, (D) if such Claim shall involve the
payment of any amount prior to the resolution of such Claim, the Indemnity
Provider shall provide to the Indemnified Person an interest-free advance in an
amount equal to the amount that the Indemnified Person is required to pay (with
no additional net after-tax cost to such Indemnified Person) prior to the date
such payment is due, (E) in the case of a Claim that must be pursued in the name
of an Indemnified Person (or an Affiliate thereof), the Indemnity Provider shall
have provided to such Indemnified Person an opinion of independent counsel
selected by the Indemnified Person and reasonably satisfactory to the Indemnity
Provider stating that a reasonable basis exists to contest such Claim (or, in
the case of an appeal of an adverse determination, an opinion of such counsel to
the effect that the position asserted in such appeal will more likely than not
prevail) and (F) no Event of Default shall have occurred and be continuing. In
no event shall an Indemnified Person be required to appeal an adverse judicial
determination to the United States Supreme Court. In addition, an Indemnified
Person shall not be required to contest any Claim in its name (or that of an
Affiliate) if the subject matter thereof shall be of a continuing nature and
shall have previously been decided adversely by a court of competent
jurisdiction pursuant to the contest provisions of this Section 11.1, unless
there shall have been a change in law (or interpretation thereof) and the
Indemnified Person shall have received, at the Indemnity Provider's expense, an
opinion of independent counsel selected by the Indemnified Person and reasonably
acceptable to the Indemnity Provider stating that as a result of such change in
law (or interpretation thereof), it is more likely than not that the Indemnified
Person will prevail in such contest In no event shall the Indemnity Provider be
permitted to adjust or settle any Claim without the consent of the Indemnified
Person to the extent any such adjustment or settlement involves, or is
reasonably likely to involve, any performance by or adverse admission by or with
respect to the Indemnified Person.
<PAGE> 45
11.2. GENERAL TAX INDEMNITY.
(a) The Indemnity Provider shall pay and assume liability
for, and does hereby agree to indemnify, protect and defend each
Property and all Indemnified Persons, and hold them harmless against,
all Impositions on an After Tax Basis, and all payments pursuant to the
Operative Agreements shall be made free and clear of and without
deduction for any and all present and future Impositions.
(b) Notwithstanding anything to the contrary in Section
11.2(a) hereof, the following shall be excluded from the indemnity
required by Section 11.2(a):
(i) Taxes (other than Taxes that are, or are in the
nature of, sales, use, rental, value added, transfer or
property taxes) that are imposed on a Indemnified Person
(other than the Lessor) by the United States federal
government that are based on or measured by the net income
(including without limitation taxes based on capital gains and
minimum taxes) of such Person; provided, that this clause (i)
shall not be interpreted to prevent a payment from being made
on an After Tax Basis if such payment is otherwise required to
be so made;
(ii) Taxes (other than Taxes that are, or are in the
nature of, sales, use, rental, value added, transfer or
property taxes) that are imposed on any Indemnified Person
(other than the Lessor) by any state or local jurisdiction or
taxing authority within any state or local jurisdiction and
that are based upon or measured by the net income (including
without limitation taxes based on capital gains and minimum
taxes) of such Person; provided that such Taxes shall not be
excluded under this subparagraph (ii) to the extent the
location, possession or use of any Property in, the location
or the operation of the Lessee in, or the Lessee's making
payments under the Operative Agreements from, the jurisdiction
imposing such Taxes been the sole connection between such
Indemnified Person and the jurisdiction imposing such Taxes;
provided, further, that this clause (ii) shall not be
interpreted to prevent a payment from being made on an After
Tax Basis if such payment is otherwise required to be so made;
(iii) any Tax to the extent it relates to any act,
event or omission that occurs after the termination of the
Lease and redelivery or sale of the property in accordance
with the terms of the Lease (but not any Tax that relates to
such termination, redelivery or sale and/or to any period
prior to such termination, redelivery or sale); and
(iv) any Taxes which are imposed on an Indemnified
Person as a result of the gross negligence or willful
misconduct of such Indemnified Person itself, as determined by
a court of competent jurisdiction (as opposed to gross
negligence or willful misconduct imputed to such Indemnified
Person), but not Taxes imposed as a result of ordinary
negligence of such Indemnified Person;
(c) (i) Subject to the terms of Section 11.2(f), the
Indemnity Provider shall pay or cause to be paid all
Impositions directly to the taxing
<PAGE> 46
authorities where feasible and otherwise to the Indemnified
Person, as appropriate, and the Indemnity Provider shall at
its own expense, upon such Indemnified Person's reasonable
request, furnish to such Indemnified Person copies of official
receipts or other satisfactory proof evidencing such payment.
(ii) In the case of Impositions for which no contest
is conducted pursuant to Section 11.2(f) and which the
Indemnity Provider pays directly to the taxing authorities,
the Indemnity Provider shall pay such Impositions prior to the
latest time permitted by the relevant taxing authority for
timely payment. In the case of Impositions for which the
Indemnity Provider reimburses an Indemnified Person, the
Indemnity Provider shall do so within thirty (30) days after
receipt by the Indemnity Provider of demand by such
Indemnified Person describing in reasonable detail the nature
of the Imposition and the basis for the demand (including
without limitation the computation of the amount payable),
accompanied by receipts or other reasonable evidence of such
demand. In the case of Impositions for which a contest is
conducted pursuant to Section 11.2(f), the Indemnity Provider
shall pay such Impositions or reimburse such Indemnified
Person for such Impositions, to the extent not previously paid
or reimbursed pursuant to subsection (a), prior to the latest
time permitted by the relevant taxing authority for timely
payment after conclusion of all contests under Section
11.2(f).
(iii) At the Indemnity Provider's request, the amount
of any indemnification payment by the Indemnity Provider
pursuant to subsection (a) shall be verified and certified by
an independent public accounting firm mutually acceptable to
the Indemnity Provider and the Indemnified Person. The fees
and expenses of such independent public accounting firm shall
be paid by the Indemnity Provider unless such verification
shall result in an adjustment in the Indemnity Provider's
favor of fifteen percent (15%) or more of the payment as
computed by the Indemnified Person, in which case such fee
shall be paid by the Indemnified Person.
(d) The Indemnity Provider shall be responsible for
preparing and filing any real and personal property or ad valorem tax
returns in respect of each Property and any other tax returns required
for the Owner Trustee respecting the transactions described in the
Operative Agreements. In case any other report or tax return shall be
required to be made with respect to any obligations of the Indemnity
Provider under or arising out of subsection (a) and of which the
Indemnity Provider has knowledge or should have knowledge, the
Indemnity Provider, at its sole cost and expense, shall notify the
relevant Indemnified Person of such requirement and (except if such
Indemnified Person notifies the Indemnity Provider that such
Indemnified Person intends to file such report or return) (A) to the
extent required or permitted by and consistent with Legal Requirements,
make and file in Indemnity Provider's name such return, statement or
report; and (B) in the case of any other such return, statement or
report required to be made in the name of such Indemnified Person,
advise such Indemnified Person of such fact and prepare such return,
statement or report for filing by such Indemnified Person or, where
such return, statement or report shall be required to reflect items in
addition to any obligations of the Indemnity Provider under or arising
out of subsection (a), provide such Indemnified Person at the Indemnity
Provider's expense with information sufficient to permit such return,
statement or report to be properly made with respect to any obligations
of the Indemnity Provider under
<PAGE> 47
or arising out of subsection (a). Such Indemnified Person shall, upon
the Indemnity Provider's request and at the Indemnity Provider's
expense, provide any data maintained by such Indemnified Person (and
not otherwise available to or within the control of the Indemnity
Provider) with respect to each Property which the Indemnity Provider
may reasonably require to prepare any required tax returns or reports.
(e) As between the Indemnity Provider on one (1) hand, and
each Financing Party on the other hand, the Indemnity Provider shall be
responsible for, and the Indemnity Provider shall indemnify and hold
harmless each Financing Party (without duplication of any
indemnification required by subsection (a)) on an After Tax Basis
against, any obligation for United States or foreign withholding taxes
or similar levies, imposts, charges, fees, deductions or withholdings
(collectively, "Withholdings") imposed in respect of the interest
payable on the Notes, Holder Yield payable on the Certificates or with
respect to any other payments under the Operative Agreement (all such
payments being referred to herein as "Exempt Payments" to be made
without deduction, withholding or set off) (and, if any Financing Party
receives a demand for such payment from any taxing authority or a
Withholding is otherwise required with respect to any Exempt Payment,
the Indemnity Provider shall discharge such demand on behalf of such
Financing Party); provided, however, that the right of any Financing
Party to make a claim for indemnification under this Section 11.2(e) is
subject to the compliance by such Financing Party with the requirements
set forth below:
(i) Such Financing Party is, on the date hereof (or
on the date it becomes a Financing Party hereunder) and on the
date of any change in the principal place of business or the
lending office of such Financing Party, entitled to submit a
Form 1001 (relating to such Financing Party and entitling it
to a complete exemption from Withholding on all Exempt
Payments to be received by it hereunder or under the Bond
Documents) or Form 4224 is otherwise subject to exemption from
Withholding with respect to the Exempt Payments to be received
by it (except where the failure of the exemption results from
a change in the principal place of business of the Lessee;
provided if a failure of exemption for any Financing Party
results from a change in the principal place of business or
lending office of any other Financing Party, then such other
Financing Party shall be liable for any Withholding or
indemnity with respect thereto), or
(ii) The failure by a non-U.S. Person to comply with
applicable certification, information, documentation or other
reporting requirements concerning the nationality, residence,
identity or connections with the United States of America of
such non-U.S. Person if such compliance is required by statute
or regulation of the United States of America as a
precondition to relief or exemption from such U.S. Taxes.
For the purposes of this Section 11.2(e), (A) "U.S. Person" shall mean
a citizen, national or resident of the United States of America, a
corporation, partnership or other entity created or organized in or
under any laws of the United States of America or any State thereof, or
any estate or trust that is subject to Federal income taxation
regardless of the source of its income, (B) "U.S. Taxes" shall mean any
present or future tax, assessment or other charge or levy imposed by or
on behalf of the United States of America or any taxing authority
thereof or
<PAGE> 48
therein, (C) "Form 1001" shall mean Form 1001 (Ownership, Exemption, or
Reduced Rate Certificate) of the Department of the Treasury of the
United States of America and (D) "Form 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with
the Conduct of a Trade or Business in the United States) of the
Department of Treasury of the United States of America (or in relation
to either such Form such successor and related forms as may from time
to time be adopted by the relevant taxing authorities of the United
States of America to document a claim to which such Form relates). Each
of the Forms referred to in the foregoing clauses (C) and (D) shall
include such successor and related forms as may from time to time be
adopted by the relevant taxing authorities of the United States of
America to document a claim to which such Form relates.
If a Financing Party or an Affiliate with whom such Financing
Party files a consolidated tax return (or equivalent) subsequently
receives the benefit in any country of a tax credit or an allowance
resulting from U.S. Taxes with respect to which it has received a
payment of an additional amount under this Section 11.2(e), such
Financing Party will pay to the Indemnity Provider such part of that
benefit as in the opinion of such Financing Party will leave it (after
such payment) in a position no more and no less favorable than it would
have been in if no additional payment had been required to be paid,
provided, always that (i) such Financing Party will be the sole judge
of the amount of any such benefit and of the date on which it is
received, (ii) such Financing Party will have the absolute discretion
as to the order and manner in which it employs or claims tax credits
and allowances available to it and (iii) such Financing Party will not
be obliged to disclose to the Borrower any information regarding its
tax affairs or tax computations.
Each non-U.S. Person that shall become a Financing Party after
the date hereof shall, upon the effectiveness of the related transfer
or otherwise upon becoming a Financing Party hereunder, be required to
provide all of the forms and statements referenced above or other
evidences of exemption from Withholdings.
(f) If a written Claim is made against any Indemnified Person
or if any proceeding shall be commenced against such Indemnified Person
(including without limitation a written notice of such proceeding), for
any Impositions, the provisions in Section 11.1 relating to
notification and rights to contest shall apply; provided, however, if
such contest involves a tax other than a tax on net income and can be
pursued independently from any other proceeding involving a tax
liability of such Indemnified Person, the Indemnified Person, at the
Indemnity Provider's request, shall allow the Indemnity Provider (and
the Indemnity Provider shall be obligated) to conduct and control such
contest.
11.3 INCREASED COSTS, ILLEGALITY, ETC.
(a) If, due to either (i) the introduction of or any change
in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request hereafter adopted, promulgated
or made by any central bank or other governmental authority (whether or
not having the force of law), there shall be any increase in the cost
to any Financing Party of agreeing to make or making, funding or
maintaining Advances, then the Lessee shall from time to time, upon
demand by such Financing Party (with a copy of such demand to the Agent
but subject to the terms of Section 2.11 of the Credit Agreement and
3.9 of the Trust Agreement, as the case may be), pay to the Agent for
the account of such
<PAGE> 49
Financing Party additional amounts sufficient to compensate such
Financing Party for such increased cost. A certificate as to the amount
of such increased cost, submitted to the Lessee and the Agent by such
Financing Party, shall be conclusive and binding for all purposes,
absent manifest error.
(b) If any Financing Party determines that compliance with
any law or regulation or any guideline or request from any central bank
or other governmental authority (whether or not having the force of
law, but in each case promulgated or made after the date hereof)
affects or would affect the amount of capital required or expected to
be maintained by such Financing Party or any corporation controlling
such Financing Party and that the amount of such capital is increased
by or based upon the existence of such Financing Party's commitment to
make Advances and other commitments of this type or upon the Advances,
then, upon demand by such Financing Party (with a copy of such demand
to the Agent but subject to the terms of Section 2.11 of the Credit
Agreement and 3.9 of the Trust Agreement), the Lessee shall pay to the
Agent for the account of such Financing Party, from time to time as
specified by such Financing Party, additional amounts sufficient to
compensate such Financing Party or such corporation in the light of
such circumstances, to the extent that such Financing Party reasonably
determines such increase in capital to be allocable to the existence of
such Financing Party's commitment to make such Advances. A certificate
as to such amounts submitted to the Lessee and the Agent by such
Financing Party shall be conclusive and binding for all purposes,
absent manifest error.
(c) Without limiting the effect of the foregoing, the Lessee
shall pay to each Financing Party on the last day of the Interest
Period therefor so long as such Financing Party is maintaining reserves
against "Eurocurrency liabilities" under Regulation D an additional
amount (determined by such Financing Party and notified to the Lessee
through the Agent) equal to the product of the following for each
Eurodollar Loan or Eurodollar Holder Advance, as the case may be, for
each day during such Interest Period:
(i) the principal amount of such Eurodollar Loan or
Eurodollar Holder Advance, as the case may be, outstanding on
such day; and
(ii) the remainder of (x) a fraction the numerator of
which is the rate (expressed as a decimal) at which interest
accrues on such Eurodollar Loan or Eurodollar Holder Advance,
as the case may be, for such Interest Period as provided in
the Credit Agreement or the Trust Agreement, as the case may
be (less the Applicable Percentage), and the denominator of
which is one (1) minus the effective rate (expressed as a
decimal) at which such reserve requirements are imposed on
such Financing Party on such day minus (y) such numerator; and
(iii) 1/360.
(d) Without affecting its rights under Sections 11.3(a),
11.3(b) or 11.3(c) or any other provision of any Operative Agreement,
each Financing Party agrees that if there is any increase in any cost
to or reduction in any amount receivable by such Financing Party with
respect to which the Lessee would be obligated to compensate such
Financing Party pursuant to Sections 11.3(a) or 11.3(b), such Financing
Party shall use reasonable efforts to select an alternative office for
Advances which would not result in any such increase in any cost to or
<PAGE> 50
reduction in any amount receivable by such Financing Party; provided,
however, that no Financing Party shall be obligated to select an
alternative office for Advances if such Financing Party determines that (i)
as a result of such selection such Financing Party would be in violation of
any applicable law, regulation, treaty, guideline, or would incur
additional costs or expenses or (ii) such selection would be inadvisable
for regulatory reasons or materially inconsistent with the interests of
such Financing Party.
(e) With reference to the obligations of the Lessee set forth in
Sections 11.3(a) through 11.3(d), the Lessee shall not have any obligation
to pay to any Financing Party amounts owning under such Sections for any
period which is more than one (1) year prior to the date upon which the
request for payment therefor is delivered to the Lessee.
(f) Notwithstanding any other provision of this Agreement, if any
Financing Party shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority asserts that
it is unlawful, for any Financing Party to perform its obligations
hereunder to make or maintain Eurodollar Loans or Eurodollar Holder
Advances, as the case may be, then (i) each Eurodollar Loan or Eurodollar
Holder Advance, as the case may be, will automatically, at the earlier of
the end of the Interest Period for such Eurodollar Loan or Eurodollar
Holder Advance, as the case may be, or the date required by law, convert
into an ABR Loan or an ABR Holder Advance, as the case may be, and (iii)
the obligation of the Financing Parties to make, convert or continue
Eurodollar Loans or Eurodollar Holder Advances, as the case may be, shall
be suspended until the Agent shall notify the Lessee that such Financing
Party has determined that the circumstances causing such suspension no
longer exist.
11.4 FUNDING/CONTRIBUTION INDEMNITY.
Subject to the provisions of Section 2.11(a) of the Credit Agreement and
3.9(a) of the Trust Agreement, as the case may be, the Lessee agrees to
indemnify each Financing Party and to hold each Financing Party harmless from
any loss or reasonable expense which such Financing Party may sustain or incur
as a consequence of (a) any default in connection with the drawing of funds for
any Advance, (b) any default in making any prepayment after a notice thereof has
been given in accordance with the provisions of the Operative Agreements or (c)
the making of a voluntary or involuntary prepayment of Eurodollar Loans or
Eurodollar Holder Advances, as the case may be, on a day which is not the last
day of an Interest Period with respect thereto. Such indemnification shall be in
an amount equal to the excess, if any, of (x) the amount of interest or Holder
Yield, as the case may be, which would have accrued on the amount so prepaid, or
not so borrowed, accepted, converted or continued for the period from the date
of such prepayment or of such failure to borrow, accept, convert or continue to
the last day of such Interest Period (or, in the case of a failure to borrow,
accept, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable Eurodollar Rate plus
the Applicable Percentage for such Loan or Holder Advance, as the case may be,
for such Interest Period over (y) the amount of interest (as determined by such
Financing Party in its reasonable discretion) which would have accrued to such
Financing Party on such amount by (i) (in the case of the Lenders) reemploying
such funds in loans of the same type and amount during the period from the date
of prepayment or failure to borrow to the last day of the then applicable
Interest Period (or, in the case of a failure to borrow, the Interest Period
that would have commenced on the date of such failure) and (ii) (in the case of
the Holders) placing such
<PAGE> 51
amount on deposit for a comparable period with leading banks in the relevant
interest rate market. This covenant shall survive the termination of the
Operative Agreements and the payment of all other amounts payable hereunder.
SECTION 12. MISCELLANEOUS.
12.1. SURVIVAL OF AGREEMENTS.
The representations, warranties, covenants, indemnities and agreements
of the parties provided for in the Operative Agreements, and the parties'
obligations under any and all thereof, shall survive the execution and delivery
of this Agreement, the transfer of any Property to the Owner Trustee, the
acquisition of any Property (or any of its components), the construction of any
Improvements, the Completion of any Property, any disposition of any interest of
the Owner Trustee in any Property or any interest of the Holders in the Trust
Estate, the payment of the Notes and any disposition thereof and shall be and
continue in effect notwithstanding any investigation made by any party and the
fact that any party may waive compliance with any of the other terms, provisions
or conditions of any of the Operative Agreements. Except as otherwise expressly
set forth herein or in other Operative Agreements, the indemnities of the
parties provided for in the Operative Agreements shall survive the expiration or
termination of any thereof.
12.2. NO BROKER, ETC.
Each of the parties hereto represents to the others that it has not
retained or employed any broker, finder or financial adviser to act on its
behalf in connection with this Agreement, nor has it authorized any broker,
finder or financial adviser retained or employed by any other Person so to act.
Any party who is in breach of this representation shall indemnify and hold the
other parties harmless from and against any liability arising out of such breach
of this representation.
12.3. NOTICES.
All notices required or permitted to be given under any Operative
Agreement shall be in writing. Notices may be served by certified or registered
mail, postage paid with return receipt requested; by private courier, prepaid;
by telex, facsimile, or other telecommunication device capable of transmitting
or creating a written record; or personally. Mailed notices shall be deemed
delivered five (5) days after mailing, properly addressed. Couriered notices
shall be deemed delivered when delivered as addressed, or if the addressee
refuses delivery, when presented for delivery notwithstanding such refusal.
Telex or telecommunicated notices shall be deemed delivered when receipt is
either confirmed by confirming transmission equipment or acknowledged by the
addressee or its office. Personal delivery shall be effective when accomplished.
Unless a party changes its address by giving notice to the other party as
provided herein, notices shall be delivered to the parties at the following
addresses:
If to the Construction Agent or the Lessee, to such entity at
the following address:
Quorum ELF, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: David F. Grams, Jr.
Telephone: (615) 371-4762
Telecopy: (615) 371-4554
<PAGE> 52
If to any Guarantor, to such entity in care of Quorum at the
following address:
Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: David F. Grams, Jr.
Telephone: (615) 371-4762
Telecopy: (615) 371-4554
If to the Owner Trustee, to it at the following address:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Val T. Orton,
Vice President
Telephone: (801) 246-5300
Telecopy: (801) 246-5053
If to any Holder, to it at the address set forth for such
Holder in Schedule I of the Trust Agreement.
If to the Agent, to it at the following address:
First Union National Bank
c/o First Union Capital Markets Group
DC-6
301 South College Street
Charlotte, North Carolina 28288-0166
Attention: Ms. Jane O. Hurley,
Capital Markets Services
Telephone: (704) 383-3812
Telecopy: (704) 383-7989
If to any Lender, to it at the address set forth for such
Lender in Schedule 1.1 of the Credit Agreement.
From time to time any party may designate additional parties
and/or another address for notice purposes by notice to each of the
other parties hereto. Each notice hereunder shall be effective upon
receipt or refusal thereof.
12.4. COUNTERPARTS.
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one (1) and the same
instrument.
<PAGE> 53
12.5. TERMINATIONS, AMENDMENTS, WAIVERS, ETC.; UNANIMOUS VOTE
MATTERS.
Each Operative Agreement may be terminated, amended, supplemented,
waived or modified only by an instrument in writing signed by, subject to
Article VIII of the Trust Agreement regarding termination of the Trust
Agreement, the Majority Secured Parties and each Credit Party (to the extent
such Credit Party is a party to such Operative Agreement); provided, to the
extent no Default or Event of Default shall have occurred and be continuing, the
Majority Secured Parties shall not amend, supplement, waive or modify any
provision of any Operative Agreement in such a manner as to adversely affect the
rights of any Credit Party without the prior written consent (not to be
unreasonably withheld or delayed) of such Credit Party. In addition, (a) the
Unanimous Vote Matters shall require the consent of each Lender and each Holder
affected by such matter and (b) any provision of any Operative Agreement
incorporated by reference or otherwise referenced in a second Operative
Agreement shall remain, respecting such second Operative Agreement, in its
original form without regard to any such termination, amendment, supplement,
waiver or modification in the first Operative Agreement except if such has been
agreed to by an instrument in writing signed by, subject to Article VIII of the
Trust Agreement regarding termination of the Trust Agreement, the Majority
Secured Parties and each Credit Party (to the extent such Credit Party is a
party to such Operative Agreement).
Notwithstanding the foregoing, no such termination, amendment,
supplement, waiver or modification shall, without the consent of the Agent and,
to the extent affected thereby, each Lender and each Holder (collectively, the
"Unanimous Vote Matters") (i) reduce the amount of any Note or any Certificate,
extend the scheduled date of maturity of any Note, extend the scheduled
Expiration Date, extend any payment date of any Note or any Certificate, reduce
the stated rate of interest payable on any Note, reduce the stated Holder Yield
payable on any Certificate (other than as a result of waiving the applicability
of any post-default increase in interest rates or Holder Yields), modify the
priority of any Lien in favor of the Agent under any Security Document,
subordinate any obligation owed to any Lender or Holder, reduce any Lender
Unused Fees or any Holder Unused Fees payable under the Participation Agreement,
extend the scheduled date of payment of any Lender Unused Fees or any Holder
Unused Fees or increase the amount or extend the expiration date of any Lender's
Commitment or the Holder Commitment of any Holder, or (ii) terminate, amend,
supplement, waive or modify any provision of this Section 12.5 or reduce the
percentages specified in the definitions of Majority Lenders, Majority Holders
or Majority Secured Parties, or consent to the assignment or transfer by the
Owner Trustee of any of its rights and obligations under any Credit Document or
release a material portion of the Collateral (except in accordance with Section
8.8) or release any Credit Party from its obligations under any Operative
Agreement or otherwise alter any payment obligations of any Credit Party to the
Lessor or any Financing Party under the Operative Agreements, or (iii)
terminate, amend, supplement, waive or modify any provision of Section 7 of the
Credit Agreement, or (iv) permit Advances for Work in excess of the Construction
Budget, or (v) eliminate the automatic option under Section 5.3(b) of the Agency
Agreement requiring that the Construction Agent pay certain liquidated damages
in exchange for the conveyance of a Property to the Construction Agent. Any such
termination, amendment, supplement, waiver or modification shall apply equally
to each of the Lenders and the Holders and shall be binding upon all the parties
to this Agreement. In the case of any waiver, each party to this Agreement shall
be restored to its former position and rights under the Operative Agreements,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
If at a time when the conditions precedent set forth in the Operative
Agreements to any Loan are, in the opinion of the Majority Lenders, satisfied,
any Lender shall fail to fulfill its obligations to make such Loan (any such
Lender, a "Defaulting Lender") then,
<PAGE> 54
for so long as such failure shall continue, the Defaulting Lender shall (unless
the Lessee and the Majority Lenders, determined as if the Defaulting Lender were
not a "Lender", shall otherwise consent in writing) be deemed for all purposes
relating to terminations, amendments, supplements, waivers or modifications
under the Operative Agreements to have no Loans, shall not be treated as a
"Lender" when performing the computation of Majority Lenders or Majority Secured
Parties, and shall have no rights under this Section 12.5; provided that any
action taken pursuant to the second paragraph of this Section 12.5 shall not be
effective as against the Defaulting Lender.
If at a time when the conditions precedent set forth in the Operative
Agreements to any Holder Advance are, in the opinion of the Majority Holders,
satisfied, any Holder shall fail to fulfill its obligations to make such Holder
Advance (any such Holder, a "Defaulting Holder") then, for so long as such
failure shall continue, the Defaulting Holder shall (unless the Lessee and the
Majority Holders, determined as if the Defaulting Holder were not a "Holder",
shall otherwise consent in writing) be deemed for all purposes relating to
terminations, amendments, supplements, waivers or modifications under the
Operative Agreements to have no Holder Advances, shall not be treated as a
"Holder" when performing the computation of Majority Holders or Majority Secured
Parties, and shall have no rights under this Section 12.5; provided that any
action taken pursuant to the second paragraph of this Section 12.5 shall not be
effective as against the Defaulting Holder.
12.6. HEADINGS, ETC.
The Table of Contents and headings of the various Articles and Sections
of this Agreement are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof.
12.7. PARTIES IN INTEREST.
Except as expressly provided herein, none of the provisions of this
Agreement are intended for the benefit of any Person except the parties hereto.
12.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; VENUE; ARBITRATION.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal
action or proceeding with respect to this Agreement or any other
Operative Agreement may be brought in the courts of the State of North
Carolina in Mecklenburg County or of the United States for the Western
District of North Carolina, and, by execution and delivery of this
Agreement, each of the parties to this Agreement hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the nonexclusive jurisdiction of such courts. Each of
the parties to this Agreement further irrevocably consents to the
service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it at the address set out for
notices pursuant to Section 12.3, such service to become effective
three (3) days after such mailing. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by
Law or to commence legal proceedings or to otherwise proceed against
any party in any other jurisdiction.
<PAGE> 55
(b) EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW,
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT, ANY OTHER OPERATIVE AGREEMENT AND FOR ANY COUNTERCLAIM
THEREIN.
(c) Each of the parties to this Agreement hereby irrevocably
waives any objection which it may now or hereafter have to the laying
of venue of any of the aforesaid actions or proceedings arising out of
or in connection with this Agreement or any other Operative Agreement
brought in the courts referred to in subsection (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
(d) Notwithstanding the provisions of Section 12.8(a) or of
any other Operative Agreement to the contrary, upon demand of any party
to this Agreement and/or any other Operative Agreement, whether made
before or within three (3) months after institution of any judicial
proceeding, any dispute, claim or controversy arising out of, connected
with or relating to this Agreement and/or any other Operative Agreement
between or among parties to this Agreement and/or any other Operative
Agreement ("Disputes") 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,
disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from agreements executed in
the future, or claims arising out of or connected with the transaction
reflected by this Agreement and/or any other Operative Agreement.
Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration
Rules") of the American Arbitration Association (the "AAA") and Title 9
of the United States Code. All arbitration hearings shall be conducted
in Charlotte, North Carolina. A hearing shall begin within ninety (90)
days of demand for arbitration and all hearings shall be conducted
within one hundred and twenty (120) days of demand for arbitration.
These time limitations may not be extended unless a party shows cause
for extension and then no more than a total extension of sixty (60)
days. 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 selected from the Commercial
Financial Disputes Arbitration Panel of the AAA. 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 or if such person is not available
to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to swap agreements.
Notwithstanding the immediately preceding binding arbitration
provisions, the parties to this Agreement and/or any other Operative
Agreement agree to preserve, without diminution, certain remedies that
the Agent on behalf of the Lenders and the Holders may employ or
exercise freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought.
<PAGE> 56
The Agent on behalf of the Lenders and the Holders shall have the right
to proceed in any court of proper jurisdiction or by self-help to
exercise or prosecute the following remedies, as applicable (i) all
rights to foreclose against any real or personal property or other
security by exercising a power of sale granted under any Operative
Agreement or under applicable Law or by judicial foreclosure and sale,
including without limitation a proceeding to confirm the sale; (ii) all
rights of self-help including without limitation peaceful occupation of
real property and collection of rents, set-off and peaceful possession
of personal property; (iii) obtaining provisional or ancillary remedies
including without limitation injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and 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.
The parties to this Agreement and/or any other Operative
Agreement agree that they shall not have a remedy of special, punitive
or exemplary damages against any other party in any Dispute and hereby
waive any right or claim to special, 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.
By execution and delivery of this Agreement and/or any other
Operative Agreement, each of the parties hereto and/or thereto accepts,
for itself and in connection with its properties, generally and
unconditionally, the non-exclusive jurisdiction relating to any
arbitration proceedings conducted under the Arbitration Rules in
Charlotte, North Carolina and irrevocably agrees to be bound by any
final judgment rendered thereby in connection with this Agreement
and/or any other Operative Agreement from which no appeal has been
taken or is available.
12.9. SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
12.10. LIABILITY LIMITED.
(a) The Lenders, the Agent, the Credit Parties, the Owner
Trustee and the Holders each acknowledge and agree that the Owner
Trustee is (except as otherwise expressly provided herein or therein)
entering into this Agreement and the other Operative Agreements to
which it is a party (other than the Trust Agreement and to the extent
otherwise provided in Section 6.2 of this Agreement), solely in its
capacity as trustee under the Trust Agreement and not in its individual
capacity and that the Trust Company shall not be liable or accountable
under any circumstances whatsoever in its individual capacity for or on
account of any statements, representations, warranties, covenants or
obligations stated to be those of the Owner Trustee, except for its own
gross negligence or willful misconduct and as otherwise expressly
provided herein or in the other Operative Agreements.
<PAGE> 57
(b) Anything to the contrary contained in this Agreement, the
Credit Agreement, the Notes or in any other Operative Agreement
notwithstanding, no Exculpated Person shall be personally liable in any
respect for any liability or obligation arising hereunder or in any
other Operative Agreement including without limitation the payment of
the principal of, or interest on, the Notes, or for monetary damages
for the breach of performance of any of the covenants contained in the
Credit Agreement, the Notes, this Agreement, the Security Agreement or
any of the other Operative Agreements. The Lenders, the Holders and the
Agent agree that, in the event any remedies under any Operative
Agreement are pursued, neither the Lenders, the Holders nor the Agent
shall have any recourse against any Exculpated Person, for any
deficiency, loss or Claim for monetary damages or otherwise resulting
therefrom and recourse shall be had solely and exclusively against the
Trust Estate (excluding Excepted Payments) and the Credit Parties (with
respect to the Credit Parties' obligations under the Operative
Agreements); but nothing contained herein shall be taken to prevent
recourse against or the enforcement of remedies against the Trust
Estate (excluding Excepted Payments) in respect of any and all
liabilities, obligations and undertakings contained herein and/or in
any other Operative Agreement. Notwithstanding the provisions of this
Section, nothing in any Operative Agreement shall: (i) constitute a
waiver, release or discharge of any indebtedness or obligation
evidenced by the Notes and/or the Certificates arising under any
Operative Agreement or secured by any Operative Agreement, but the same
shall continue until paid or discharged; (ii) relieve any Exculpated
Person from liability and responsibility for (but only to the extent of
the damages arising by reason of): active waste knowingly committed by
any Exculpated Person with respect to any Property, any fraud, gross
negligence or willful misconduct on the part of any Exculpated Person;
(iii) relieve any Exculpated Person from liability and responsibility
for (but only to the extent of the moneys misappropriated, misapplied
or not turned over) (A) except for Excepted Payments, misappropriation
or misapplication by the Lessor (i.e., application in a manner contrary
to any of the Operative Agreements) of any insurance proceeds or
condemnation award paid or delivered to the Lessor by any Person other
than the Agent, (B) except for Excepted Payments, any deposits or any
escrows or amounts owed by the Construction Agent under the Agency
Agreement held by the Lessor or (C) except for Excepted Payments, any
rent or other income received by the Lessor from any Credit Party that
is not turned over to the Agent; or (iv) affect or in any way limit the
Agent's rights and remedies under any Operative Agreement with respect
to the Rents and rights and powers of the Agent under the Operative
Agreements or to obtain a judgment against the Lessee's interest in the
Properties or the Agent's rights and powers to obtain a judgment
against the Lessor or any Credit Party (provided, that no deficiency
judgment or other money judgment shall be enforced against any
Exculpated Person except to the extent of the Lessor's interest in the
Trust Estate (excluding Excepted Payments) or to the extent the Lessor
may be liable as otherwise contemplated in clauses (ii) and (iii) of
this Section 12.10(b)).
12.11. RIGHTS OF THE CREDIT PARTIES.
If at any time all obligations (i) of the Owner Trustee under the
Credit Agreement, the Security Documents and the other Operative Agreements and
(ii) of the Credit Parties under the Operative Agreements have in each case been
satisfied or discharged in full, then the Credit Parties shall be entitled to
(a) terminate the Lease and the guaranty obligations under Section 6B and (b)
receive all amounts then held under the Operative Agreements and all proceeds
with respect to any of the Properties. Upon the termination
<PAGE> 58
of the Lease and Section 6B pursuant to the foregoing clause (a), the Lessor
shall transfer to the Lessee or its designee all of its right, title and
interest free and clear of the Lien of the Lease, the Lien of the Security
Documents and all Lessor Liens in and to any Properties then subject to the
Lease and any amounts or proceeds referred to in the foregoing clause (b) shall
be paid over to the Lessee.
12.12. FURTHER ASSURANCES.
The parties hereto shall promptly cause to be taken, executed,
acknowledged or delivered, at the sole expense of the Lessee, all such further
acts, conveyances, documents and assurances as the other parties may from time
to time reasonably request in order to carry out and effectuate the intent and
purposes of this Participation Agreement, the other Operative Agreements and the
transactions contemplated hereby and thereby (including without limitation the
preparation, execution and filing of any and all Uniform Commercial Code
financing statements, filings of Mortgage Instruments and other filings or
registrations which the parties hereto may from time to time request to be filed
or effected). The Lessee, at its own expense and without need of any prior
request from any other party, shall take such action as may be necessary
(including without limitation any action specified in the preceding sentence),
or (if the Owner Trustee shall so request) as so requested, in order to maintain
and protect all security interests provided for hereunder or under any other
Operative Agreement.
12.13. CALCULATIONS UNDER OPERATIVE AGREEMENTS.
The parties hereto agree that all calculations and numerical
determinations to be made under the Operative Agreements by the Owner Trustee
shall be made by the Agent and that such calculations and determinations shall
be conclusive and binding on the parties hereto in the absence of manifest
error; provided, notwithstanding the foregoing, Lessee shall retain its right to
contest matters in accordance with the express provisions of the Operative
Agreements.
12.14. CONFIDENTIALITY.
Each Financing Party severally agrees to use reasonable efforts to keep
confidential all non-public information pertaining to any Credit Party or any of
its Subsidiaries which is provided to it by any Credit Party or any of its
Subsidiaries and which an officer of any Credit Party or any of its Subsidiaries
has requested in writing be kept confidential, and shall not intentionally
disclose such information to any Person except:
(a) to the extent such information is public when received by
such Person or becomes public thereafter due to the act or omission of
any party other than such Person;
(b) to the extent such information is independently obtained
from a source other than any Credit Party or any of its Subsidiaries
and such information from such source is not, to such Person's
knowledge, subject to an obligation of confidentiality or, if such
information is subject to an obligation of confidentiality, that
disclosure of such information is permitted;
(c) to counsel, auditors or accountants retained by any such
Person or any Affiliates of any such Person (if such Affiliates are
permitted to receive such information pursuant to clause (f) or (g)
below), provided they agree to keep such information confidential as if
such Person or Affiliate were party to this
<PAGE> 59
Agreement and to financial institution regulators, including examiners
of any Financing Party or any Affiliate thereof in the course of
examinations of such Persons;
(d) in connection with any litigation or the enforcement or
preservation of the rights of any Financing Party under the Operative
Agreements;
(e) to the extent required by any applicable statute, rule or
regulation or court order (including without limitation, by way of
subpoena) or pursuant to the request of any regulatory or Governmental
Authority having jurisdiction over any such Person; provided, however,
that such Person shall endeavor (if not otherwise prohibited by Law) to
notify the Lessee prior to any disclosure made pursuant to this clause
(e), except that no such Person shall be subject to any liability
whatsoever for any failure to so notify the Lessee;
(f) any Financing Party may disclose such information to
another Financing Party or to any Affiliate of a Financing Party that
is a direct or indirect owner of any Financing Party;
(g) any Financing Party may disclose such information to an
Affiliate of any Financing Party to the extent required in connection
with the transactions contemplated hereby or to the extent such
Affiliate is involved in, or provides advice or assistance to such
Person with respect to, such transactions (provided, in each case that
such Affiliate has agreed in writing to maintain confidentiality as if
it were such Financing Party (as the case may be)); or
(h) to the extent disclosure to any other financial
institution or other Person is appropriate in connection with any
proposed or actual (i) assignment or grant of a participation by any of
the Lenders of interests in the Credit Agreement or any Note to such
other financial institution (who will in turn be required by the Agent
to agree in writing to maintain confidentiality as if it were a Lender
originally party to this Agreement) or (ii) assignment by any Holder of
interests in the Trust Agreement to another Person (who will in turn be
required by the transferring Holder to agree in writing to maintain
confidentiality as if it were a Holder originally party to this
Agreement).
Subject to the terms of Sections 12.14(a), (b), (d) and (e) under the
terms of any one or more of which circumstances disclosure shall be permitted,
each Financing Party severally agrees to use reasonable efforts to keep
confidential all non-public information pertaining to the financing structure
described in the unrecorded Operative Agreements.
12.15. FINANCIAL REPORTING/TAX CHARACTERIZATION.
Lessee agrees to obtain advice from its own accountants and tax counsel
regarding the financial reporting treatment and the tax characterization of the
transactions described in the Operative Agreements. Lessee further agrees that
Lessee shall not rely upon any statement of any Financing Party or any of their
respective Affiliates and/or Subsidiaries regarding any such financial reporting
treatment and/or tax characterization.
12.16. 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, the Holders,
<PAGE> 60
their respective Affiliates and any assignee or participant of a Lender
or a Holder in accordance with the applicable provisions of the
Operative Agreements are hereby authorized by the Credit Parties at any
time or from time to time, without notice to the Credit Parties 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 without limitation indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and
any other indebtedness at any time held or owing by the Lenders, the
Holders, their respective Affiliates or any assignee or participant of
a Lender or a Holder in accordance with the applicable provisions of
the Operative Agreements to or for the credit or the account of any
Credit Party against and on account of the obligations of any Credit
Party under the Operative Agreements irrespective of whether or not (a)
the Lenders or the Holders shall have made any demand under any
Operative Agreement or (b) the Agent shall have declared any or all of
the obligations of any Credit Party under the Operative Agreements to
be due and payable and although such obligations shall be contingent or
unmatured.
[signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
CONSTRUCTION AGENT
AND LESSEE:
QUORUM ELF, INC., a Delaware corporation
By:
Name:
Title:
<PAGE> 61
GUARANTORS:
QUORUM HEALTH GROUP, INC.,
a Delaware corporation
CAROLINAS MEDICAL ALLIANCE, INC.,
a South Carolina corporation
CLINTON COUNTY HEALTH SYSTEM LLC,
a Delaware limited liability company
FRANKFORT HEALTH PARTNER, INC.,
an Indiana corporation
GADSDEN REGIONAL PRIMARY CARE, INC.,
an Alabama corporation
HOSPITAL MANAGEMENT PROFESSIONALS, INC.,
a Tennessee corporation
MIDDLE GEORGIA MOB, INC.,
a Georgia corporation
NC-CNH, INC.,
a Georgia corporation
<PAGE> 1
EXHIBIT 4.2
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment") dated
November 26, 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 heretofore and
hereafter 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 further 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. Amendment of Definition of Contingent Obligation. The
definition of "Contingent Obligation" is hereby amended by adding following the
words "monetary obligation" a parenthetical to read as follows:
(specifically excluding any monetary obligation arising from the guaranty of an
operating lease of the Borrower or its Consolidated Entities).
2. Amendment of Definition of Debt. The definition of "Debt" is
amended by (i) deleting the word "and" at the end of clause (e) thereof, (ii)
inserting the word ", and" and deleting the semicolon at the end of clause (f)
thereof and (iii) adding the following new clause (g):
(g) an amount equal to the aggregate principal
balance of the Tranche A Notes, the Tranche B Notes and the Holder Advances (as
such terms are defined in the Quorum ELLF Credit Agreement or the Quorum ELLF
Participation Agreement, as the case may be).
<PAGE> 2
3. Amendment of Definition of Swingline Rate. The definition of
"Swingline Rate" is hereby amended by deleting the figure of "0.50%" and
inserting therefor the figure of "1.50%."
4. Amendment of Section 1.1, Definitions. Section 1.1 is hereby
amended to add in alphabetical order new definitions to read as follows:
"Quorum ELLF" means First Security Bank, National Association, as Owner
Trustee (or any successor), under the Quorum Real Estate Trust 1997-1.
"Quorum ELLF Credit Agreement" means that certain credit agreement
dated as of November __, 1997, among the Quorum ELLF, as borrower, the Lenders
party thereto and First Union National Bank, as Agent.
"Quorum ELLF Lease" means that certain lease agreement dated as of
November ___, 1997, between the Quorum ELLF, as Lessor, and Quorum ELF, Inc, as
Lessee.
"Quorum ELLF Participation Agreement" means that certain participation
agreement dated as of November ___, 1997, among Quorum ELF, Inc., the Quorum
ELLF, the Banks and other lending institutions party thereto and First Union
National Bank, as Agent under the Quorum ELLF Credit Agreement.
5. Amendment of Section 2.1(b), Competitive Bid Loans. The
proviso set forth in the first sentence of Section 2.1(b) is hereby amended by
deleting therefrom the figure of $225,000,000 and substituting therefor the
figure of $425,000,000.
6. Amendment of Section 2.8, Termination and Extension of Credit
Agreement. Section 2.8 is hereby amended by deleting the first sentence and
substituting therefor the following:
The Credit Facility shall terminate on the earliest of (a) November __,
2002 (as such date may be extended pursuant to this Section 2.8, the
"Termination Date"), (b) the date of termination in whole 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 any anniversary of November ___, 1997 (other than the Termination Date
then in effect), 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.
<PAGE> 3
7. Amendment of Section 7.1(c). Section 7.1(c) is hereby amended
and restated in its entirety to read as follows:
(c) Not later than forty-five (45) days after the end of each
fiscal quarter, a margin certificate in substantially the form of Exhibit I
attached hereto (the "Margin 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 the period
of four consecutive fiscal quarters ending with such quarter-end and setting
forth the computations employed in calculating the ratio.
8. Amendment of Section 8.11, Wholly-Owned Entities. Section 8.11
is hereby amended by deleting the words "Concurrently with" and inserting
therefor the words "Within thirty (30) days after."
9. Amendment of Article IX, Financial Covenants. Article IX is
hereby amended by adding the following new paragraph at the end of such Article
as follows:
For purposes of calculating the financial covenants in Sections 9.1, 9.2,
9.3 and 9.4 above and in order to appropriately reflect the effect of the Quorum
ELLF Credit Agreement, the Quorum ELFF Lease and the Quorum ELLF Participation
Agreement on such covenants, (a) "Total Debt" as used in Sections 9.1 and 9.4
and in the definition of Total Capitalization shall include the aggregate
principal balance of the Tranche A Notes and exclude the aggregate principal
balance of the Tranche B Notes and the Holder Advances (as defined in the Quorum
ELLF Credit Agreement or the Quorum ELLF Participation Agreement, as the case
may be), (b) "Senior Debt" as used in Section 9.2 shall include the aggregate
principal balance of the Tranche A Notes and exclude the aggregate principal
balance of the Tranche B Notes and the Holder Advances (as defined in the Quorum
ELLF Credit Agreement or the Quorum ELLF Participation Agreement, as the case
may be), (c) there shall be added to EBITDA in clause (ii) of Sections 9.1 and
9.2 any and all lease payments due under the Quorum ELLF Lease and (d)
"Operating Lease Payments" as used in the definition of Net Income Available for
Debt Service and in Section 9.3 shall include any and all lease payments due
under the Quorum ELLF Lease.
10. Amendment of Section 10.1, Limitations on Debt. Section 10.1
is hereby amended by (a) deleting the word "and" at the end of clause (f)
thereof, (b) inserting the word "and" at the end of clause (g) thereof and (c)
adding the following new clause (h):
(h) Debt referred to in clause (g) of the definition of
Debt in an aggregate amount not to exceed $150,000,000 at any time outstanding.
11. Amendment of Section 10.3, Limitation on Liens. Section 10.3
is amended by (a) deleting the word "and" at the end of clause (i), (b)
inserting the word "and" at the end of clause (j), and (c) adding the following
new clause (k):
<PAGE> 4
(k) Liens arising under the Quorum ELLF Credit Agreement.
12. Amendment of Section 10.4(c). Section 10.4(c) is hereby
amended by (a) deleting the word "and" at the end of clause (ii), (b) deleting
the period at the end of clause (iii), (c) adding at the end of clause (iii) ";
and" and (d) adding the following new clause (iv) to read as follows:
(iv) the Borrower to eligible employees pursuant to stock
purchase plans adopted by the Borrower's Board of Directors and which loans are
solely for the purpose of purchasing common stock of the Borrower; provided,
that such loans, as approved by the Board of Directors of the Borrower, shall be
secured by a pledge to the Borrower of all the common stock purchased with the
proceeds of such loans; and provided further, that the aggregate principal
amount of all such loans does not exceed $25,000,000.
13. Amendment of Section 10.4(g). Section 10.4(g) is hereby
amended by (a) inserting at the end of the second parenthetical of clause (i)
the phrase "and any acquisition of a Facility or other acquisition or Investment
by the Quorum ELLF (a "Quorum ELLF Investment")"; (b) deleting the word "and" at
the end of clause (iii); (c) deleting the period at the end of clause (iv) and
inserting "; and" therefore"; and (d) adding the following new clause (v) to
read as follows:
(v) for the purposes of clause (i)(2) and clause (iii) of this Section 10.4(g),
the aggregate amount of any Quorum ELLF Investment shall be included in the
calculation of Total Consolidated Assets.
14. Amendment of Section 10.4(i). Section 10.4(i) is hereby
deleted in its entirety and the following substituted therefor:
(i) other Investments in an aggregate amount not to exceed $50,000,000 at
any time; provided that (A) such Investments shall be within the Line of
Business of the Borrower and its Consolidated Entities, (B) 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, and (C) any items incurred by such Person which would constitute Debt
(if incurred by the Borrower or any Consolidated Entity) shall be included in
"Total Debt" and "Senior Debt" for the purposes of Sections 9.1, 9.2 and 9.4 in
an amount equal to the product of (x) the Borrower's percentage ownership in
such Person and (y) the aggregate amount of such Debt.
15. Amendment of Section 10.5, Limitations on Mergers and
Liquidations. Section 10.5 is hereby amended by adding at the beginning of such
Section a new clause to read "Except as permitted under Section 13.11 with
respect to the dissolution or liquidation of a Guarantor having no business
operations and no assets,".
<PAGE> 5
16. Amendment of Section 10.11, Amendments; Payments and
Prepayments of Subordinated Debt. Section 10.11 is hereby amended by adding the
following sentence:
Nothing in this Section 10.11 shall prohibit the amendment of the 1995
Indenture on terms no more restrictive on the Borrower than those in this
Agreement and provided that no such amendment shall (i) directly or indirectly,
modify the provisions of Article Twelve of the 1995 Indenture in any manner
which might terminate or impair the subordination of the Securities (as defined
therein), (ii) increase the principal amount of or the interest or premium on
the Subordinated Debt or (iii) cause the 1995 Senior Subordinated Notes to
mature earlier than November 1, 2005.
17. Waiver of Section 10.12, Restrictive Agreements. The Agent and
the Lenders hereby waive compliance by the Borrower with the provisions of
Section 10.12 and any other provision of the Credit Agreement to the extent, but
only to the extent, necessary to permit the Borrower to enter into the Quorum
ELLF Lease in the form in which it exists on the date on which it is executed
and to perform the Borrower's obligations thereunder and under the other
documents related thereto.
18. Amendment of Section 13.3, Set-off. Section 13.3 is hereby
amended by adding the phrase "or Affiliate" after the phrase "assignee or
participant" wherever such phrase appears in Section 13.3.
19. Amendment of Section 13.10(b), Assignment by Lenders. Section
13.10(b) is hereby amended by (a) deleting from the end of clause (iv) the word
"and", (b) deleting the period from the end of clause (v) and inserting therefor
"; and", and (c) adding a new clause (vi) to read as "(vi) any assignment shall
include a proportional assignment under the Quorum ELLF Credit Agreement.".
20. Amendment of Section 13.10(f), Participation. Section 13.10(f)
is hereby amended by (a) deleting from the end of clause (vi) the "and", (b)
deleting the period from the end of clause (vii) and inserting therefor "; and"
and (c) adding a new clause (viii) to read as "(viii) each such participation
shall include a proportional participation under the Quorum ELLF Credit
Agreement".
21. Amendment of Section 13.11, Amendments, Waivers and Consents.
Section 13.11 is hereby amended by deleting the period at the end of such
Section and adding to the end thereof a new proviso to read in its entirety as
follows:
<PAGE> 6
provided, that (i)the Agent shall be permitted to release any
Guarantor from the Guaranty Agreement without the consent of any other Lender if
the release is granted in connection with a disposition of all the shares of
stock or partnership or other equity interest in such Guarantor and such
disposition is permitted pursuant to Section 10.6(f) and (ii) the Agent shall be
permitted to release any Guarantor from the Guaranty Agreement without the
consent of any other Lender if the release is requested by the Borrower in
connection with a dissolution of the Guarantor, subject to the Borrower
providing to the Agent written representations to the effect that such Guarantor
has no business operations and no assets.
22. Amendment of Exhibit C-1, Form of Competitive Bid Request.
Exhibit C-1 is hereby amended by adding thereto the following new part 3:
3. Applicable LIBOR Margin. As of the date hereof the
applicable LIBOR Margin is ________________ .
23. Amendment Regarding Exhibit I. The Credit Agreement is hereby
amended to add as an exhibit thereto "Exhibit I - Form of Margin Certificate" in
the form attached hereto as Exhibit A.
24. Amendment of Schedule I, Lenders and Commitments. Schedule 1
is hereby amended by deleting such Schedule in its entirety and inserting
therefor the Schedule 1 attached to this Amendment. The Agent and the Lenders
shall make all appropriate adjustments on the date of closing of this Amendment
in order to reflect the Lenders' Commitments as revised pursuant to Schedule 1.
By their execution hereof, Citibank, N.A. hereby assigns all of its right, title
and interest in and to its Commitment under the Credit Agreement to its
Affiliate, Citicorp USA, Inc., and Citicorp USA, Inc. hereby accepts such
assignment. By their execution hereof, The Fuji Bank, Limited, Atlanta Agency
hereby assigns all of its right title and interest in and to its Commitment
under the Credit Agreement to its Affiliate, FBTC Leasing Corp., and FBTC
Leasing Corp. hereby accepts such assignment.
25. Waiver of Covenants Limiting Investments and Asset
Disposition. The Agent and the Lenders hereby consent to the conveyance by the
Borrower of its Desert Springs Hospital and related assets, together with cash
consideration which is currently estimated to be approximately $27,700,000, to
a joint venture to be formed by Universal Health Services, Inc., in exchange
for which the Borrower shall receive an interest in such joint venture
commensurate with its Investment, and waive compliance with the provisions of
Sections 10.4 and 10.6 of the Credit Agreement to the extent, but only to the
extent, necessary to permit such conveyance and Investment; provided, that (a)
(i) the amount of any items incurred by the joint venture which would
constitute Debt (if incurred by the Borrower or any Consolidated Entity), in
the aggregate, shall not exceed $20,000,000, or (ii) if such items which would
constitute Debt exceed, in the aggregate, $20,000,000, Consolidated Net Income
shall thereafter exclude the net income from
<PAGE> 7
such joint venture and any related tax effect thereof and (b) if the
distribution policy of such joint venture as of the date of such Investment by
the Borrower shall be amended or otherwise modified, then Consolidated Net
Income shall thereafter exclude the net income from such joint venture and any
related tax effect thereof.
26. Effectiveness. This Amendment shall become effective upon
(a) its due execution and delivery of the parties hereto and (b) the execution
and delivery of the Quorum ELLF Credit Agreement by the parties hereto;
provided, that it is intended that the execution and delivery of the Quorum ELLF
Credit Agreement shall occur simultaneously with the effectiveness of this
Amendment.
27. 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 or 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.
28. Bringdown; References to Credit Agreement. The Borrower hereby
represents and warrants that (a) the representations and warranties contained in
Article VI of the Credit Agreement are true and correct in all material respects
as of the date hereof (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) and (b) no Default
or Event of Default has occurred and is continuing as of the date hereof. 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.
29. Miscellaneous. Except as hereby amended, the Credit Agreement
shall remain 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.
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Second Amendment to Credit Agreement as of the date first written
above.
QUORUM HEALTH GROUP, INC.
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.1
VALLEY/DESERT CONTRIBUTION AGREEMENT
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
1. Contribution of Assets........................................................................ 2
1.1 Creation of Subsidiaries; Agreement to Contribute;
and Merger............................................................................... 2
1.2 Excluded Assets.......................................................................... 4
1.3 Contract Assignments..................................................................... 5
1.4 Instruments of Conveyance................................................................ 6
1.5 Consideration; Working Capital Shortage/Overage.......................................... 6
1.6 Liabilities Assumed...................................................................... 8
1.7 Liabilities Not Assumed.................................................................. 8
1.8 Closing.................................................................................. 10
2. Representations and Warranties of Parties..................................................... 11
2.1 Existence; Good Standing; Corporate Authority............................................ 11
2.2 Authorization; Validity and Effect of Agreements......................................... 11
2.3 Subsidiaries............................................................................. 12
2.4 Capitalization........................................................................... 13
2.5 Records.................................................................................. 13
2.6 Financial Statements..................................................................... 13
2.7 Absence of Undisclosed Liabilities....................................................... 14
2.8 Absence of Certain Changes or Events Since the
Date of the Balance Sheets............................................................... 14
2.9 Taxes.................................................................................... 16
2.10 Real Property............................................................................ 16
2.11 Title to Property and Assets; Sufficiency of
Facilities Assets........................................................................ 18
2.12 Condition of Property.................................................................... 19
2.13 List of Contracts and Other Data......................................................... 19
2.14 No Breach or Default..................................................................... 21
2.15 Labor Controversies...................................................................... 21
2.16 Litigation............................................................................... 21
2.17 Patents; Trademarks, Etc................................................................. 22
2.18 Licenses; Permits; Authorizations........................................................ 22
2.19 Compliance with Applicable Law;
Environmental Laws....................................................................... 22
2.20 Employee Benefit Plans; Employees and Employee
Relations................................................................................ 25
2.21 Adverse Agreements; No Adverse Change.................................................... 26
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
2.22 Trade Notes and Accounts Receivable; Trade
Accounts Payable; Prepaid Contracts............................................................ 26
2.23 Inventories and Supplies....................................................................... 27
2.24 Illegal Payments............................................................................... 27
2.25 Insurance Policies............................................................................. 27
2.26 Professional Staff, Medicare, Medicaid
and Other Health Care Programs................................................................. 28
2.27 Facility Surveys............................................................................... 29
2.28 Related Party Transactions..................................................................... 29
2.29 No Brokers..................................................................................... 29
2.30 No Misrepresentation or Omission............................................................... 29
3. [Intentionally Omitted]............................................................................. 30
4. Covenants of the Parties............................................................................ 30
4.1 Access to Facilities and Additional Information................................................ 30
4.2 Operations..................................................................................... 30
4.3 Negative Covenants............................................................................. 31
4.4 Governmental Approvals......................................................................... 32
4.5 Insurance Ratings.............................................................................. 32
4.6 Employees; Employee Benefit Plans.............................................................. 32
4.7 Further Acts and Assurances.................................................................... 33
4.8 Summerlin Transaction.......................................................................... 33
4.9 Additional Properties and Assets............................................................... 34
5. Matters Pertaining to the Company................................................................... 34
5.1 Employee Matters............................................................................... 34
5.2 Further Acts and Assurances.................................................................... 34
6. Conditions of Closing............................................................................... 35
6.1 Conditions of Closing.......................................................................... 35
7. Nature and Survival of Representations and Warranties;
Indemnification..................................................................................... 38
7.1 Events of Default.............................................................................. 38
7.2 Survival of Representations, Etc............................................................... 38
7.3 Indemnification................................................................................ 38
7.4 Representation, Cooperation and Settlement..................................................... 39
8. Transactions Subsequent to the Closing Date......................................................... 40
8.1 Access to Records.............................................................................. 40
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
8.2 Litigation Cooperation........................................................................ 40
9. Termination........................................................................................ 41
9.1 Methods of Termination........................................................................ 41
9.2 Procedure Upon Termination.................................................................... 41
10. Miscellaneous...................................................................................... 41
10.1 Notice........................................................................................ 41
10.2 Execution of Additional Documents............................................................. 43
10.3 Waivers and Amendment......................................................................... 43
10.4 Expenses...................................................................................... 44
10.5 Occurrence of Conditions Precedent............................................................ 44
10.6 Confidentiality Obligations; Public Announcements............................................. 44
10.7 Binding Effect; Benefits...................................................................... 45
10.8 Entire Agreement.............................................................................. 45
10.9 Governing Law................................................................................. 45
10.10 Counterparts................................................................................. 45
10.11 Headings..................................................................................... 45
10.12 Incorporation of Exhibits and Schedules...................................................... 45
10.13 Severability................................................................................. 46
10.14 Assignability................................................................................ 46
Joinder Agreement - Universal Health Services, Inc................................................. 48
Joinder Agreement - Quorum Health Group, Inc....................................................... 49
</TABLE>
<PAGE> 4
VALLEY/DESERT CONTRIBUTION AGREEMENT
This Agreement (the "Agreement") is dated this 30th day of January,
1998, by and among Valley Hospital Medical Center, Inc., a Nevada corporation
("Valley") and NC-DSH, Inc., a Nevada corporation ("Desert Springs")(Valley and
Desert Springs are sometimes hereinafter referred to collectively as the
"Parties" and individually as a "Party").
WITNESSETH:
WHEREAS, Valley owns all of the right, title and interest in and to
certain assets used to operate Valley Hospital Medical Center and certain
related businesses operated by Valley in and around Las Vegas, Nevada
(collectively, the "UHS Facilities"); and
WHEREAS, Desert Springs owns all of the right, title and interest in
and to certain assets used to operate Desert Springs Hospital and certain
related businesses operated by Desert Springs in and around Las Vegas, Nevada
(collectively, the "Quorum Facilities"); and
WHEREAS, the Parties desire to combine the UHS Facilities and the
Quorum Facilities and operate such combined facilities as a limited liability
company pursuant to the Limited Liability Company Act as enacted in the State of
Delaware (the "LLC Act"); and
WHEREAS, pursuant to the terms of this Agreement Valley desires to
contribute the UHS Facilities in exchange for a seventy-two and one-half percent
(72.5%) membership interest in such limited liability company; and
WHEREAS, pursuant to the terms of this Agreement Desert Springs desires
to contribute the Quorum Facilities in exchange for a twenty-seven and one-half
percent (27.5%) membership interest in such limited liability company; and
WHEREAS, the Parties desire to enter into this Agreement for the
purpose of setting forth their respective rights and obligations as hereinafter
set forth.
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NOW, THEREFORE, in consideration of the premises, the provisions and
the respective agreements hereinafter set forth, the Parties, intending to be
legally bound hereby, agree as follows:
1. Contribution of Assets.
1.1 Creation of Subsidiaries; Agreement to Contribute; and
Merger. On or prior to the Closing Date (as hereinafter defined) Valley shall
create Valley Health System LLC, a wholly owned limited liability company
("Newco UHS-1") pursuant to the LLC Act and Desert Springs shall create Newco Q
LLC, a wholly owned limited liability company ("Newco Q-1") pursuant to the LLC
Act. Upon the terms and subject to the conditions set forth in this Agreement,
on the Closing Date, Valley and Desert Springs shall contribute, convey, assign,
transfer and deliver to Newco UHS-1 and Newco Q-1, respectively, all of their
respective right, title and interest in and to the Facilities Assets (as defined
below), except for the Excluded Assets (as hereinafter defined), free and clear
of all liens, charges, claims, pledges, security interests and encumbrances of
any nature whatsoever (collectively, "Liens"), except for Permitted Encumbrances
(as hereinafter defined). Immediately following the contribution, conveyance,
assignment, transfer and delivery of the Facilities Assets in accordance with
the preceding sentence, Newco Q-1 shall be merged with and into Newco UHS-1
pursuant to the Agreement of Merger ("Agreement and Plan of Merger") attached
hereto as Exhibit A (the "Merger"). Following the Merger, the separate corporate
existence of Newco Q-1 shall cease and Newco UHS-1 shall continue as the
surviving limited liability company (the "Company") with Valley owning a
seventy-two and one-half percent (72.5%) membership interest in the Company and
Desert Springs owning a twenty-seven and one-half percent (27.5%) membership
interest in the Company. The "Facilities Assets" shall mean and include all
those personal, tangible and intangible properties, and the real properties and
improvements of the Parties used in connection with the operation of the UHS
Facilities and the Quorum Facilities (collectively, the "Facilities") as set
forth below, other than the Excluded Assets, including, without limitation,(i)
the going concern value of the Facilities, if any, and (ii) the following:
(a) all fee or leasehold title to all real property,
including the real property described in Schedule 2.10, which
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Schedule identifies the property as fee or leasehold, together with all
improvements, buildings and fixtures located thereon or therein, including the
Facilities and all construction in progress (such real properties owned in fee
are hereafter collectively, the "Real Property");
(b) all equipment, computers, computer hardware and
software (subject to any restrictions by the licensor on the assignment
thereof), tools, supplies, furniture, vehicles and other tangible personal
property and assets owned or leased by the Parties related to the Facilities as
of the date of this Agreement, as such items may be modified prior to the
Closing Date in the ordinary course of business, and including without
limitation those items set forth on Schedule 1.1(b);
(c) all items of inventory listed on the Balance
Sheets (as hereinafter defined), as such items may be modified prior to the
Closing Date in the ordinary course of business;
(d) all patients accounts, notes and other receivables,
whether or not written off, or recorded or not recorded, exclusive of any third
party cost report payables or receivables, petty cash and those prepaid expenses
usable by the Company;
(e) all financial records located at the Facilities and
all patient, medical staff, research and development, and other records
(including equipment records, medical/ administrative libraries, medical
records, documents, production reports and records, personnel records, catalogs,
books, records, files, equipment logs and operating manuals) located at the
Facilities or necessary for the operation of the Facilities;
(f) all of the Parties' interest in the Assumed
Contracts, as defined in Section 1.3.1;
(g) all licenses, permits and other governmental
approvals (including certificates of need), to the extent assignable, held or
used by any of the Parties in connection with the ownership, development and
operations of the Facilities (including any pending or approved governmental
approvals regarding the Facilities);
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<PAGE> 7
(h) all marks, names, trademarks, service marks,
patents, patent rights, assumed names, logos and copyrights used in the business
of the Facilities;
(i) the interest in all property, real, personal or
mixed, tangible or, to the extent assignable, intangible, arising or acquired in
the ordinary and regular course of any of the Parties' business in connection
with the Facilities between the date hereof and the Closing Date;
(j) all insurance proceeds (including applicable
deductibles, copayments or self-insured requirements) arising in connection with
damage to the Facilities occurring prior to the Closing Date, to the extent not
expended for the repair or restoration of the Facilities;
(k) all assets included in the Balance Sheets
generally as "inventories", "property, plant or equipment", and "other assets";
(l) all of the Parties' membership interests in Oasis
Health System LLC (25% of which is currently owned by Valley and 50% of which is
currently owned by Desert Springs); Desert Springs' 10.38% limited partnership
interest in Valley View Surgery Center, L.P.; and Desert Springs' 40%
partnership interest in Desert Surgery Center Limited Partnership;
(m) cash equal to the Working Capital Shortage (to be
contributed by either Valley or Desert Springs under the terms of Section 1.5);
and
(n) all of Desert Springs' right title and interest in
and to the Plaza Surgery Center, Limited Partnership which is described in
detail in Schedule 1.1(n); and
(o) all other property of every kind, character or
description, to the extent assignable, owned by any of the Parties and used or
held for use in the business of the Facilities, whether or not reflected on the
Financial Statements (as hereinafter defined), located at the Facilities or
necessary for the operation of the Facilities and whether or not similar to the
things specifically set forth above, including the "Schwartz Sublease" (as
defined in Section 6.1.14), except the Excluded Assets.
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<PAGE> 8
Except as expressly set forth in this Agreement, including
the Schedules and Exhibits hereto, all of the Facilities Assets contributed by
the Parties to Newco UHS-1 and Newco Q-1 shall be contributed on an "as is"
basis.
1.2 Excluded Assets. The following items are not part
of the contributions contemplated hereunder and are excluded from the Facilities
Assets (collectively, the "Excluded Assets");
(a) all of Valley's or any of its affiliates' right,
title and interest in and to the following: Goldring Surgery Center, Universal
Health Network, Nevada Radiation Oncology Center and the real estate located
within a fifty (50) mile radius of Las Vegas, Nevada, all of which is described
in detail on Schedule 1.2(a) hereof (collectively, the "UHS Excluded
Businesses");
(b) all of the Parties' respective deferred taxes, and
intercompany receivables;
(c) personnel records and any other records which
either of the Parties is required by law to retain in its possession, but only
to the extent such records are not necessary for the continued operation of the
Facilities in the manner in which they are currently being operated;
(d) all claims for amounts due, or that may become due
from Medicare, Medicaid or any other health care payment intermediary resulting
from cost reports for periods through the Closing Date;
(e) all refunds relating to any federal, state, local
or foreign taxes paid by, or on behalf or for the benefit of a Party or, to the
extent they relate to the period prior to the Closing Date, the Facilities,
whether received prior to or after the Closing Date;
(f) any proprietary information contained in either
Party's employee or operation manuals;
(g) each Party's corporate and financial records;
(h) cash and cash equivalents; and
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<PAGE> 9
(i) any other assets expressly designated in Schedule
1.2(i) to this Agreement as Excluded Assets.
1.3 Contract Assignments.
1.3.1 Assignment of Interest in Contracts. Except for
intercompany and non-physician employment contracts, on the Closing Date and
upon and subject to the terms and conditions set forth in this Agreement, the
Parties shall transfer or cause to be transferred and assign or cause to be
assigned to Newco UHS-1 and Newco Q-1, as the case may be, and Newco UHS-1 and
Newco Q-1 shall assume and perform all of the Parties' interest in (including
all rights, benefits and obligations) all commitments, contracts, leases,
licenses, agreements and understandings, and all outstanding offers or
solicitations to enter into any of the foregoing, including those described on
Schedule 1.3.1 hereto (the "Assumed Contracts").
1.3.2 Consents to Assignments. Notwithstanding anything in
this Agreement to the contrary, this Agreement shall not constitute an agreement
to assign or transfer any of the Assumed Contracts or part thereof or right or
benefit arising thereunder or resulting therefrom if an attempted assignment or
transfer thereof, without the consent of a third party thereto, would constitute
a breach thereof or in any way affect the rights of the Company following the
Merger. If such consent is not obtained, or if an attempted assignment thereof
would be ineffective or would affect the rights of the Company following the
Merger, so that the Company would not in fact receive all such rights, Valley or
Desert Springs, as the case may be, (i) shall cooperate with the Company in its
request in endeavoring to obtain such consent promptly at no cost to the
Company, and (ii) if any such consent is unobtainable, shall cooperate with the
Company in any reasonable arrangement (the "Assignment Substitute") designed to
provide the Company the benefits under any such Assumed Contract or part thereof
or any right or benefit arising thereunder or resulting therefrom, including
enforcement for the benefit of the Company of any and all rights of Valley or
Desert Springs against a third party arising out of the breach or cancellation
by such third party or otherwise. Valley and Desert Springs shall, to the extent
necessary, perform under the Assignment Substitute without a fee to the Company
except the consideration being tendered hereunder.
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<PAGE> 10
1.4 Instruments of Conveyance.
On the Closing Date, Valley shall deliver to Newco UHS-1 and
Desert Springs shall deliver to Newco Q-1 such deeds (in the case of the real
property and the improvements thereon described in Schedules 2.10 hereto, a
special warranty deed or the equivalent thereof in use in accordance with local
practice), bills of sale, endorsements, assignments and other good and
sufficient instruments of conveyance and assignment, including the Schwartz
Sublease as shall be effective to vest in Newco UHS-1 and Newco Q-1, as the
case may be, all of the Parties' respective right, title and interest in and to
the Facilities Assets, free and clear of all Liens except for the Permitted
Encumbrances. Simultaneously with such delivery, the Parties will take all
reasonable additional steps as may be necessary to put the Company, following
the Merger, in possession of the Facilities Assets. The Parties shall pay all
transfer costs, title insurance fees, recording fees and transfer or stamp taxes
or similar charges payable by each of them respectively by reason of the
contribution, conveyance, assignment, transfer and delivery hereunder of the
Facilities Assets.
1.5 Consideration; Working Capital Shortage/Overage.
1.5.1 In consideration of the transfer and conveyance of the
Facilities Assets and the Merger, on the Closing Date the Parties acknowledge
and agree that the Company shall issue membership interests in the Company as
follows: (i) the Company shall issue a 72.5% membership interest in the Company
to Valley and (ii) the Company shall issue a 27.5% membership interest in the
Company to Desert Springs.
1.5.2 Within 45 days after the Closing Date, the Parties will
determine the Working Capital Shortage to be paid to the Company by either
Valley or Desert Springs or the Working Capital Overage to be retained by either
Valley or Desert Springs. The Working Capital Shortage or Overage will be the
amount necessary to make the Working Capital contributed by each Party equal
that Party's percentage membership interest in the Company. For example, if
Valley contributed $7,250,000 in Working Capital to the Company on the Closing
Date and Desert Springs contributed $2,550,000 in Working Capital to the Company
on the Closing Date, then the Working Capital Shortage would be $200,000 to be
paid to the Company by Desert Springs or the
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<PAGE> 11
Working Capital Overage would be $527,272.72 which would be retained by Valley
rather than contributed. The Working Capital Shortage shall be calculated and
used unless Valley and Desert Springs shall agree to calculate and use the
Working Capital Overage. For the sole purpose of determining the Working Capital
Shortage or Overage, Working Capital will be defined as the sum of the following
items that have been contributed to or assumed by the Company, all valued in
accordance with generally accepted accounting principles, consistently applied
(unless otherwise specified):
(a) patient accounts receivable, net of allowances for
contractual adjustments and discounts and bad debts (computed on a basis
consistent with historical practice) except that the allowance for bad debts
will be equal to the amount of patient accounts receivable older than one
hundred seventy-nine (179) days from discharge for inpatients or date of
services for outpatients;
(b) plus inventories, based on a physical count at the
Closing Date, priced at latest invoice cost, and including only those items and
areas that have historically been counted;
(c) plus prepaid expenses, but only to the extent that
they are usable by the Company;
(d) plus other receivables, net of allowances for
uncollectibles;
(e) less trade accounts payable;
(f) less accrued compensation and related taxes thereon
and related liabilities, including accrued vacation, sick leave payable in cash
for reasons other than actual absence, paid time off, or the like;
(g) less other accrued liabilities and expenses;
(h) less the present value (computed using the prime
rate as the discount factor) of remaining payments due under any capitalized
lease included in the Assumed Contracts; and
(i) less any other liabilities assumed by the Company
to the extent such liabilities are to be included on the balance sheet under
generally accepted accounting principles.
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<PAGE> 12
Each of the Parties will work together in good faith to
agree on adjustments to and the amount of Working Capital Shortage. No later
than 45 days after the Closing Date, the Parties hereto shall prepare the "Final
Closing Statement" reflecting the items listed above determined as set forth
above. Any payment due on the Final Closing Statement shall be payable in cash,
on or before the tenth day following the day the Final Closing Statement is
agreed upon. If the Parties are unable to agree on the Final Closing Statement
within the 45 day period, they shall appoint Coopers & Lybrand, a firm of
independent certified public accountants of recognized national standing (the
"Accountants"), to make such determination, which determination shall be final
and binding on the Parties hereto for the purposes of this Agreement, and Valley
and Desert Springs shall each pay one-half of the fee. Each Party represents
that the Accountants are not its auditor.
1.6 Liabilities Assumed. In further consideration for the
contribution of the Facilities Assets, on and as of the Closing Date, subject to
the exclusion of liabilities described in Section 1.7 below, the Parties
acknowledge and agree that Newco UHS-1, Newco Q-1 and the Company, following the
Merger, shall assume and agree to pay, perform and discharge the following
liabilities (collectively, the "Assumed Liabilities"):
(a) all current liabilities of the Parties (except for
the current portion of long term debt, accrued interest, pension plan
liabilities, employer benefit plan liabilities, intercompany liabilities and
self-insurance costs);
(b) all obligations under the Assumed Contracts and
under Section 4.6 hereof; and
(c) such other liabilities of the Parties which the
Company agrees in writing at or prior to the Closing Date that the Company will
assume, which liabilities are listed on Schedule 1.6(c).
1.7 Liabilities Not Assumed. Newco UHS-1, Newco Q-1 and
the Company, following the Merger, shall assume only those liabilities and
obligations specified in Section 1.6 above. Without limiting the generality of
the foregoing sentence, neither Newco UHS-1, Newco Q-1 nor the Company shall
assume and each Party shall retain and be responsible for the following
obligations and liabilities to the extent they relate to such
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<PAGE> 13
Party (except to the extent reflected in the calculation of the Working Capital
Shortage) (each reference in this Section 1.7 to a Party shall include such
Party and its affiliates):
(a) any and all obligations for the payment of any long
term debt existing at the Closing Date (including the current portion thereof)
relating to a Party and whether or not set forth on the Balance Sheets;
(b) any and all accrued interest through the Closing
Date;
(c) liabilities or obligations of a Party arising under
Medicare, Medicaid, Blue Cross or other comparable third party payor programs
(the "Government Reimbursement Programs") for periods through the Closing Date
and as a result of the consummation of the transactions contemplated herein,
including reimbursement recapture or any other adjustments;
(d) liabilities or obligations for Taxes (as
hereinafter defined) of a Party in respect of periods prior to the Closing Date
or resulting from the consummation of the transactions contemplated;
(e) liabilities under any Employee Benefit Plan (as
hereinafter defined) of a Party; and liabilities for any and all EEOC, wage and
hour, unemployment compensation, employee medical or workers' compensation
claims relating to periods prior to the Closing Date;
(f) except as provided in Section 4.6 below, liabilities
or obligations for any and all workers' compensation, health, disability or
other benefits due to or for the benefit of any employees of a Party (or their
covered dependents);
(g) liabilities arising out of or in connection with
claims, litigations or proceedings described in Section 2.16, and claims,
litigations or proceedings (whether instituted prior to or after the Closing
Date) for acts or omissions which allegedly occurred prior to or at the Closing
Date;
(h) liabilities attributable to legal, accounting or
brokerage fees, and similar costs incurred by a Party related to the
contribution of any of the Facilities Assets;
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(i) except as expressly set forth herein, liabilities
arising from a Party's assignment and the Company's assumption of the Assumed
Liabilities;
(j) liabilities for the payment by a Party of any
deductibles, copayments or other self-insurance requirements relating to events
occurring prior to the Closing Date;
(k) any and all liabilities respecting any intercompany
transactions of the Parties, whether or not such transaction relates to the
provision of goods and services, tax sharing arrangements, payment arrangements,
intercompany charges or balances, or the like;
(l) except for Assumed Liabilities, any and all actual
or contingent liabilities or obligations of or demands upon a Party arising from
acts or omissions of either of the Parties (actual or alleged) prior to the
Closing Date;
(m) all liabilities arising out of or in connection
with the existence of Materials of Environmental Concern (as hereinafter
defined) upon, about, beneath or migrating to or from any of the Real Property
on or before the Closing Date or the existence on or before the Closing Date of
any Environmental Claim (as hereinafter defined) or any violation of any
Environmental Laws (as hereinafter defined) pertaining to such Real Property or
the operation of the Facilities by a Party or any other business operated
therefrom;
(n) any liability which allegedly occurred out of any
negligence, medical malpractice or similar acts or omissions which allegedly
occurred prior to the Closing Date;
(o) sales, income, franchise, use and other taxes payable
with respect to the business or operations of a Party through the Closing Date
or the transactions contemplated hereby;
(p) except as expressly set forth herein, liabilities
for rights or remedies claimed by third parties under any of the Assumed
Liabilities which broaden or vary the rights and remedies such third parties
would have had against either Party if the contribution of the Facilities Assets
were not to occur; and
(q) liabilities on account of those liens or mortgages
set forth on Schedule 1.7(q).
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With respect to Subsection 1.7(m) above, for a period of five
(5) years from and after the Closing Date, in the event that it cannot be proven
that the event giving rise to a Subsection 1.7(m) liability occurred after the
Closing Date then it shall be presumed to have occurred on or before the Closing
Date and the Parties can rebut this presumption with a Phase I environmental
study. From and after five (5) years following the Closing Date, the presumption
shall shift and thereafter all events giving rise to a Subsection 1.7(m)
liability shall be presumed to have occurred from and after the Closing Date.
1.8 Closing. The closing of the transactions provided herein will
be accomplished by means of overnight courier delivery and facsimile
transmission or by such other method as may be agreed upon by the Parties. Upon
contribution of the Facilities Assets which shall be as of 11:59 p.m. Pacific
Time on January 31, 1998, and consummation of the Merger, the closing shall be
deemed to be effective and shall be deemed to have occurred as of 12:01 a.m.
Pacific Time on February 1, 1998 which is as of the date and time specified in
the Agreement of Merger. Such date and time of effectiveness of the Merger is
herein referred to as the "Closing Date".
2. Representations and Warranties of Parties. Each of Valley and
Desert Springs hereby severally represent, warrant and agree as follows (it
being understood and agreed that Valley is making the following representations
and warranties solely with respect to the UHS Facilities and Newco UHS-1 and not
with respect to any other Party or for the other Party's Facilities, and that
Desert Springs is making the following representations and warranties solely
with respect to the Quorum Facilities and Newco Q-1 and not with respect to any
other Party or for the other Party's Facilities):
2.1 Existence; Good Standing; Corporate Authority. Valley is
a Nevada corporation duly organized, validly existing and in good standing under
the laws of the State of Nevada. Desert Springs is a Nevada corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Each of the Parties has all requisite corporate power and authority to
own its properties and carry on its business as now conducted. The copies
provided to the other Party of the Articles of Incorporation and Bylaws of each
of the Parties, all as amended to date, are complete and correct and presently
in effect. No Party has failed to qualify in any jurisdiction in
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<PAGE> 16
which property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary and where the failure to so
qualify would have a material adverse effect on it. No Party is in default with
respect to any order of any court, governmental authority or arbitration board
or tribunal to which it is a party or is subject.
2.2 Authorization; Validity and Effect of Agreements. The
execution, delivery and performance of this Agreement and all agreements and
documents contemplated hereby by such Party and the consummation by it of the
transactions contemplated hereby, have been duly and effectively authorized by
all necessary corporate action on its part. The execution, delivery and
performance of the Agreement and Plan of Merger by Newco UHS-1 or Newco Q-1, as
the case may be, and the consummation by it of the transactions contemplated
thereby, have been duly and effectively authorized by all necessary corporate
action on its part. This Agreement, and the Agreement and Plan of Merger,
constitute, and all agreements and documents contemplated hereby or thereby when
executed and delivered pursuant hereto will constitute the valid and legally
binding obligations of such Party or Newco UHS-1 or Newco Q-1, as the case may
be, enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other similar laws of general application now or
hereafter in effect relating to the enforcement of creditors' rights generally
and except that remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity jurisdiction, equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought. Except as set forth on Schedule 2.2 hereto, the execution and
delivery of this Agreement by such Party, and the execution and delivery of the
Agreement and Plan of Merger by Newco UHS-1 or Newco Q-1 does not and the
consummation of the transactions contemplated hereby and thereby will not,
except to the extent the same would not have a material adverse effect on it:
(i) require the consent, approval or authorization of any person, corporation,
partnership, joint venture or other business association or any governmental,
public authority or accrediting body; (ii) violate, with or without the giving
of notice or the passage of time, or both, any provisions of law or statute or
any rule, regulation, order, award, judgment, or decree of any court or
governmental authority applicable to such Party or Newco UHS-1 or Newco Q-1;
(iii) result in the breach or termination of any term or provision of,
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or constitute a default under, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or the lapse of time or
both) any obligation under, or result in the creation or imposition of any lien,
charge, pledge, security interest or other encumbrance upon any part of the
property of such Party or Newco UHS-1 or Newco Q-1 pursuant to any provision of,
any order, judgment, arbitration award, injunction, decree, indenture, mortgage,
lease, license, lien, or other agreement or instrument to which such Party or
Newco UHS-1 or Newco Q-1 is a party or by which it is bound, or violate any
provision of the Bylaws or Articles of Incorporation of such Party, or the
Certificate of Formation or Limited Liability Company Agreement of Newco UHS-1
or Newco Q-1 as amended to the date of this Agreement; or (iv) result in any
suspension, revocation, impairment, forfeiture or nonrenewal of any License (as
hereinafter defined) relating to the ownership and operation by such Party of
health care facilities which are the subject of the transactions contemplated
hereby, subject to the Company obtaining new Licenses for its operation of the
Facilities.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, none
of Valley or Desert Springs owns, directly or indirectly, any debt or equity
securities issued by any other corporation, or any interest in any partnership,
joint venture or other business enterprise. During the period between the
effective time of its creation and the effective time of the contribution of
assets to it described in Section 1.1 above, neither Newco UHS-1 nor Newco Q-1
shall have conducted any business or incurred any liabilities.
2.4 Capitalization. The authorized capital stock of each of
Valley and Desert Springs is set forth on Schedule 2.4, together with a list of
the number of shares issued and outstanding and owned of record and beneficially
by each of the shareholders. Except as set forth on Schedule 2.4, there are no
outstanding or authorized rights, warrants, options, subscriptions, agreements
or commitments of any character giving anyone any right to require such Party to
sell or issue any capital stock or other securities, nor are there any voting
trusts or any other agreements or understandings with respect to the voting
common stock of such Party.
2.5 Records. The books, records and work papers of such
Party will be made available to the other Party for
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inspection prior to the Closing Date and will contain the minutes of all
meetings of directors and of shareholders and unanimous written consents
reflecting all actions taken by the directors or shareholders without a meeting,
have been maintained in accordance with good business practice and accurately
reflect the basis for the financial condition and results of operations of such
Party set forth in the financial statements referred to in Section 2.6 hereof
except to the extent the same would not have a material adverse effect on it.
2.6 Financial Statements. Such Party has furnished true,
complete and correct copies of: (i) with respect to Desert Springs: a) unaudited
balance sheets as of June 30, 1996 and 1997 and related statements of income and
operations for the two years then ended (the "Desert Springs Balance Sheets"),
and b) unaudited balance sheet as of September 30, 1997 and related statements
of income and operations for the three months then ended (the "Desert Springs
Interim Balance Sheet"); and (ii) with respect to Valley: a) unaudited balance
sheets as of December 31, 1995 and 1996 and related statements of income and
operations for the two years then ended (the "Valley Balance Sheets"), and b)
unaudited balance sheet as of September 30, 1997 and related statements of
income and operations for the nine months then ended (the "Valley Interim
Balance Sheet") (the Desert Springs Interim Balance Sheet and the Valley Interim
Balance Sheet are referred to herein as the "Balance Sheets" and the Desert
Springs Balance Sheets, the Desert Springs Interim Balance Sheet, the Valley
Balance Sheets and the Valley Interim Balance Sheet are referred to herein as
the "Financial Statements"). Copies of the Financial Statements are attached
hereto as Schedule 2.6. The Financial Statements of each such Party are in
accordance with the books and records of such Party, are complete and correct in
all material respects, fully and fairly set forth the financial condition of
such Party as of the dates indicated, and the results of its operations for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except as otherwise stated therein
and except for normal year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and the absence of
notes.
2.7 Absence of Undisclosed Liabilities. Such Party has no
liabilities or obligations of any nature, either accrued, absolute, contingent
or otherwise, which are not reflected or provided for in the Financial
Statements relating to it, except
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(i) those arising after the date of the Balance Sheets which are in the ordinary
course of business, in each case in normal amounts and none of which is
materially adverse, and (ii) as and to the extent specifically described in
Schedule 2.7 hereof. Except as set forth on Schedule 2.7, such Party does not
know and has no reasonable grounds to know of any reasonable basis, as of the
date hereof, for assertion against it of any claim or liability of any nature in
excess of $25,000 individually or $50,000 in the aggregate not fully disclosed
in the Balance Sheets.
2.8 Absence of Certain Changes or Events Since the Date
of the Balance Sheets. Except as otherwise disclosed in Schedule 2.8, since the
date of the Balance Sheets such Party has not, except to the extent the same
would not have a material adverse effect on it:
2.8.1 incurred any obligation or liability (fixed,
contingent or otherwise), except normal trade or business obligations incurred
in the ordinary course of business and consistent with past practice, none of
which is materially adverse, and except in connection with this Agreement and
the transactions contemplated hereby;
2.8.2 discharged or satisfied any lien, security
interest or encumbrance or paid any obligation or liability (fixed, contingent
or otherwise), including intercompany obligations and liabilities except in the
ordinary course of business;
2.8.3 mortgaged, pledged or subjected to any Lien
any of its assets or properties (other than mechanic's, materialman's and
similar statutory liens arising in the ordinary course of business and purchase
money security interests arising as a matter of law between the date of delivery
and payment);
2.8.4 sold, assigned, conveyed, transferred, leased
or otherwise disposed of, or agreed to sell, assign, convey, transfer, lease or
otherwise dispose of any of its assets or properties except for a fair
consideration in the ordinary course of business and consistent with past
practice or, except in the ordinary course of business and consistent with past
practice, acquired any assets or properties;
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2.8.5 canceled or compromised any debt or claim in
excess of $2,500 for any individual debt or claim or $10,000 in the aggregate
except patient account bad debt which is addressed in Section 2.8.14;
2.8.6 waived or released any rights of material
value;
2.8.7 made or granted any wage or salary increase
applicable to any group or classification of employees generally except merit
increases and bonuses pursuant to prior personnel practices, entered into any
employment contract with, or made any loan to, or entered into any material
transaction of any other nature with any director, officer or employee, been the
subject of any material labor dispute or, to its knowledge, threat thereof;
2.8.8 entered into any transaction or contract
(other than Immaterial Contracts as defined in Section 2.13.4), except (i)
contracts listed on Schedule 2.8 and (ii) this Agreement and the transactions
contemplated hereby;
2.8.9 suffered any casualty loss or damage (whether
or not such loss or damage shall have been covered by insurance) which affects
in any material respect its ability to conduct business;
2.8.10 authorized or effected any amendment or
restatement of its articles of incorporation or bylaws, or taken any steps
looking toward its dissolution or liquidation;
2.8.11 suffered any material adverse change in its
operations, earnings, assets, liabilities, properties or business or in its
condition, financial or otherwise, other than changes in the general market
conditions and prospects for the Facilities;
2.8.12 made capital expenditures or entered into
any commitment therefore which, in the aggregate, exceed $500,000;
2.8.13 suffered any material adverse change in its
relations with, or any material loss or, to its knowledge, material adverse
threatened loss of any of its material
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suppliers, managed care contracts, or Medicare or Medicaid contracts;
2.8.14 written off as uncollectible any accounts
receivable or trade notes in excess of reserves; or
2.8.15 introduced any material change with respect
to the operation of its business, including its method of accounting.
2.9 Taxes. Except as set forth in Schedule 2.9, such
Party (i) has duly and timely filed or caused to be filed all federal, state,
local and foreign tax returns and reports of "Taxes" (as hereinafter defined)
required to be filed by it prior to the date of this Agreement which relate to
it or with respect to which it or its assets or properties are liable or
otherwise in any way subject, (ii) has paid or fully accrued for all Taxes,
interest, penalties, assessments and deficiencies shown to be due and payable on
such returns and reports (which Taxes, interest, penalties, assessments and
deficiencies are all the Taxes, interest, penalties, assessments and
deficiencies due and payable under the laws and regulations pursuant to which
such returns were filed), and (iii) has properly accrued for all such Taxes
accrued in respect of it or its assets and properties for periods subsequent to
the periods covered by such returns. Except as set forth in Schedule 2.9, no
deficiency in payment of taxes for any period has been asserted by any taxing
body and remains unsettled at the date of this Agreement. Such Party has made
all withholdings of Taxes required to be made under all applicable United
States, state and local tax regulations and such withholdings have either been
paid to the respective governmental agencies or set aside in accounts for such
purpose or accrued, reserved against and entered upon the books of such Party.
As used herein, the term "Tax" or "Taxes" means any federal, state, local or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Internal Revenue Code ("Code") Sec. 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum or estimated tax,
assessment, charge, levy or fee of any kind whatsoever, which are due or alleged
to be due to any taxing authority, whether disputed or not.
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2.10 Real Property. Except as set forth on Schedule 2.10:
(a) Schedule 2.10 hereto identifies all
interests in real property, including land and improvements held by such Party
as of the date hereof, together with the nature of such interest. Such Party
owns fee simple title to the tracts of Real Property set forth opposite its
respective name on Schedule 2.10. To the extent that any interest in real
property set forth thereon is leased or shared, Schedule 2.10 identifies the
property as leased and describes the lease agreement and sets forth the nature
and proportion of the sharing arrangement;
(b) the Real Property comprises all of the real
property associated with or employed or used in the business of
each of the Facilities;
(c) except as set forth in Schedule 2.10(c), to
the best knowledge of such Party, no part of the Real Property contains, is
located within or abuts any navigable water or other body of water, tideland,
wetland, marshland or any other area which is subject to special state, federal
or municipal regulation, control or protection;
(d) such Real Property adjoins dedicated public
roadways and there is access for motor vehicles from the Real Property to such
roadways by valid public or private easements; and, to the best knowledge of
such Party, there are no conditions existing which could result in the
termination or reduction of the current access from the Real Property to
existing roadways;
(e) all essential utilities (including water,
sewer, electricity and telephone service) are available to the Real Property;
(f) to the best knowledge of such Party, the
Facilities and the Real Property and the businesses conducted thereon are in
material compliance with all applicable planning, zoning, land use, public
health, fire safety and building codes and ordinances; the consummation of the
transactions contemplated herein will not result in a violation of any
applicable planning, land use, public health, fire safety, zoning or building
code or ordinance, or the termination of any applicable zoning variances,
conditional use permits, waivers, exemptions or "grandfathering" now existing;
and final, permanent and unconditional certificates
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<PAGE> 23
of occupancy and/or use have been duly issued by the applicable governmental
authority having jurisdiction for all buildings located on the Real Property;
(g) such Party has not received actual notice
of a violation of any ordinance or other law, order, regulation or requirement,
and has not received actual notice of condemnation or similar proceedings
relating to any part of the Real Property;
(h) the Real Property of such Party is subject
only to the Liens described in Schedule 2.10(h), and on the Closing Date will be
subject only to the Liens described on Schedule 2.10(h) which are not designated
therein as "excluded" and any other Liens approved by the Company in writing on
or after the effective date hereof (the "Permitted Encumbrances");
(i) such Party has not created or may not assert
any rights in respect of any Liens which will interfere with the Company's use
of the Real Property after the Closing Date;
(j) except for those tenants in possession of
the Real Property under contracts described in Schedule 2.10(j), there are no
parties in possession of, or claiming any possession, adverse or not, to or
other interest in, any portion of Real Property as lessees, tenants at
sufferance, trespassers or otherwise;
(k) no tenant is entitled to any rebate,
concession or free rent, other than as set forth in the contract with such
tenant; no commitments have been made to any tenant for repairs or improvements
other than for normal repairs and maintenance in the future or as set forth in
the contract with such tenant; and no rents due under any of the tenant
contracts have been assigned or hypothecated to, or encumbered by, any person,
other than pursuant to the encumbrances relating to indebtedness to be satisfied
on or prior to the Closing Date, or Permitted Encumbrances, as additional
security for the payment thereof;
(l) no part of the Real Property is currently
subject to condemnation, eminent domain or other proceedings for the taking
thereof, and to the best of such Party's knowledge, no condemnation or taking is
threatened or known by such Party to be contemplated; and
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<PAGE> 24
(m) the improvements to the Real Property are
located entirely within the boundaries of the Real Property and, to such Party's
knowledge, do not materially violate any building set back lines or materially
encroach upon any easements located on the Real Property.
2.11 Title to Property and Assets; Sufficiency of
Facilities Assets.
(a) Such Party has good and marketable title to
the Facilities Assets owned by it (including, without limitation, the properties
and assets reflected in the Balance Sheets except any thereof since disposed of
for value in the ordinary course of business) except for the Permitted
Encumbrances, and none of such properties or assets is, except as disclosed in
the Balance Sheets or the Schedules hereto, subject to a contract of sale not in
the ordinary course of business, or, except for Permitted Encumbrances, subject
to any Liens.
(b) Except as described on Schedule 2.11, such
Facilities Assets constitute, in the aggregate, all the properties and assets
necessary for the operation of such Party's Facilities as currently conducted.
The Facilities Assets, together with the Excluded Assets, comprise all of the
following: (i) all assets owned by such Party, (ii) all assets used in
connection with the Facilities and their related businesses and (iii) all assets
owned, used or operated by any affiliate of such Party located within a fifty
(50) mile radius of Las Vegas, Nevada.
2.12 Condition of Property. All buildings on the Real
Property and all items of tangible personal property, equipment, fixtures and
inventories included within the assets and properties of such Party or required
to be used in the ordinary course of its business are being contributed and
transferred pursuant to this Agreement on an "as is, where is" basis with no
representations or warranties express or implied as to their physical condition
and WITHOUT ANY WARRANTIES FROM ANY PARTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
2.13 List of Contracts and Other Data. Schedule 2.13 sets
forth the following information with respect to the properties and assets of
such Party, other than the Excluded Assets (indicating in each case, where
appropriate, whether or
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not consent by a third party is required for the transfer of such properties and
assets to the Company):
2.13.1 a description of all real property leased by
such Party and all leases of real property to which such Party is a party;
2.13.2 a list of all personal property owned of
record or beneficially by such Party having a value per item or group of items
in excess of $1,000 and all leases of personal property, licenses, permits,
franchises, concessions, certificates of public convenience or the like to which
such Party is a party;
2.13.3 a list of (i) all United States and foreign
patents, trademarks and trade names, trademark and trade name registrations,
service marks and service mark registrations, copyrights and copyright
registrations, unexpired as of the date hereof, all United States and foreign
applications pending on said date for patents, for trademark or trade name
registrations, for service mark registrations, or for copyright registrations,
and all trademarks, trade names, service marks, labels and other trade rights in
use on said date, all of the foregoing being owned in whole or in part as noted
thereon on said date by such Party, (ii) a description of all action taken by
such Party to protect all tradenames used by it, and (iii) all licenses granted
by or to such Party and all other agreements to which such Party is a party,
which relate in whole or in part to any items of the categories mentioned in
clause (i) above or to any other proprietary rights, whether owned by such Party
or otherwise;
2.13.4 a list of all existing contracts and
commitments to which such Party is a party or by which such Party or any of its
respective properties or assets is bound, except for Immaterial Contracts.
"Immaterial Contracts" shall mean contracts which (i) no party thereto is a
physician, physician group or other referral source to a Facility, and is not a
third party payor contract and is not a real estate lease and (ii) requires
payment by any Party to such contract of less than $100,000 per year; and
2.13.5 a list of (i) all collective bargaining
agreements, multi-employer pension plans, employment, consulting and separation
agreements, executive compensation plans, bonus
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plans, incentive compensation plans, deferred compensation agreements, employee
pension plans or retirement plans, employee profit sharing plans, employee stock
purchase and stock option plans and hospitalization insurance or other plans or
arrangements providing for benefits for employees or former employees of such
Party, and (ii) all Multiemployer Plans (as defined in ERISA as hereinafter
defined) which such Party maintains or has maintained or to which such Party
makes, is required to make, has made or has been required to make a
contribution.
All documents, rights, obligations and commitments referred to
in this Section 2.13 are, to the best knowledge of such Party, valid and
enforceable in accordance with their terms for the period stated therein and
there is not under any of them any existing breach, default, event of default or
event which with the giving of notice or lapse of time, or both, would
constitute a default, by such Party, or, to such Party's knowledge, by any other
party thereto, nor, except as set forth on Schedule 2.13, has any party thereto
given notice of or made a claim with respect to any breach or default. There are
no existing laws, regulations or decrees, nor to such Party's knowledge are
there any proposed laws, regulations or decrees, which adversely affect any of
such documents, rights, obligations or commitments. Except as set forth on
Schedule 2.13, no part of the business or operations of such Party is dependent
to any material extent on any patent, trademark, copyright, or license or any
assignment thereof or any secret processes or formulae. Except as set forth on
Schedule 2.13, none of the rights of such Party under such documents, rights,
obligations or commitments is subject to termination or modification as a result
of the transactions contemplated hereby.
2.14 No Breach or Default. Such Party is not in default
under any contract to which it is a party or by which it is bound, nor has any
event occurred which, after the giving of notice or the passage of time or both,
would constitute a default under any such contract except as set forth in
Schedule 2.14. Such Party has no reason to believe that the parties to such
contracts will not fulfill their obligations under such contracts in all
material respects or are threatened with insolvency.
2.15 Labor Controversies. Neither such Party, nor any of
its employees, is a party to any collective bargaining agreement except as
included in Schedule 2.13. There are not any
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<PAGE> 27
controversies pending or, to the knowledge of such Party, threatened between
such Party and any of its employees which might reasonably be expected to
materially adversely affect the conduct of its business, or any unresolved labor
union grievances or unfair labor practice or labor arbitration proceedings
pending or, to the knowledge of such Party, threatened relating to its business,
and to the knowledge of such Party, there are not any further organizational
efforts presently being made or threatened involving any of the employees of
such Party. Except as set forth on Schedule 2.15, such Party has not received
any notice or claim that it has not complied with any laws relating to the
employment of labor, including any provisions thereof relating to wages, hours,
collective bargaining, the payment of social security and similar taxes, equal
employment opportunity, employment discrimination and employment safety, or that
such Party is liable for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing.
No person or Party (including, but not limited to, any
governmental agency) has any claim or basis for any action or proceeding,
against a Party, arising out of any statute, ordinance or regulation relating to
wages, collective bargaining, discrimination in employment or employment
practices or occupational safety and health standards (including, but not
limited to, the Fair Labor Standards Act, Title VII of the Civil Rights Act of
1964, as amended, the Occupational Safety and Health Act, or the Age
Discrimination in Employment Act of 1967 or the Americans With Disabilities Act
of 1990). Each Party has complied with all laws and regulations with respect to
the determining of independent contractor or employee status.
2.16 Litigation. Except as set forth in Schedule 2.16,
there are no claims, actions, suits or proceedings or, to the knowledge of such
Party, investigations with respect to such Party, involving claims by or against
such Party which are pending or, to such Party's knowledge, threatened against
such Party, at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, or before the internal grievance mechanisms of such Party. To
such Party's knowledge, no basis for any action, suit or proceeding exists, and
there are no orders, judgments, injunctions or decrees of any court or
governmental agency with respect to which it has been named or to which it is a
party, which directly apply, in whole or in part, to the business of such Party,
or to any of its assets or
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<PAGE> 28
properties, or which would result in any material adverse change in its
business.
2.17 Patents; Trademarks, Etc. No patents, trademarks,
trade names, copyrights, registrations or applications are necessary for the
conduct of the business of such Party as now conducted, other than those listed
in Schedule 2.13 hereto. Except as described in Schedule 2.13 hereto, all such
patents, trademarks, trade names, copyrights and registrations are in good
standing, are valid and enforceable and are free from any default on the part of
such Party. Such Party is not a licensor in respect of any patents, trademarks,
trade names, copyrights or registrations or applications therefor. Such Party is
not in violation of any patent, patent license, trade name, trademark, or
copyright of others. No director, officer or employee of such Party owns,
directly or indirectly, in whole or in part, any patents, trademarks, trade
names, copyrights, registrations or applications therefor or interests therein
which such Party has used, is presently using, or the use of which is necessary
for its business as now conducted.
2.18 Licenses; Permits; Authorizations. Schedule 2.18
hereto is a schedule of all rights, approvals, authorizations, consents,
licenses, orders, accreditations, franchises, concessions, certificates and
permits of all governmental agencies, whether United States, state or local, and
accrediting bodies, (collectively, the "Licenses") required by the nature of the
business conducted by such Party to permit the continued operation of its
business in the manner in which it was conducted as of the date hereof
(indicating in each case, where appropriate, whether or not the consent by a
third party to the transfer to the Company is required). Such Party has all
Licenses required to permit the operation of its business as presently
conducted; such Party's business is and has been operated in all material
respects in compliance therewith and all such Licenses are in full force and
effect and no action or claim is pending, nor to the knowledge of such Party, is
threatened to revoke, terminate or declare invalid any of the foregoing.
2.19 Compliance with Applicable Law; Environmental Laws.
(a) Except as set forth on Schedule 2.19 hereto,
the conduct of the business of such Party does not (i) violate or infringe any
domestic or foreign laws, statutes, rules or
25
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regulations or any material ordinances, including, without limitation, any of
the foregoing that pertain to or regulate the operation of a hospital, consumer
protection, health and safety or occupational safety matters, or (ii) violate or
infringe any right or patent, trademark, trade name, service mark, copyright,
know-how or other proprietary right of third parties, the enforcement of which
would adversely affect the business of such Party or the value of its properties
or assets.
(b) Neither such Party nor, to the knowledge of
such Party, any of its employees, officers and directors in their capacities as
such, have engaged in any activities which are prohibited under any federal
laws, or the regulations promulgated pursuant to such laws or related state or
local laws, statutes or regulations or which are prohibited by rules of
professional conduct, including but not limited to the following: (i) knowingly
and willfully making or causing to be made a false statement or representation
of a material fact in any application for any benefit or payment; (ii) knowingly
and willfully making or causing to be made any false statement or representation
of a material fact for use in determining rights to any benefit or payment;
(iii) presenting or causing to be presented a claim for reimbursement for
services under Medicare, Medicaid or other state health care programs that is
for an item or service that is known or should be known to be (a) not provided
as claimed, or (b) false or fraudulent; (iv) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; (v) knowingly and willfully
offering, paying, soliciting, or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare, Medicaid or other state
health care program, or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare, Medicaid or other state health care program; (vi) knowingly making a
payment, directly or indirectly, to a physician as an inducement to reduce or
limit necessary services to individuals who are under the direct care of the
physician and who are entitled to benefits under Medicare, Medicaid, or other
state health care programs;
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(vii) providing to any person information that is known or should be known to be
false or misleading that could reasonably be expected to influence the decision
when to discharge a patient from a Facility; (viii) knowingly and willfully
making or causing to be made or inducing or seeking to induce the making of any
false statement or representation (or omitting to state a material fact required
to be stated therein or necessary to make the statement contained therein not
misleading) of a material fact with respect to (a) the conditions or operations
of a Facility in order that the Facility may qualify for Medicare, Medicaid or
other state health care program certification, or (b) information required to be
provided under ss.1124A of the Social Security Act (42 U.S.C. ss.1320a-3); or
(ix) knowingly and willfully (a) charging for any Medicaid service money or
other consideration at a rate in excess of the rates established by the state,
or (b) charging, soliciting, accepting or receiving, in addition to amounts paid
by Medicaid, any gift money, donation or other consideration (other than a
charitable, religious or other philanthropic contribution from an organization
or from a person unrelated to the patient) (1) as a precondition of admitting
the patient, or (2) as a requirement for the patient's continued stay in the
Facility.
(c) All Licenses currently held by such Party
pursuant to the Environmental Laws are identified in Schedule 2.18.
(d) Such Party is in compliance in all material
respects with all applicable Environmental Laws except as disclosed in Schedule
2.19.
(e) In regards to the Facilities and the Real
Property, there is no Environmental Claim pending or, to such Party's knowledge,
threatened against the Facilities or the Real Property or, to such Party's best
knowledge after due inquiry, any other person whose liability for any
Environmental Claim such Party has retained or assumed contractually; to such
Party's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including the release, emission,
discharge or disposal of any Materials of Environmental Concern, that could form
the basis of any Environmental Claim against such Party or against any person
whose liability for any Environmental Claim such Party has retained or assumed
contractually; and such Party has not received any written communication,
whether from a governmental
27
<PAGE> 31
authority or otherwise, that alleges that such Party is not in full compliance
with all applicable Environmental Laws.
(f) In regards to the Facilities and the Real
Property, without in any way limiting the generality of the foregoing, (i) all
on-site and off-site locations where such Party has stored, disposed or arranged
for the disposal of Materials of Environmental Concern are identified in
Schedule 2.19, (ii) all Contracts dealing with the removal, storage, disposal
and handling of Materials of Environmental Concern are with properly licensed
and registered vendors, (iii) all underground storage tanks, and the capacity
and contents of such tanks, located on the Real Property are identified in
Schedule 2.19, (iv) except as set forth on Schedule 2.19, there is no asbestos
contained in or forming part of the Real Property, and (v) except as set forth
on Schedule 2.19, no polychlorinated biphenyls (PCBs) are used or stored on the
Real Property.
(g) As used herein: (i) "Environmental Claim"
means any written notice by a person alleging potential liability (including
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on or resulting from, directly or
indirectly, the presence, or release into the environment, of any Materials of
Environmental Concern (as defined below); (ii) "Environmental Laws" means any
and all federal, state, local and foreign laws and regulations (including common
law) relating to pollution or protection of human health or the environment
(including ground water, land surface or subsurface strata), including laws and
regulations relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
recycling, reporting or handling of Materials of Environmental Concern; and
(iii) "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes (including medical waste), toxic substances,
polychlorinated biphenyls (PCB's), ureaformaldehyde, petroleum and petroleum
products and such other substances, materials and wastes which are defined or
classified as hazardous or toxic under any Environmental Laws.
2.20 Employee Benefit Plans; Employees and Employee
Relations.
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2.20.1 Attached hereto is an accurate list
(Schedule 2.20.1) of all "employee welfare benefit plans" and "employee pension
benefit plans" (collectively, "Qualified Plans"), as such terms are defined by
the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), and
any other group employee benefit plan, agreement, arrangement or understanding
maintained for the benefit of such Party (the Qualified Plans, together with
such other plans, arrangements and understandings, collectively, the "Employee
Benefit Plans"). To the extent available, complete and genuine copies of the
summary plan descriptions have been provided to the other Party, which summary
plan descriptions accurately summarize the material provisions of the Employee
Benefit Plans. Neither such Party nor any other members of the Controlled Group
of Corporations (as defined in Section 1563 of the Code) that includes such
Party contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan (as defined in Section 3(37) of ERISA) or
has any liability (including withdrawal liability) under any Multiemployer Plan.
There is no lien, encumbrance or claim of any type on the Facilities Assets or
against such Party with respect to the Employee Benefit Plans, and such Party
has not taken any action, or omitted to take any action, with respect to the
Employee Benefit Plans (or has any knowledge of the same) that would or could be
expected to result in a Lien on the Facilities Assets or against such Party.
2.20.2 Schedule 2.20.2 sets forth a complete list
(as of the date set forth therein) of names, positions, current annual salaries
or wage rates, and bonus and other compensation arrangements of all full-time
and part-time employees of such Party.
2.21 Adverse Agreements; No Adverse Change.
(a) Such Party is not a party to or subject to
any agreement or instrument or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree or rule
specifically naming such Party which adversely affects the business, operations,
properties, assets or conditions, financial or otherwise, of such Party.
(b) To the best of such Party's knowledge there
has not been any material adverse change in, or development materially adversely
affecting the business, assets, financial
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position or results of operations of any of such Party since the Balance Sheet
date.
2.22 Trade Notes and Accounts Receivable; Trade Accounts
Payable; Prepaid Contracts.
(a) Except as set forth on Schedule 2.22
hereto, the trade notes and accounts receivable of such Party are reflected on
the Balance Sheets and all trade notes and accounts receivable arising
thereafter and prior to the Closing Date arose and will arise from bona fide
transactions in the ordinary course of business of such Party, and are (except
for normal claims and allowances which are consistent with past experience of
such Party and which in the aggregate are not material) current, arose in the
usual and ordinary course of business of such Party from arms-length
transactions, are not subject to any defenses, counterclaims or set-offs which
would materially adversely affect such trade notes and accounts receivable, and,
to such Party's knowledge, are fully collectible, less the applicable allowance
for doubtful accounts. Such Party has fully performed all obligations with
respect to such trade notes and accounts receivable which it was obligated to
perform prior to the date hereof and Schedule 2.22 sets forth an aging schedule,
as of December 31, 1997, or thereafter, for all such trade notes and accounts
receivable.
(b) The trade accounts payable of such Party
reflected on the Balance Sheets and all trade accounts payable arising
thereafter and prior to the Closing Date arose and will arise from bona fide
transactions in the ordinary course of business of such Party and were paid or
are not yet due and payable.
(c) Schedule 2.22 hereto sets forth the amounts
and dates of all payments (the "Prepayments") received by such Party which
relate to services to be performed by such Party subsequent to the Closing Date,
including, without limitation, all such payments expressly authorized to be made
in advance by any of the terms of any contract or agreement with such Party.
2.23 Inventories and Supplies. All inventories and
supplies of such Party, whether or not reflected in the Balance Sheets, consist
of a quality and quantity useable and salable in the ordinary course of
business, without discount or reduction, except for obsolete items and items of
below-standard quality,
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all of which have been written off or written down to net realizable value in
the Balance Sheets. All inventories and supplies not written off are valued at
the lower of cost (applied on a first in, first out basis) or market in
accordance with generally accepted accounting principles. The present quantities
of inventory and supplies are not excessive and are reasonable and consistent
with the past inventory and supply practices of such Party.
2.24 Illegal Payments. Such Party has not, nor to the
knowledge of such Party, has any of its respective directors or officers, in
their capacity as such, either directly or indirectly, made any illegal payments
to, or provided any illegal benefit or inducement for, any person pursuant to an
action illegal under any federal, state or local law.
2.25 Insurance Policies. (a) Schedule 2.25 contains a
correct and complete description of all insurance policies of such Party
covering such Party and its employees, agents and assets. Each such policy is in
full force and effect and, to the knowledge of such Party, is reasonably
adequate in coverage and amount to insure against customarily insured risks to
which such Party and its employees, businesses, properties and other assets may
likely be exposed in the operation of its business. All premiums with respect to
such insurance policies have been paid on a timely basis, and no notice of
cancellation or termination has been received with respect to any such policy.
To the knowledge of such Party, and except as set forth on Schedule 2.25, there
are no pending claims against such insurance by such Party as to which the
insurers have denied coverage or otherwise reserved rights. Since January 1,
1994, such Party has not been refused any insurance with respect to its assets
or operations, nor has its coverage been limited by any insurance carrier to
which it has applied for any such insurance or with which it has carried
insurance.
(b) Schedule 2.25 contains a correct and
complete description of all insurance policies of such Party covering the Real
Property. Each such policy is in full force and effect and, to the knowledge of
such Party, is reasonably adequate in coverage and amount to insure against
customarily insured risks with respect to property of this type. All premiums
with respect to such insurance policies have been paid on a timely basis, and no
notice of cancellation or termination has been received with respect to any such
policy. Except as set forth on Schedule
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2.25, there are no pending claims against such insurance by such Party as to
which the insurers have denied coverage or otherwise reserved rights.
2.26 Professional Staff, Medicare, Medicaid and Other
Health Care Programs.
(a) The professional licensed provider staff of
each of the Facilities consists of the persons whose names and status are set
forth on Schedule 2.26(a) hereto.
(b) Except as set forth on Schedule 2.26(b)
hereto, such Party is certified for participation in the Medicare and Nevada
Medical Assistance ("Medicaid") programs, and has a current and valid provider
contract with such programs.
(c) Except as set forth on Schedule 2.26(c)
hereto, such Party has timely filed or caused to be timely filed all cost
reports and other reports of every kind whatsoever required by any governmental
or other entity to be made by it with respect to the purchase of services by
third-party purchasers, including but not limited to Medicare and Medicaid
programs and other insurance carriers, and all such reports are complete and
accurate in all material respects. Such Party has paid or caused to be paid all
refunds, discounts or adjustments which have become due in accordance with said
reports as filed and, except as set forth on Schedule 2.26(c), have not been
notified that there is any further liability now due (whether or not disclosed
in any report heretofore or hereafter made) for any such refund, discount or
adjustment, or any interest or penalties accruing with respect thereto. Such
Party has delivered to the other Party complete copies of all of its Medicare
and Medicaid cost reports submitted by such Party for the two most recent fiscal
years.
(d) To the knowledge of such Party, such Party
and its officers, directors, employees or agents (acting in their capacities as
such), have not engaged in any activities which (i) could subject such Party or
person to sanctions under 42 U.S.C. ss.1320a-7 (other than subparagraph (b)(7)
thereof) or (ii) at the time such activities were engaged in were known or
reasonably could have been known to be prohibited under Federal Medicare and
Medicaid statutes, 42 U.S.C. ss.ss.1320a-7a and 1320a-7b, or the regulations
promulgated pursuant to such statutes or related
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state or local statutes or regulations or which are prohibited by rules of
professional conduct.
2.27 Facility Surveys. True and complete copies of any
and all licensure survey reports and any and all Medicare and/or Medicaid and
JCAHO or other accreditation survey reports issued within the 24-month period
preceding the execution of this Agreement with respect to each Facility for
which surveys are conducted by the appropriate state or Federal agencies having
jurisdiction thereof and JCAHO or accreditation bodies have been furnished to
the other Party, along with true and complete copies of any and all plans of
correction which the agencies required to be submitted in response to said
survey reports.
2.28 Related Party Transactions. To the knowledge of such
Party, except as set forth in Schedule 2.28, and except for compensation to
employees for services rendered, no current director or officer of such Party or
any affiliate thereof is presently, or during the last fiscal year has been, (a)
a party to any material transaction with such Facility (including, but not
limited to, any contract or other arrangement providing for the furnishing of
service by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer, or shareholder, or (b) the direct or
indirect owner of any interest in any person which is a present competitor,
supplier or customer of such Party with respect to the business, nor does any
such person receive income from any source other than such Party which should
properly accrue to such Party.
2.29 No Brokers. Such Party has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company following the Merger or any other Party to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, and such Party is not aware of any
claim or basis for any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
2.30 No Misrepresentation or Omission. No representation
or warranty by such Party in this Article 2 or in
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any other Article or Section of this Agreement, or in any certificate or other
document furnished or to be furnished by or on behalf of such Party pursuant
hereto, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained therein not misleading.
3. [Article 3 intentionally omitted.]
4. Covenants of the Parties.
4.1 Access to Facilities and Additional Information.
4.1.1 From the date hereof until the Closing Date,
the Parties shall provide, and cause their respective agents (including counsel
and accountants) to provide to one another reasonable access to and the right to
inspect the Facilities Assets and their respective books and records pertaining
to the Facilities Assets, and will furnish and cause to be furnished to one
another all material information concerning their respective businesses not
otherwise disclosed pursuant to this Agreement, and such additional financial,
operating and other data and information regarding themselves, their respective
businesses and the Facilities Assets as either of them may from time to time
reasonably request, without regard to where such information may be located.
4.1.2 Promptly after the execution of this
Agreement, each Party shall deliver to one another, to the extent not already
delivered, copies of all title insurance policies and binders in the possession
of either Party for any of the Real Property and copies of all surveys of any of
the Real Property in the possession of either Party.
4.2 Operations. From the date hereof until the Closing
Date and except as otherwise expressly provided in this Agreement, each of
Desert Springs and Valley will:
(a) carry on its business in substantially the
same manner as heretofore and not make any material change in its personnel,
operations, finances, accounting policies, or real or personal property;
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(b) maintain the Facilities Assets and all parts
thereof in their current condition, ordinary wear and tear
excepted;
(c) perform all of its obligations relating to
or affecting the Facilities Assets or the business of its Facility;
(d) use their reasonable efforts to obtain
appropriate releases, consents, estoppels and other instruments as the other
Party may reasonably request;
(e) keep in full force and effect present
insurance policies or other comparable insurance and maintain sufficient liquid
reserves to meet all deductible, self-insurance and copayment requirements under
present insurance policies;
(f) maintain and preserve its business
organizations and operations intact, deal with the present employees at its
Facility in a manner consistent with its existing personnel policies; maintain
its relationships with physicians, suppliers and other persons having business
relations with it; and cooperate with the other Party by taking such actions as
are reasonably necessary to facilitate the smooth, efficient and successful
transition to the Company following the Merger of such business organizations
and operations and employee and other relations; and
(g) permit and allow reasonable access by the
other Party to discuss post-closing employment with any of its personnel and to
establish relationships with physicians, suppliers and others having business
relations with it.
4.3 Negative Covenants. From the date hereof until
the Closing Date, except as otherwise expressly permitted by this Agreement or
without the prior written consent of one another, none of Desert Springs or
Valley will:
(a) amend or terminate any of the Assumed
Contracts, enter into any contract or agreement or incur or agree to incur any
liability, except in the ordinary and regular course of business, and in no
event that requires the payment by such entity prior to the Closing Date or the
Company following the Merger of an amount greater than twenty-five thousand
dollars ($25,000) per contract or agreement, or that is not terminable
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without cause or penalty within thirty (30) days following the Closing Date;
(b) make offers to any of its employees for
employment with it after the Closing Date;
(c) increase compensation payable or to become
payable to, make a bonus payment to, or otherwise enter into one or more bonus
agreements with, any of its employees or agents, except in the ordinary and
regular course of business in accordance with existing personnel policies;
(d) create, assume or permit to exist any new
Lien upon any of the Facilities Assets other than purchase money liens arising
in the ordinary course of business;
(e) sell, assign, transfer, distribute or
otherwise dispose of any property, plant or equipment, except in the ordinary
and regular business of the Facilities with comparable replacement thereof;
(f) take any action outside the ordinary and
regular course of business;
(g) take any action relating to its liquidation
or dissolution; or
(h) create, incur, assume, guarantee or
otherwise become liable for, cancel, pay, agree to cancel or pay, provide for a
complete or partial discharge in advance of a scheduled payment date with
respect to, or waive any right to receive any direct or indirect payment or
other benefit under, any liability except in the ordinary and regular course of
business and in an amount not exceeding $25,000 individually or $50,000 in the
aggregate.
4.4 Governmental Approvals. From the date hereof until
the Closing Date, each Party shall (a) promptly apply for and use its reasonable
best efforts to obtain prior to the Closing Date all consents, approvals,
authorizations and clearances of governmental and regulatory authorities
required of it to consummate the transactions contemplated hereby, (b) provide
such information and communications to governmental and regulatory authorities
as such authorities may reasonably request, and (c) assist and cooperate with
the other Party to
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obtain all consents, licenses, permits, approvals, authorizations and clearances
of governmental and regulatory authorities that the other Party reasonably deems
necessary or appropriate, and to prepare any document or other information
required of the Company following the Merger by any such authorities, in order
to consummate the transactions contemplated herein.
4.5 Insurance Ratings. From the date hereof until the
Closing Date, each Party will take all action reasonably requested by the other
Party to enable the Company following the Merger to succeed to the worker's
compensation and unemployment insurance ratings of each Party with respect to
its Facility for insurance purposes. The Company shall not be obligated to
succeed to any such rating except as it may elect to do so.
4.6 Employees; Employee Benefit Plans. Each Party shall
retain all liabilities and obligations for all benefits under the Employee
Benefit Plans, regardless of whether any such liabilities and obligations are
disclosed on the Balance Sheets (including, without limitation, any and all
workers' compensation, health, disability or other benefits due to or for the
benefit of any employees of such Party or their covered dependents) with the
exception of vacation, sick leave, paid time off and the like, and COBRA, all of
which will be assumed by the Company. As of the Closing Date, each Party shall
terminate the participation of all employees in any Employee Pension Benefit
Plan in which any of such Party's employees participates, and provide for
distributions pursuant to the terms of the plans, ERISA and the Code.
4.7 Further Acts and Assurances. At any time and from
time to time at and after the Closing, upon request of the Company, each Party
shall do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, such further acts, deeds, assignments, transfers,
conveyances, powers of attorney, confirmations and assurances as the Company may
reasonably request to more effectively convey, assign and transfer to and vest
in the Company, full legal right, title and interest in and actual possession of
the Facilities Assets and the business of the Parties, to confirm each Party's
capacity and ability to perform its post-closing covenants and agreements under
this Agreement, and to generally carry out the purposes and intent of this
Agreement. Each Party shall also furnish the Company with such information and
documents in its possession or
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under its control, or which such Party can execute or cause to be executed, as
will enable the Company to prosecute any and all petitions, applications, claims
and demands by or against third parties relating to or constituting a part of
the Facilities Assets and the business of the Parties. After the Closing Date,
the Parties shall promptly remit to the Company any payments received by such
Party with respect to any accounts receivable or other amounts sold to the
Company; and similarly, after the Closing Date the Company shall promptly remit
to a Party any payments received by the Company with respect to accounts
receivable or other amounts retained by such Party. Any funds so collected will
be remitted within five (5) days following receipt of such payment.
4.8 Summerlin Transaction. Simultaneous with the
contribution of the Facilities Assets to Newco UHS-1 pursuant to this Agreement,
(i) Summerlin Hospital Medical Center, L.P. ("Summerlin") shall contribute,
convey, assign, transfer and deliver to Summerlin Hospital Medical Center LLC, a
limited liability company ("Newco UHS-2") created by Summerlin pursuant to the
LLC Act those assets and properties of Summerlin which are in the nature of the
Facilities Assets (but excluding its assets and properties which are in the
nature of Excluded Assets) and (ii) Newco UHS-2 shall assume and agree to pay,
perform and discharge the liabilities and obligations of Summerlin which are in
the nature of Assumed Liabilities. Simultaneous with the consummation of the
Merger, Summerlin shall sell to Desert Springs and Desert Springs shall acquire
a twenty-six and 115/1000 percent (26.115%) interest in Newco UHS-2 upon terms
and conditions mutually acceptable to Valley, Summerlin and Desert Springs, and
Summerlin thereafter shall own a seventy-three and 885/1000 percent (73.885%)
interest in Newco UHS-2.
4.9 Additional Properties and Assets. On or prior to the
Closing Date, Valley shall cause the entities listed on Schedule 4.9, all of
which Valley represents are its affiliates, to convey to Valley or Newco UHS-1,
or contribute to the Company, the properties and assets listed on Schedule 4.9.
If such properties and assets are conveyed to Valley such properties and assets
shall constitute UHS Facilities and shall be contributed by Valley to Newco
UHS-1 pursuant to the terms of this Agreement as if they had been contributed
prior to execution hereof. Any representations, warranties, and covenants
(including liabilities not assumed) which reference knowledge, receipt of
notice, or a phrase of similar import, shall also include knowledge, notice or
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phrase of similar import of such affiliate of Valley and any references in
Section 1.7 and Sections 2.7 to 2.30 to Valley as a Party shall include such
affiliate of Valley.
5. Matters Pertaining to the Company.
5.1 Employee Matters. Subject to the exclusions set
forth in this Section, the Parties will cause the Company to offer to employ as
of the Closing Date, on an at-will basis (subject to any existing union
contracts), all employees working at the Facilities immediately prior to the
Closing Date (including those on leave) so that the Parties may avoid the
imposition of any liability under the WARN Act and the Company shall pay all
liability of the Parties under the WARN Act resulting from the Company's failure
to do so. For the employees who accept the Company's offer of employment, the
Company shall recognize the employee's length of service with the Parties for
vesting and benefits eligibility purposes under the Company's employee benefit
programs. Notwithstanding the foregoing, the Company shall have no obligation to
offer employment to, except as required under any union contract, (i) those
employees who are "part-time employees" (as defined in the WARN Act) and (ii)
those employees who voluntarily elect to leave the employment of any Party.
5.2 Further Acts and Assurances. At any time and from
time to time at and after the Closing Date, the Parties shall cause the Company
to execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered such further acts, deeds, assignments, transfers, conveyances,
powers of attorney, confirmations and assurances as the Parties may reasonably
request to confirm the capacity and ability of the Company to perform those acts
relating to the post-closing covenants and agreements of the Parties (with
respect to causing the Company to perform such acts) under this Agreement, and
to generally carry out the purposes and intent of this Agreement. The Parties
shall cause the Company to furnish the Parties with such information and
documents in its possession or under its control, or which it can execute or
cause to be executed, as will enable the Parties to prosecute any and all
petitions, applications, claims and demands by or against third parties relating
to or constituting a part of the Facilities Assets and the business of the
Facilities for which any Party is liable hereunder or relating to Government
Reimbursement Programs.
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6. Conditions of Closing.
6.1 Conditions of Closing. The obligations of the
Parties to contribute the Facilities Assets and cause the Merger to be
consummated shall be subject to and conditioned upon the satisfaction at the
Closing Date of each of the following conditions (it being understood and agreed
that (i) the conditions to the benefit of Valley are solely with respect to
Quorum Facilities and Desert Springs and not with respect to itself or its
Facilities and (ii) the conditions to the benefit of Desert Springs are solely
with respect to UHS Facilities and Valley and not with respect to itself or its
Facilities):
6.1.1 All representations and warranties of the
Parties contained in this Agreement and the Schedules hereto shall be true and
correct in all material respects at and as of the Closing Date, the Parties
shall have performed in all material respects all agreements and covenants and
satisfied all conditions on their part to be performed or satisfied by the
Closing Date pursuant to the terms of this Agreement, and each Party shall have
received a certificate of the other Party dated the Closing Date to such effect.
6.1.2 Except as caused solely by any change in
the relevant market conditions and prospects, for which the other Party shall
assume all risk, there shall have been no material adverse change since the date
of the Balance Sheets in the financial condition, business or affairs of each
Party; and each Party shall not have suffered any material loss (whether or not
insured) by reason of physical damage caused by fire, earthquake, accident or
other calamity which substantially affects the value of its assets, properties
or business the insurance proceeds related to which are not, in the reasonable
opinion of the other Party, adequate to repair such damage and compensate for
any lost business related thereto. Each Party shall have received a certificate
of the other Party dated the Closing Date that the statements set forth in this
Section 6.1.2 are true and correct.
6.1.3 Each Party shall have delivered to the other
Party a Certificate of the Secretary of State (or other authorized officer) of
the State of its jurisdiction of incorporation, and certifying as of a date
reasonably close to the Closing Date that such Party has filed all required
reports, paid all required fees and taxes, and is, as of such date, in
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good standing and authorized to transact business as a domestic corporation.
6.1.4 Each Party shall have delivered to the other
Party a certificate of its corporate Secretary certifying:
(i) The Resolutions of its Board of
Directors authorizing the execution, performance and delivery of this Agreement
and the execution, performance and delivery of all agreements, documents and
transactions contemplated hereby;
(ii) The incumbency of its officers
executing this Agreement and all agreements and documents contemplated hereby;
and
(iii) That the Articles of Incorporation and
Bylaws of such Party attached to such certificate are complete and correct and
in effect as of the date of such certification.
6.1.5 Each Party shall have received from counsel
for the other Party (which may be house counsel), an opinion, dated the Closing
Date, satisfactory to such party in the form attached hereto as Exhibit B.
6.1.6 All material authorizations, consents,
waivers, approvals, orders, registrations, qualifications, designations,
declarations, filings or other actions required with or from any governmental
entity (including without limitation receipt of licenses (or commitments to
issue licenses) to own and operate the Facilities and for the Company following
the Merger to conduct the businesses of the Parties as currently conducted) in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby shall have been duly
obtained and shall be reasonably satisfactory to the Parties, and copies thereof
shall be delivered to the Parties prior to the Closing Date.
6.1.7 On the Closing Date, no injunction or order
shall be in effect prohibiting consummation of the transactions contemplated
hereby or which would make the consummation of such transactions unlawful and no
action or proceeding shall have been instituted and remain pending before a
governmental entity to restrain or prohibit the transactions contemplated by
this
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Agreement and no adverse decision shall have been made by any such governmental
entity which is reasonably likely to materially adversely affect the Company,
the Parties, Newco UHS-1, Newco Q-1 or the Facilities Assets. No federal, state
or local statute, rule or regulation shall have been enacted the effect of which
would be to prohibit, materially restrict, impair or delay the consummation of
the transactions contemplated hereby or materially restrict or impair the
ability of the Company following the Merger to own the Facilities Assets or to
conduct the businesses relating thereto.
6.1.8 The Parties' receipt of standard ALTA or
CLTA fee owner's title insurance policies using the current ALTA or CLTA
form(the "Title Policies") insuring title (at standard market rates for fee
simple or leasehold title) to each parcel of Real Property in the Company, as
fee owner, or with respect to the Boyer Property and the Capstone Property
identified on Schedule 2.13, as leasehold owner, as the case may be, subject
only to the Permitted Encumbrances, in the aggregate amount of $50,000,000 for
Valley and $44,300,000 for Desert Springs, and issued by a national title
insurance company (the "Title Company"). The Title Policies shall be issued with
all standard or general printed exceptions (other than the survey exceptions)
deleted and will contain a so-called "non-imputation" endorsement and such
additional endorsements as the Parties may reasonably require.
6.1.9 Execution and delivery by the Parties of
the Instruments of Conveyance set forth in Section 1.4.
6.1.10 Execution and delivery by the Company and
the parties thereto of the Management Agreement in substantially the form
attached hereto as Exhibit C (the "Management Agreement").
6.1.12 Execution and delivery by the Company and
the Parties of the Operating Agreement in substantially the form attached hereto
as Exhibit D (the "Operating Agreement").
6.1.13 The Company's receipt of current as-built
surveys of the Real Property, and the Boyer Property and the Capstone Property
described on Schedule 2.13, prepared and certified by a registered surveyor
licensed in the State of
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Nevada (the "Surveys"). The Surveys shall be in form and substance mutually
satisfactory to the Parties.
6.1.14 Execution and delivery by Valley, Universal
Health Services, Inc. and the Company of the Schwartz Sublease in substantially
the form attached hereto as Exhibit E (the "Schwartz Sublease").
6.1.15 Execution and delivery by Valley, Summerlin
and Universal Health Services, Inc. of the Survey Agreement in substantially the
form attached hereto as Exhibit F (the "Survey Agreement").
7. Nature and Survival of Representations and Warranties;
Indemnification.
7.1 Events of Default. A breach as a result of the
failure of a Party to perform any of its agreements, covenants and obligations
under this Agreement, shall be considered a default hereunder giving rise to the
indemnification set forth in Section 7.3 hereof.
7.2 Survival of Representations, Etc. All
representations and warranties made by the Parties in this Agreement or in any
exhibit, schedules or certificates hereof or in connection with the transactions
contemplated hereby shall terminate at the Closing Date, and thereafter be of no
further force or effect and no action or cause of action on account thereof
shall survive. All other agreements, covenants and obligations of the Parties in
this Agreement or in any exhibit, schedules, certificate, document or instrument
delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby, and the remedies of the Parties with respect
thereto, shall survive the closing of the transactions contemplated by this
Agreement.
7.3 Indemnification. From and after the Closing Date,
each Party, as the case may be (an "Indemnifying Party"), severally and not
jointly, shall indemnify and hold the other Party and the Company, as the case
may be, and their respective affiliates, agents and representatives (an
"Indemnified Party"), harmless from and against any and all claims, losses,
expenses, damages or liabilities arising out of or relating to any of the
following: (i) any breach, violation or nonperformance of a covenant, agreement
or obligation
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to be performed hereunder on the part of any Indemnifying Party; (ii) any claims
against, or liabilities or obligations of an Indemnifying Party not specifically
assumed by an Indemnified Party pursuant to this Agreement; or (iii) any
actions, judgments, costs and expenses (including reasonable attorneys' fees and
all other expenses incurred in investigating, preparing or defending any
litigation or proceedings, commenced or threatened) incident to any of the
foregoing or the enforcement of this Section. In addition to the foregoing,
following the Merger the Parties shall cause the Company to indemnify and hold
the Parties and their affiliates harmless from and against any and all claims,
losses, expenses, damages or liabilities arising out of or relating to the
Company's assumption of the Assumed Liabilities and any actions, judgments,
costs and expenses (including reasonable attorneys' fees and all other expenses
incurred in investigating, preparing or defending any litigation or proceedings,
commenced or threatened) incident to the foregoing. Any indemnification payment
pursuant to the foregoing shall include interest at a floating rate equal to the
prime rate of Citibank N.A., from time to time, from the date the Indemnified
Party provides the Indemnifying Party notice of the loss, cost, expenses or
damages until the date of payment.
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7.4 Representation, Cooperation and Settlement. (a) An
Indemnified Party agrees to give prompt written notice to an Indemnifying Party
of any claim against it which might give rise to a claim by such Indemnified
Party based on the indemnity agreement contained in Section 7.3 hereof, stating
the nature and basis of the first-mentioned claim and the amount thereof;
provided, that the failure of the Indemnified Party to give the Indemnifying
Party prompt notice shall not relieve the Indemnifying Party of any of its
obligations hereunder, but may create a cause of action for breach for damages
directly attributable to such delay.
(b) The Indemnifying Party shall have full
responsibility and authority with respect to the payment, settlement, compromise
or other disposition of any third party dispute, action, suit or proceeding
subject to indemnification by such Indemnifying Party hereunder, including,
without limitation, the right to conduct and control all negotiations with
respect to the settlement, compromise or other disposition thereof, and the
Indemnified Party agrees to cooperate with the Indemnifying Party in any
reasonable manner requested by the Indemnifying Party in connection with any
such negotiations. The Indemnified Party shall have the right, without prejudice
to the Indemnifying Party's rights under this Agreement, at the Indemnified
Party's sole expense, to be represented by counsel of its own choosing and with
whom counsel for the Indemnifying Party shall confer in connection with the
defense of any such action, suit or proceeding. The Parties agree to render to
each other such assistance as may reasonably be requested in order to insure the
proper and adequate defense of any such action, suit or proceeding.
Notwithstanding the foregoing, the Indemnifying Party may compromise and settle
any claim, action, or suit to which it must indemnify an Indemnified Party
hereunder, provided that it gives the Indemnified Party advance notice of any
proposed compromise or settlement and shall obtain the consent of
45
<PAGE> 49
the Indemnified Party to such proposed compromise or settlement, which consent
shall not be unreasonably withheld.
8. Transactions Subsequent to the Closing Date
8.1 Access to Records. From time to time after the
Closing Date, upon the request of the Company, each Party will provide the
Company with reasonable access to any records, documents and data relating to
the Facilities Assets or any of the Parties retained by any of the Parties
wherever located. From time to time after the Closing Date, upon the request of
either Party, the other Party shall cause the Company to make available to the
requesting Party any records, documents and data relating to the Facilities
Assets acquired by the Company as needed for any lawful purpose (including such
Party's inspection and copying of the same), and each Party shall have the same
rights of access to inspect and copy that such Party had prior to the Closing
Date; provided, however, that any records, documents and data pertaining to a
particular Facility delivered to or made available to such Party and its
representatives will be treated as strictly confidential by such Party and its
representatives, will not be directly or indirectly divulged, disclosed or
communicated to any other person other than such Party and its representatives
who are reasonably required to have access to such information (unless such
Party is compelled to disclose the same by judicial or administrative process),
and will be returned to the Company when such Party's use therefor has
terminated. The Parties shall cause the Company to instruct the appropriate
employees of the Facilities to cooperate in providing access to such records to
the Parties and their authorized representatives as contemplated herein. Access
to such records shall be, wherever reasonably possible, during normal business
hours, with reasonable prior written notice to the Company of the time when such
access shall be needed. The Parties shall cause the Company to provide
sufficient office space to such requesting Party without charge to conduct the
activities described herein. The Parties' employees, representatives and agents
shall conduct themselves in such a manner so that the Company's normal business
activities shall not be unduly or unnecessarily disrupted. For a period of seven
(7) years following the Closing Date, neither of the Parties shall, and each of
the Parties shall cause the Company not to, discard, destroy or otherwise
dispose of records, documents and data relating to the Facilities Assets or the
Parties without first making such records, documents and data available to the
other Party for inspection and copying. The
46
<PAGE> 50
Parties shall cause the Company to retain the records, documents and data
pertaining to a particular Facility at such Facility (or at such other locations
as the Company and the Parties shall determine by their mutual agreement from
time to time) at the Company's cost, until the expiration of seven (7) years
from the Closing Date.
8.2 Litigation Cooperation. After the Closing Date,
upon prior reasonable written request, each Party shall cooperate with the other
and with the Company, at the requesting Party's expense (but including only
out-of-pocket expenses to third parties and not the costs incurred by any Party
for the wages or other benefits paid to its officers, directors or employees),
in furnishing information, testimony and other assistance in connection with any
actions, tax or cost report audits, proceedings, arrangements or disputes
involving any of the Parties hereto (other than in connection with disputes
between the Parties hereto) and based upon contracts, arrangements or acts of
any Party or any of their respective affiliates which were in effect or occurred
on or prior to the Closing Date and which related to the Facilities Assets,
including, without limitation, arranging discussions with, and the calling as
witnesses of, officers, directors, employees, agents and representatives of the
Company.
9. Termination.
9.1 Methods of Termination. The transactions
contemplated herein may be terminated at any time before or after approval
thereof by the Parties, but not later than the Closing Date:
(i) By mutual consent of the Parties; or
(ii) by a Party after March 1, 1998 if any of the
conditions in Section 6.1 to the benefit of such Party shall not have been met
or waived in writing prior to such date.
9.2 Procedure Upon Termination. In the event of
termination pursuant to Section 9.1 hereof, written notice thereof shall
forthwith be given to the other Party and the transactions contemplated by this
Agreement shall be terminated, without further action by any party. If the
transactions contemplated by this Agreement are terminated as provided herein:
47
<PAGE> 51
(i) Each Party will redeliver all documents,
work papers and other material of the other Party relating to the transactions
contemplated hereby, whether so obtained before or after the execution of this
Agreement, to the Party furnishing the same; and
(ii) No Party shall have any liability or further
obligation to the other Party to this Agreement other than the confidentiality
obligations set forth in Section 10.6 hereof.
10. Miscellaneous.
10.1 Notice. Any notice required or permitted hereunder
shall be in writing and shall be sufficiently given if personally delivered or
mailed by certified or registered mail, return receipt requested, addressed as
follows:
If to Valley: Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais, Sr.
Vice President
Copies to: Bruce Gilbert, Esq.
General Counsel
Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
and
Klett Lieber Rooney & Schorling
A Professional Corporation
40th Floor, One Oxford Centre
Pittsburgh, Pennsylvania 15219
Attention: Robert T. Harper, Esq.
If to Desert Springs:
Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
Facsimile No. (615) 371-4788
48
<PAGE> 52
Copies to: Ernest E. Hyne, II, Esquire
Harwell Howard Hyne
Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
If to the
Company: Valley Health System LLC
c/o Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
Facsimile No. (615) 371-4788
and
Valley Health System LLC
c/o Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais, Sr.
Vice President
(or to such other address as any Party or
the Company, as the case may be, shall specify by written notice so given), and
shall be deemed to have been duly delivered: (a) if delivered personally or sent
by facsimile, on the date received and (b) if delivered by overnight courier, on
the day after mailing.
10.2 Execution of Additional Documents. The Parties will
at any time, and from time to time after the Closing Date, upon request of the
other Party, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to carry out the intent of this Agreement and to transfer and vest
title to any Facilities Assets being transferred hereunder, and to protect the
right, title and interest in and enjoyment of all of the Facilities Assets
granted, assigned, transferred, delivered and conveyed pursuant to this
Agreement with all costs being borne by the Company; provided, however, that
this
49
<PAGE> 53
Agreement shall be effective regardless of whether any such additional documents
are executed.
10.3 Waivers and Amendment.
(a) Each Party may, by written notice to each
other Party executed by a properly authorized officer, (i) extend the time for
the performance of any of the obligations or other actions of the other; (ii)
waive any inaccuracies in the representations or warranties of the other
contained in this Agreement; (iii) waive compliance with any of the covenants of
the other contained in this Agreement; and (iv) waive or modify performance of
any of the obligations of the other.
(b) This Agreement may be amended, modified or
supplemented only by a written instrument executed by all the Parties. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any Party,
shall be deemed to constitute a waiver by the Party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein. The waiver by any Party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
10.4 Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, each Party shall pay the fees
and expenses of their respective counsel, accountants, other experts and all
other expenses incurred by them incident to the negotiation, preparation and
execution of this Agreement and the performance by them of their obligations
hereunder.
10.5 Occurrence of Conditions Precedent. Each of the
Parties agrees to use its reasonable efforts to cause all conditions precedent
to its obligations under this Agreement to be satisfied.
10.6 Confidentiality Obligations; Public Announcements.
(a) Each Party agrees that it will treat in
confidence all documents, materials and other information which it shall have
obtained regarding the other Party during the
50
<PAGE> 54
course of the negotiations leading to the consummation of the transactions
contemplated hereby (whether obtained before or after the date of this
Agreement), the investigation provided for herein and the preparation of this
Agreement and other related documents, and, in the event the transactions
contemplated hereby shall not be consummated, each Party will return to the
other Party all copies of non-public documents and materials which have been
furnished in connection therewith. The obligation of each Party to treat such
documents, materials and other information in confidence shall not apply to any
information which (i) such Party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other Party, (ii) is known to
the public and did not become so known through any violation of a legal
obligation, (iii) became known to the public through no fault of such Party or
(iv) is later lawfully acquired by such Party from other sources. Except as
required by law and except for disclosures to its advisors, who shall be advised
of the confidentiality requirements herein, no Party shall disclose to any
person the identity of the other Party, the terms or provisions of this
Agreement or the content of any discussions or communications between any of the
Parties.
(b) Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as the Parties determine.
Unless consented to by each Party in advance or required by law, prior to the
Closing Date, each Party shall keep this Agreement strictly confidential and may
not make any disclosure of this Agreement to any person. The Parties will
consult with each other concerning the means by which their respective
employees, customers, and suppliers and others having dealings with them will be
informed of the transactions contemplated by this Agreement.
10.7 Binding Effect; Benefits. Subject to Section 10.14,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, successors, executors, administrators
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the Parties or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
51
<PAGE> 55
10.8 Entire Agreement. This Agreement, together with the
Exhibits, Schedules and other documents contemplated hereby, constitute the
final written expression of all of the agreements between the Parties, and is a
complete and exclusive statement of those terms. It supersedes all prior
understandings and negotiations (written and oral) concerning the matters
specified herein. Any representations, promises, warranties or statements made
by a Party that differ in any way from the terms of this written Agreement and
the Exhibits, Schedules and other documents contemplated hereby, shall be given
no force or effect. The Parties specifically represent, each to the other, that
there are no additional or supplemental agreements between them related in any
way to the matters herein contained unless specifically included or referred to
herein. No addition to or modification of any provision of this Agreement shall
be binding upon any party unless made in writing and signed by all Parties.
10.9 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Nevada exclusive of
the conflict of law provisions thereof.
10.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same instrument.
10.11 Headings. Headings of the Articles and Sections
of this Agreement are for the convenience of the Parties only, and shall be
given no substantive or interpretive effect whatsoever.
10.12 Incorporation of Exhibits and Schedules. All
Exhibits and Schedules attached hereto are by this reference incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
10.13 Severability. If for any reason whatsoever, any
one or more of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable or invalid as applied to any particular case or in
all cases, such circumstances shall not have the effect of rendering such
provision invalid in any other case or of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid.
52
<PAGE> 56
10.14 Assignability. Neither this Agreement nor any of
the Parties' rights hereunder shall be assignable by any Party hereto without
the prior written consent of the other Party.
[SIGNATURES ARE ON THE NEXT FOLLOWING PAGES]
53
<PAGE> 57
IN WITNESS WHEREOF, the Parties have executed this Agreement
and caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
VALLEY MEDICAL CENTER, INC.
By:
------------------------
Title:
---------------------
NC-DSH, INC.
By:
------------------------
Title:
---------------------
54
<PAGE> 58
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that
certain Contribution Agreement (the "Contribution Agreement") by and between
Valley Hospital Medical Center, Inc., a Nevada corporation ("Valley") and
NC-DSH, Inc., a Nevada corporation ("Desert Springs") for the sole purpose of
unconditionally guaranteeing the performance of the obligations of and payments
by Valley under Section 7.3 of the Contribution Agreement and for no other
purpose. By executing this Joinder Agreement the undersigned hereby guarantees
the due and punctual payment and performance by Valley of its obligations under
Section 7.3 of the Contribution Agreement. This Joinder Agreement may not be
terminated by the undersigned until such time as all amounts due and obligations
owing or to be owed by Valley under such Section shall have been fully paid and
performed. In the event of breach under Section 7.3, the parties thereto shall
have the right to proceed against the undersigned or Valley separately, jointly,
or against the undersigned without first proceeding against Valley. Bankruptcy
or the like of Valley shall be no defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the undersigned has executed this Joinder Agreement this 30th day of January,
1998.
Universal Health Services, Inc.
By:
--------------------------------
Title:
-----------------------------
55
<PAGE> 59
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that
certain Contribution Agreement (the "Contribution Agreement") by and between
Valley Hospital Medical Center, Inc., a Nevada corporation ("Valley") and
NC-DSH, Inc., a Nevada corporation ("Desert Springs") for the sole purpose of
unconditionally guaranteeing the performance of the obligations of and payments
by Desert Springs under Section 7.3 of the Contribution Agreement and for no
other purpose. By executing this Joinder Agreement the undersigned hereby
guarantees the due and punctual payment and performance by Desert Springs of its
obligations under Section 7.3 of the Contribution Agreement. This Joinder
Agreement may not be terminated by the undersigned until such time as all
amounts due and obligations owing or to be owed by Desert Springs under such
Section shall have been fully paid and performed. In the event of breach under
Section 7.3, the parties thereto shall have the right to proceed against the
undersigned or Desert Springs separately, jointly, or against the undersigned
without first proceeding against Desert Springs. Bankruptcy or the like of
Desert Springs shall be no defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the undersigned has executed this Joinder Agreement this 30th day of January,
1998.
Quorum Health Group, Inc.
By:
-------------------------------
Roland P. Richardson
Title: Senior Vice President
----------------------------
56
<PAGE> 60
SCHEDULES, EXHIBITS AND APPENDICES
TO CONTRIBUTION AGREEMENT
<TABLE>
<CAPTION>
Schedule
- --------
<S> <C>
1.1(b) Tangible Personal Property
1.1(n) Plaza Surgery Center
1.2(a) UHS Excluded Businesses and Real Estate
1.2(i) Other Excluded Assets
1.3.1 Assumed Contracts
1.6(c) List of Additional Assumed Liabilities
1.7(q) Liens and Mortgages Not Released at Closing
2.2 Authorization; Validity and Effect of Agreements
2.3 Subsidiaries; Debt and Equity Securities
2.4 Capitalization of Parties; Outstanding Rights,
Warrants, etc.
2.6 Financial Statements
2.7 Absence of Undisclosed Liabilities
2.8 Absence of Certain Changes or Events
2.9 Taxes
2.10 Real Property
2.10(c) Navigable Water
2.10(h) Liens on Real Property
2.10(j) Leases of Real Property
2.11 Exceptions to Sufficiency of Facilities Assets
</TABLE>
<PAGE> 61
<TABLE>
<S> <C>
2.13 List of Contracts and Other Data
2.14 Exceptions to No Breach or Default
2.15 Labor Controversies
2.16 Litigation
2.18 Licenses; Permits; Authorizations
2.19 Compliance with Applicable Law; Environmental Laws
2.20.1 Employee Benefit Plans
2.20.2 Employees
2.22 Trade Notes and Accounts Receivable; Aging
Schedule; Prepayments
2.25 Insurance Policies; Pending Insurance Claims
2.26(a) Professional Staff
2.26(b) Medicare and Medicaid Participation
2.26(c) Cost Reports
2.28 Related Party Transactions
4.9 Additional Properties and Assets
</TABLE>
ii
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
A Agreement and of Merger
B Form of Opinion of Parties' Counsel
C Form of Management Agreement
D Form of Operating Agreement
E Form of Schwartz Sublease
F Form of Survey Agreement
</TABLE>
iii
<PAGE> 1
EXHIBIT 10.2
LIMITED LIABILITY COMPANY AGREEMENT
OF
VALLEY HEALTH SYSTEM LLC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE 1
CERTAIN DEFINITIONS......................................................................................1
1.1 Certain Definitions.............................................................................1
ARTICLE 2
INTERESTS IN AND CAPITAL OF THE COMPANY..................................................................7
2.1 Units; Percentage Shares........................................................................7
2.2 Initial Capital Contributions...................................................................7
2.3 Assessments.....................................................................................8
2.4 Return of Capital...............................................................................8
2.5 Limited Liability of Members, Assignees and Directors...........................................8
2.6 Options and Other Rights to Purchase Units......................................................8
2.7 Restoration of Deficit Capital Account..........................................................8
2.8 Restrictions on Sale or Exchange................................................................9
ARTICLE 3
ALLOCATIONS AND DISTRIBUTIONS............................................................................9
3.1 Allocation of Profits...........................................................................9
3.2 Allocation of Losses............................................................................9
3.3 Special Allocations.............................................................................9
3.4 Curative Allocations...........................................................................12
3.5 Other Allocations Rules........................................................................12
3.6 Tax Allocations: Code Section 704(c)...........................................................13
3.7 Allocations with Respect to Transferred Interests..............................................13
3.8 Allocation Definitions.........................................................................13
3.9 Distributions..................................................................................14
ARTICLE 4
MANAGEMENT OF THE COMPANY'S AFFAIRS;
BOARD OF DIRECTORS......................................................................................15
4.1 General Powers of the Board of Directors.......................................................15
4.2 Composition of Board of Directors..............................................................16
4.3 Regular Meetings...............................................................................16
4.4 Special Meetings...............................................................................16
4.5 Notice of Special Meetings.....................................................................16
4.6 Quorum of Directors............................................................................17
4.7 Manner of Acting; Super-Majority Vote..........................................................17
4.8 Informal Action by Board of Directors..........................................................18
4.9 Participation by Electronic Means or Proxy.....................................................18
4.10 Resignation....................................................................................18
4.11 Removal........................................................................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
4.12 No Committees..................................................................................18
4.13 Presumption of Assent..........................................................................18
4.14 Duty of Loyalty; Conflicts of Interest.........................................................18
4.15 Liability and Indemnity of the Directors and Officers..........................................18
4.16 Related Party Transactions.....................................................................19
4.17 Related Party Agreements.......................................................................20
ARTICLE 5
OFFICERS................................................................................................20
5.1 Appointment and Term of Office.................................................................20
5.2 Removal........................................................................................20
ARTICLE 6
MEMBERS.................................................................................................20
6.1 Admission of New Members.......................................................................20
6.2 Meetings.......................................................................................21
6.3 Quorum.........................................................................................21
6.4 Manner of Acting...............................................................................21
6.5 Proxies........................................................................................21
6.6 Voting by Certain Members......................................................................21
6.7 Action by Members Without a Meeting............................................................22
6.8 Voting by Ballot...............................................................................22
6.9 Waiver of Notice...............................................................................22
6.10 Resignation or Withdrawal......................................................................22
ARTICLE 7
TRANSFERS OF MEMBERSHIP INTERESTS BY MEMBERS............................................................22
7.1 Transfers......................................................................................22
7.2 Effect of Permitted Transfer...................................................................22
7.3 Prohibited Transfers...........................................................................23
7.4 Involuntary Withdrawal.........................................................................23
7.5 Exceptions to Restrictions.....................................................................23
7.6 Loss of Voting Rights..........................................................................24
7.7 Tax Treatment of Acquisitions of Interests by Company..........................................24
ARTICLE 8
PURCHASE RIGHTS AND OPTIONS.............................................................................24
8.1 Purchase Right.................................................................................24
8.2 Purchase Option................................................................................25
8.3 Tag Along/Co-Sale Rights on Transfers by a Member..............................................26
8.4 Put Right......................................................................................26
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 9
DISSOLUTION AND LIQUIDATION OF THE COMPANY..............................................................29
9.1 Liquidating Events.............................................................................29
9.2 Method of Liquidation..........................................................................30
9.3 Reasonable Time for Liquidation................................................................31
9.4 Distribution to Liquidating Trust..............................................................31
9.5 Date of Termination............................................................................31
9.6 Certificate of Cancellation....................................................................31
ARTICLE 10
COMPANY FUNDS AND ACCOUNTING............................................................................31
10.1 Books of Account; Records and Information......................................................31
10.2 Period and Method of Accounting................................................................32
10.3 Reports........................................................................................32
10.4 Tax Elections..................................................................................32
10.5 Tax Matters Manager............................................................................32
ARTICLE 11
NONCOMPETE..............................................................................................32
11.1 Business Activities of Members.................................................................32
11.2 Covenant Not to Compete........................................................................33
11.3 Enforcement....................................................................................34
11.4 Reasonableness................................................................................34
ARTICLE 12
GENERAL.................................................................................................34
12.1 Filings........................................................................................34
12.2 Status of Company for Tax Purposes.............................................................34
12.3 Waiver of Action for Partition.................................................................34
12.4 Nonrecourse Loans..............................................................................35
12.5 Notice.........................................................................................35
12.6 Binding Effect.................................................................................35
12.7 Construction...................................................................................35
12.8 Survival of Provisions.........................................................................35
12.9 Integrated Agreement...........................................................................36
12.10 Governing Law..................................................................................36
</TABLE>
iii
<PAGE> 5
LIMITED LIABILITY COMPANY AGREEMENT
OF
VALLEY HEALTH SYSTEM LLC
This Limited Liability Company Agreement ("AGREEMENT") of VALLEY HEALTH
SYSTEM LLC (the "COMPANY") is made and entered into effective as of 12:01 AM
Pacific Time, February 1, 1998 (the "EFFECTIVE DATE"), by and among VALLEY
HOSPITAL MEDICAL CENTER, INC., a Nevada corporation ("VHMC"), and NC-DSH, INC.,
a Nevada corporation ("NC-DSH") (each of the foregoing, and each additional
Person admitted as a member of the Company, shall be referred to individually as
a "MEMBER" and collectively as "MEMBERS").
A. The Company was formed as a Delaware limited liability company under
the Delaware Limited Liability Company Act (6 Delaware Code Section
18-101, et seq., as it may be amended or succeeded from time to time
(the "ACT")) by filing a Certificate of Formation with the Office of
the Delaware Secretary of State on January 16, 1998.
B. Newco Q LLC, a wholly owned subsidiary of NC-DSH, merged with and into
the Company effective at the Effective Date (the "MERGER").
C. The Members desire to enter into this Agreement to replace the previous
limited liability company agreement of the Company and to set forth the
provisions governing the management and conduct of the business of the
Company and the rights and obligations of the Members.
The Members, in consideration of the foregoing premises and their
mutual covenants and agreements set forth herein, agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
capitalized terms shall have the meanings set forth below (certain other
definitions may be found in Section 3.8 or elsewhere in this Agreement):
1.1.1 Affiliate shall mean, when used with reference to a
specified Person: (i) any Person that, directly or indirectly, through
one or more intermediaries or by contractual agreement, controls or is
controlled by or is under common control with the specified Person;
(ii) any Person that is an officer of, partner in, or director of, or
trustee of, or serves in a similar capacity with respect to the
specified Person or of which the specified Person is an officer,
partner, director, or trustee, or with respect to which the specified
Person serves in a similar capacity; (iii) any Person
1
<PAGE> 6
that, directly or indirectly, is the beneficial owner of ten percent
(10%) or more of any class of the outstanding voting securities of, or
otherwise has a substantial beneficial interest in, the specified
Person, or of which the specified Person is, directly or indirectly,
the owner of 10% or more of any class of voting securities of, or in
which the specified Person has a substantial beneficial interest; and
(iv) any spouse, brothers, sisters, ancestors and descendants of the
specified Person. As used in this definition of "Affiliate," the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by
contract, or otherwise, and the term "voting securities" includes,
without limitation, partnership interests and limited liability company
interests.
1.1.2 Bankruptcy or Bankrupt shall mean, with respect to any
Person, the adjudication of bankruptcy, declaration of insolvency, or
the assignment for the benefit of creditors of or by such Person, the
subjection of part or all of the property of such Person to the control
and direction of a receiver, which receivership is not dismissed within
ninety (90) days of such receiver's appointment, or the filing by such
Person or the involuntary filing against such Person of a petition for
relief under any federal or other bankruptcy or insolvency law or for
an arrangement with creditors which is not dismissed within ninety (90)
days.
1.1.3 Business shall mean any lawful activity engaged in by
the Company related to, and in furtherance of, the ownership, operation
and management of the Hospitals and related health care services
businesses. The Company's principal executive office shall be located
at 620 Shadow Lane, Las Vegas, Nevada 89106
1.1.4 Capital Account shall mean, with respect to any Member,
the Capital Account maintained for such Member in accordance with the
following provisions:
1.1.4.1 To each Member's Capital Account there shall
be credited such Member's Capital Contributions, the Member's
distributive share of Profits and any items in the nature of
income or gain that are specifically allocated to such Member
pursuant to Section 3.3 or 3.4 hereof, and the amount of any
Company liabilities assumed by such Member or which are
secured by any Company Property distributed to such Person.
1.1.4.2 To each Member's Capital Account there shall
be debited the amount of cash and the Gross Asset Value of any
Company Property distributed to such Member pursuant to any
provision of this Agreement, the Member's distributive share
of Losses and any items in the nature of expenses or losses
that are specially allocated to such Member pursuant to
Section 3.3 or 3.4 hereof, and the amount of any liabilities
of such Member assumed by the Company or which are secured by
any property contributed by such Member to the Company.
2
<PAGE> 7
1.1.4.3 In the event any Interest is transferred in
accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to the
extent it relates to the transferred Interest; provided,
however, that no transfer of an Interest shall, in and of
itself, relieve the transferor of any obligation to the
Company, including, but not limited to, any such transferor's
obligation to contribute to the capital of the Company.
1.1.4.4 In determining the amount of any liability
for purposes of Subsections 1.1.4.1 and 1.1.4.2 hereof, there
shall be taken into account Code Section 752(c) and any other
applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of the Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with these Regulations. In the event the Board of Directors determines that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property, or that are
assumed by the Company or the Members), are computed in order to comply with
such Regulations, the Board of Directors may make such modification if approved
in writing by VHMC and NC-DSH.
1.1.5 Capital Contribution shall mean, with respect to any
Member, the amount of money and the initial Gross Asset Value of any
property (other than money) contributed at any time to the Company with
respect to such Member's Interest in the Company.
1.1.6 Code shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.1.7 Company Property shall mean any and all interests and
rights of any type or nature in all real and personal property,
tangible and intangible, owned or acquired by the Company, including,
without limitation, the Hospitals and all assets used in connection
with the Hospitals that are owned, leased or operated by the Company.
1.1.8 Depreciation shall mean for each fiscal year or other
shorter period, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable with respect to an asset for
such year or other period, except that if the Gross Asset Value of an
asset differs from its adjusted basis for federal income tax purposes
at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value
as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal
income tax depreciation, amortization, or other cost
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recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board of Directors and approved in
writing by VHMC and NC-DSH.
1.1.9 Distributable Cash shall be defined for the applicable
period of time as (i) the sum of (a) all cash receipts from all sources
from the operations of the Company during such period, excluding the
proceeds of indebtedness of the Company or from the issuance of
additional Interests for cash, and (b) any reduction in Reserves
established by the Board of Directors in prior periods as set forth
below, less (ii) the sum of (aa) all cash disbursements of the Company
during such period of time, including without limitation, disbursements
by the Company on behalf of or amounts withheld with respect to,
Members of the Company in the capacity of Members but only if such
withheld amounts are pursuant to Subsection 3.9.3 hereof, if any, debt
service (including the payment of principal, premium and interest),
capital expenditures and redemptions of Interests in the Company
pursuant to Section 736 of the Code, and (bb) any Reserves. "RESERVES"
shall mean the sum of: (a) thirty (30) days operating cash computed by
multiplying thirty (30) times the average daily actual cash
disbursements for the previous three (3) months excluding cash
disbursements for capital expenditures and (b) one and one-quarter
percent (1.25%) of budgeted net revenues for the fiscal year.
Notwithstanding anything in this Agreement to the contrary, the Company
shall not make any distributions that would render it insolvent in
violation of Act. Nothing contained herein nor distributions hereunder
are intended nor shall be construed or applied to violate the fraud and
abuse prohibitions under the Medicare and Medicaid programs.
1.1.10 Gross Asset Value shall mean, with respect to any
asset, the asset's adjusted basis for federal income tax purposes,
except as follows:
1.1.10.1 The initial Gross Asset Value of any asset
(other than cash) contributed by a Member to the Company shall
be the gross fair market value of such asset as determined by
the Members and the Company, provided that the initial Gross
Asset Value of the assets contributed by VHMC pursuant to
Section 2.2 hereof shall be Two Hundred Sixty-Three Million
Six Hundred Thirty-Six Thousand Three Hundred Sixty-Four and
No/100 Dollars ($263,636,364.00) plus the working capital
contributed to the Company by VHMC pursuant to the
Contribution Agreement and the initial Gross Asset Value of
the assets contributed by NC-DSH pursuant to Section 2.2 shall
be One Hundred Million and No/100 Dollars ($100,000,000.00)
plus the working capital contributed to the Company by NC-DSH
pursuant to the Contribution Agreement;
1.1.10.2 The Gross Asset Values of all Company assets
shall be adjusted to equal their respective gross fair market
values, as reasonably determined by the Board of Directors, as
of the following times: (a) the
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acquisition of an additional Interest by any new or existing
Member in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Company to a Member
of more than a de minimis amount of Company Property as
consideration for an Interest; and (c) the liquidation of the
Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments
pursuant to clauses (a) and (b) above shall be made only if
the Board of Directors reasonably determines that such
adjustments are necessary or appropriate to reflect the
relative economic rights of the Members in the Company;
1.1.10.3 The Gross Asset Value of any Company asset
distributed to any Member shall be the gross fair market value
of such asset on the date of distribution as determined by the
distributee and the Board of Directors; and
1.1.10.4 The Gross Asset Values of Company assets
shall be increased (or decreased) to reflect any adjustments
to the adjusted basis of such assets pursuant to Code Section
734(b) or Code Section 743(b), but only to the extent that
such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)
and Section 3.5 hereof; provided, however, that Gross Asset
Values shall not be adjusted pursuant to this Subsection
1.1.10.4 to the extent the Board of Directors determines that
an adjustment pursuant to Subsection 1.1.10.2 is necessary or
appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Subsection
1.1.10.4.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Subsections 1.1.10.1, 1.1.10.2, or 1.1.10.4 such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Profits
and Losses.
1.1.11 Hospitals shall mean all the assets and properties the
Company acquired from VHMC and its Affiliates pursuant to the
Contribution Agreement and all the assets and properties the Company
acquired pursuant to the Merger, together with additions thereto and
reduced by dispositions since such acquisition.
1.1.12 Interest shall mean a Member's entire ownership
interest in the Company at any particular time, including its
Percentage Share and the rights and obligations of such Member provided
herein or in the Act.
1.1.13 Liquidating Event shall mean any of the events listed
in Section 9.1 requiring the dissolution, winding up and liquidation of
the Company and its assets.
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1.1.14 Person shall mean any individual, corporation,
partnership, limited liability company, professional association,
company, trust, estate or other entity.
1.1.15 Profits and Losses shall mean, for each fiscal year or
other shorter period, an amount equal to the Company's taxable income
or loss for such year or period, determined in accordance with Code
Section 703(a) (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code Section
703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
1.1.15.1 Any income of the Company that is exempt
from federal income tax and not otherwise taken into account
in computing Profits and Losses pursuant to this Subsection
1.1.15 shall be added to such taxable income or loss;
1.1.15.2 Any expenditures of the Company described in
Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Regulations Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Profits or Losses pursuant to this Subsection 1.1.16
shall be subtracted from such taxable income or loss;
1.1.15.3 In the event the Gross Asset Value of any
Company asset is adjusted pursuant to Subsection 1.1.15.3 or
1.1.15.4 hereof, the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such
asset for purposes of computing Profits or Losses;
1.1.15.4 Gain or loss resulting from any disposition
of Company Property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed
by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value; and
1.1.15.5 In lieu of the depreciation, amortization,
and other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken
into account Depreciation for such fiscal year or other
shorter period, computed in accordance with Subsection 1.1.15
hereof.
1.1.15.6 To the extent an adjustment to the adjusted
tax basis of any Company asset pursuant to Code Section 734(b)
or Code Section 743(b) is required pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution
other than in liquidation of a Member's Interest, the amount
of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the
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asset) from the disposition of the asset and shall be taken
into account for purposes of computing Profits or Losses; and
1.1.15.7 Notwithstanding any other provisions of this
Subsection 1.1.15, any items which are specially allocated
pursuant to Section 3.3 or Section 3.4 hereof shall not be
taken into account in computing Profits or Losses.
1.1.16 Contribution Agreement shall mean that Contribution
Agreement by and between VHMC and NC-DSH dated on or about January 30,
1998 pursuant to which the Company shall acquire the Hospitals.
1.1.17 Regulations shall mean those regulations promulgated by
the United States Treasury Department under the Code, as such
regulations may be amended at any time and from time to time (including
corresponding provisions of succeeding regulations).
ARTICLE 2
INTERESTS IN AND CAPITAL OF THE COMPANY
2.1 Units; Percentage Shares. Each Member's Interest in the Company
shall be denominated in "UNITS", or fractions thereof. Each Unit represents a
Capital Contribution of cash or assets with an initial Gross Asset Value of One
Hundred Thousand Dollars ($100,000.00). A Member's "PERCENTAGE SHARE" in the
Company shall be obtained by converting to a percentage the fraction having as
its numerator the number of Units held by such Member and having as its
denominator the aggregate number of Units held by all Members at the time. The
initial Units and Percentage Share of each Member shall be set forth opposite
such Member's name on Exhibit 2.1 attached hereto. Thereafter, such Percentage
Share shall be adjusted from time to time in accordance with this Agreement. All
such adjustments shall be reflected on Exhibit 2.1 hereto, which shall be
revised as a result thereof through the execution of a revised Exhibit 2.1 by
the Company's Chief Executive Officer and each of VHMC and NC-DSH. In case of
any conflict between two Exhibits 2.1, the exhibit having the latest date shall
be conclusive and binding for all purposes, absent manifest error.
2.2 Initial Capital Contributions. The Initial Capital Contribution of
VHMC shall be the Hospitals contributed pursuant to the Contribution Agreement.
The Initial Capital Contribution of NC-DSH shall be the Hospitals contributed
pursuant to the Merger. A Member shall be liable only to make the initial
Capital Contribution described herein. Except as provided in the Act or Section
2.3, after such Member's initial Capital Contribution shall be fully paid, such
Member shall not be required to make any further Capital Contributions or to
lend any funds to the Company.
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2.3 Assessments. The Board of Directors is empowered to request
additional Capital Contributions from the Members in such amounts and at such
times as determined in its reasonable judgment but only for purposes of capital
improvements to the Hospitals and capital projects for expansion of the
Business. Such assessments shall be made pro rata based on each Member's
Percentage Share so as to maintain the Members' respective Percentage Shares.
Each Member shall have the right to determine if they wish to comply with an
assessment. The capital accounts of all Members who pay the assessment shall be
adjusted pursuant to Section 1.1.4 and, if not all Members comply with the
assessment, Members who pay the assessment shall receive a proportional increase
in their number of Units and Percentage Share based on the then current fair
market value of a Unit. In the event NC-DSH declines to comply with a capital
assessment and objects to the value at which additional Interests are issued or
the adjustments made to the Members' Capital Accounts, Units or Percentage
Shares, NC-DSH and VHMC shall comply with the dispute resolution provisions of
Section 4.16, provided however, that NC-DSH shall pay the cost of any
arbitration engaged in under Section 4.16 brought pursuant to this Section 2.3
and provided further that, in the event the arbitrator determines that an
appraisal is required and selects the appraiser and controls the appraisal
process, NC-DSH shall pay the cost and expenses of such appraisal. If either
NC-DSH or VHMC retain an appraiser, the cost of such appraisal shall be borne by
NC-DSH or VHMC respectively.
2.4 Return of Capital. Except as provided in Articles 3 and 9, no
Member or assignee shall have the right to demand or receive a return of all or
any part of such Member's initial or additional contributions to the capital of
the Company, or to receive any specific property of the Company. No Member (or
assignee) shall be entitled to any interest on such Member's Capital Account.
2.5 Limited Liability of Members, Assignees and Directors. Except as
provided in this Section 2.5, no Member, assignee or Director shall be
personally liable for the acts, debts, liabilities, or other obligations of the
Company, whether arising in contract, tort or otherwise, or for the acts or
omissions of any other Member, assignee or Director, employee or agent of the
Company. Except as otherwise provided herein, each Member, Director and assignee
shall be liable only to make the Capital Contributions that it has agreed to
make and for such Person's own acts and conduct.
2.6 Options and Other Rights to Purchase Units. The Board of Directors
shall not have the right to grant, sell or issue additional Units, options or
other rights, including convertible securities (collectively "UNIT
EQUIVALENTS"), for the purchase of Units to any Person without the written
consent of each of VHMC and NC-DSH.
2.7 Restoration of Deficit Capital Account. In the event a Member,
following a Liquidating Event, has a deficit in its Capital Account as a result
of a distribution previously made pursuant to this Agreement, then such Member
shall be obligated to pay to the Company an amount equal to such deficit. Any
Member required to so contribute shall contribute the amount of such deficit
within 30 days of a request for such payment from the
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Board of Directors. No Member shall have any liability for restoration of any
other Member's negative Capital Account balance.
2.8 Restrictions on Sale or Exchange. The Interests have not been
registered under the Securities Act of 1933, as amended, but were issued
pursuant to an exemption from such registration. Notwithstanding any provisions
to the contrary in this Agreement, except for transactions governed by Section
7.5, no reoffers, reoffers for sale, resale or transfer of the Interests may be
made except pursuant to an exemption from such registration under the Securities
Act of 1933 and applicable state law evidenced by an opinion of counsel in form
and by counsel reasonably satisfactory to the Board of Directors, VHMC and
NC-DSH.
ARTICLE 3
ALLOCATIONS AND DISTRIBUTIONS
3.1 Allocation of Profits. After giving effect to the special
allocations set forth in Sections 3.3 and 3.4 hereof, Profits for any fiscal
year or other shorter period shall be allocated among Members in accordance with
their respective Percentage Shares.
3.2 Allocation of Losses. After giving effect to the special
allocations set forth in Sections 3.3 and 3.4 hereof, Losses for any fiscal year
or other shorter period shall be allocated among Members in accordance with
their respective Percentage Shares.
3.2.1 The Losses allocated pursuant to Section 3.2 hereof
shall not exceed the maximum amount of Losses that can be so allocated
without causing any Member to have an Adjusted Capital Account Deficit
at the end of any fiscal year. In the event some but not all of the
Members would have Adjusted Capital Account Deficits as a consequence
of an allocation of Losses pursuant to Section 3.2, the limitation set
forth in this Subsection 3.2.1 shall be applied on a Member by Member
basis so as to allocate the maximum permissible Loss to each Member
under Section 1.704-1(b)(2)(ii)(d) of the Regulations. All Losses in
excess of the limitation set forth in this Subsection 3.2.1 shall be
allocated among the Members in accordance with their respective
Percentage Shares.
3.3 Special Allocations. The following special allocations shall be
made in the following order (the definition of capitalized terms used in this
Article 3, not previously defined herein, are set forth in Section 3.8):
3.3.1 Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other
provision of this Article 3, if there is a net decrease in Company
Minimum Gain during any Company fiscal year or other shorter period,
each Member shall be specially allocated items of Company income and
gain for such year or other shorter period (and, if necessary,
subsequent years) in an amount equal to such Member's share of the net
decrease
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in Company Minimum Gain, determined in accordance with Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(f)(6) and
1.704-2(j)(2) of the Regulations. This Subsection 3.3.1 is intended to
comply with the minimum gain chargeback requirement in Section
1.704-2(f) of the Regulations and shall be interpreted consistently
therewith.
3.3.2 Member Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding
any other provision of this Article 3 except Subsection 3.3.1, if there
is a net decrease in Member Nonrecourse Debt Minimum Gain attributable
to a Member Nonrecourse Debt during any Company fiscal year or other
shorter period, each Member who has a share of the Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(5) of the Regulations,
shall be specially allocated items of Company income and gain for such
year or other shorter period (and, if necessary, subsequent years) in
an amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2)
of the Regulations. This Subsection 3.3.2 is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the
Regulations and shall be interpreted consistently therewith.
3.3.3 Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations, or distributions
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of income
and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as
quickly as possible, provided that an allocation pursuant to this
Subsection 3.3.3 shall be made if and only to the extent that such
Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article 3 have been tentatively made
as if this Subsection 3.3.3 were not in the Agreement.
3.3.4 Gross Income Allocation. In the event any Member has a
deficit Capital Account at the end of any Company fiscal year or other
shorter period that is in excess of the sum of (i) the amount such
Member is obligated to restore, and (ii) the amount such Member is
deemed to be obligated to restore pursuant to the penultimate sentences
of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
Member shall be specially allocated items of Company income and gain in
the amount of such excess as quickly as possible, provided that an
allocation
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pursuant to this Subsection 3.3.4 shall be made if and only to the
extent that such Member would have a deficit Capital Account in excess
of such sum after all other allocations provided for in this Article 3
have been tentatively made as if Subsection 3.3.3 hereof and this
Subsection 3.3.4 were not in the Agreement.
3.3.5 Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other shorter period shall be specially allocated among
the Members, in accordance with their respective Percentage Shares.
3.3.6 Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year or other shorter period shall be
specially allocated to the Member who bears the economic risk of loss
with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).
3.3.7 Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Company asset pursuant to
Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as the result of a distribution to a Member in
complete liquidation of his or her Interest, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss shall be
specially allocated to the Members in accordance with their interests
in the Company in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such
distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies. No Code Section 754 election shall be
made without the consent of each of VHMC and NC-DSH.
3.3.8 Allocations Relating to Taxable Issuance of Company
Units. Any income, gain, loss or deduction realized as a direct or
indirect result of the issuance of Units by the Company to a Member
(the "ISSUANCE ITEMS") shall be allocated among the Members so that, to
the extent possible, the net amount of such Issuance Items, together
with all other allocations under this Agreement to each Member shall be
equal to the net amount that would have been allocated to each such
Member if the Issuance Items had not been realized.
3.3.9 Imputed Interest. To the extent the Company has taxable
interest income with respect to any promissory note pursuant to Section
483 or Sections 1271 through 1288 of the Code:
3.3.9.1 Such interest income shall be specially
allocated to the Member to whom such promissory note relates;
and
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3.3.9.2 The amount of such interest income shall be
excluded from the Capital Contributions credited to such
Member's Capital Account in connection with payments of
principal with respect to such promissory note.
3.4 Curative Allocations. The allocations set forth in Subsections
3.2.1, 3.3.1, 3.3.2, 3.3.3, 3.3.4, 3.3.5, 3.3.6 and 3.3.7 hereof (the
"REGULATORY ALLOCATIONS") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss, or deduction pursuant to this Section 3.4. Therefore, notwithstanding any
other provision of this Article 3 (other than the Regulatory Allocations), the
Board of Directors shall make such offsetting special allocations of Company
income, gain, loss, or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of this
Agreement and all Company items were allocated pursuant to Sections 3.1, 3.2,
3.3.8, 3.3.9, and 3.5. In exercising its discretion under this Section 3.4, the
Board of Directors shall take into account future Regulatory Allocations under
Subsections 3.3.1 and 3.3.2 that, although not yet made, are likely to offset
other Regulatory Allocations previously made under Subsections 3.3.5 and 3.3.6.
3.5 Other Allocations Rules.
3.5.1 Basis for Determining Profits or Losses. For purposes of
determining the Profits, Losses, or any other items allocable to any
period, Profits, Losses, and any such other items shall be determined
on a daily, monthly, or other basis, as determined by the Board of
Directors on a consistent basis using any permissible method under Code
Section 706 and the Regulations thereunder.
3.5.2 Distributions of Cash treated as proceeds from
Nonrecourse Liability or Member Nonrecourse Debt. To the extent
permitted by Sections 1.704-2(h)(3) of the Regulations, the Board of
Directors shall endeavor to treat distributions of cash as having been
made from the proceeds of a Nonrecourse Liability or a Member
Nonrecourse Debt only to the extent that such distributions would cause
or increase an Adjusted Capital Account Deficit for any Member.
3.5.3 Allocations of Items Not Otherwise Allocated. Except as
otherwise provided in this Agreement, all items of Company income,
gain, credit, loss, deduction, and any other allocations not otherwise
provided for shall be divided among the Members in the same proportions
as they share Profits or Losses, as the case may be, for such fiscal
year or other shorter period.
3.5.4 Allocations Binding. The Members are aware of the income
tax consequences of the allocations made by this Article 3 and hereby
agree to be bound by the provisions of this Article 3 in reporting
their respective shares of
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Company income and loss for income tax purposes. The Members further
intend that pursuant to Regulations Section 1.704-1(b)(3), the Members'
respective interests in the Company are equal to their respective
Percentage Shares for purposes of complying with Section 704(b) of the
Code.
3.6 Tax Allocations: Code Section 704(c). In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Company shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value. In applying Code
Section 704(c) and the regulations thereunder, VHMC and NC-DSH will jointly
determine the allocation method or methods that will, to the extent allowable,
allocate items governed under Code Section 704(c) so as to provide the
contributing member with the tax depreciation and amortization it would have had
notwithstanding formation of the Company.
3.7 Allocations with Respect to Transferred Interests.
3.7.1 General Rule. If any Member's Interest is transferred,
or is increased or decreased by reason of the admission of a new
Member, or otherwise, during any fiscal year or other shorter period of
the Company, Profits or Losses and any other item of income, gain,
loss, deduction or credit of the Company for such fiscal year or other
shorter period shall be allocated among the Members in accordance with
their varying respective Percentage Shares which they had from time to
time during such fiscal year or other shorter period in accordance with
Code Section 706(d).
3.7.2 Accounting Convention. For convenience in accounting,
the Company may, to the extent permitted by law, treat a transfer of an
Interest, or an increase or decrease of a Member's Percentage Share,
that occurs at any time during a month (commencing with the month
including the date of this Agreement) as having been consummated on the
first day of that month, regardless of when during that month, the
transfer, increase or decrease actually occurs, or adopt such other
convention as the Board of Directors may lawfully select.
3.7.3 Sale or Other Disposition of All Assets. Notwithstanding
anything in Section 3.6 to the contrary, gain or loss of the Company
realized in connection with the sale or other disposition of all or
substantially all Company Property and/or the liquidation of the
Company shall be allocated only to Members who own Interests as of the
date such transaction occurs.
3.8 Allocation Definitions.
3.8.1 Adjusted Capital Account Deficit shall mean with respect
to any Member, the deficit balance, if any, in such Member's Capital
Account as of the end
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of the relevant fiscal year or other shorter period, after giving
effect to the following adjustments:
3.8.1.1 Credit to such Capital Account any amounts
which such Member is obligated to restore or is deemed to be
obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
3.8.1.2 Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of
the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d)
of the Regulations and shall be interpreted consistently therewith.
3.8.2 Nonrecourse Deductions has the meaning set forth in
Section 1.704-2(b)(1) of the Regulations.
3.8.3 Nonrecourse Liability has the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
3.8.4 Member Nonrecourse Debt has the meaning set forth in
Section 1.704-2(b)(4) of the Regulations for "Partner Nonrecourse Debt"
after substituting therein the word "Member" in place of the word
"Partner".
3.8.5 Member Nonrecourse Debt Minimum Gain means an amount,
with respect to each Member Nonrecourse Debt, equal to the Company
Minimum Gain that would result if such Member Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance with
Section 1.704-2(i)(3) of the Regulations.
3.8.6 Member Nonrecourse Deductions has the meaning set forth
in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations for
"Partner Nonrecourse Deductions" after substituting therein the word
"Member" in place of the word "Partner".
3.8.7 Company Minimum Gain has the meaning set forth in
Regulations Sections 1.704-2(b)(2) and 1.704-2(d) for "Partnership
Minimum Gain" after substituting therein the word "Company" in place of
the word "Partnership".
3.9 Distributions.
3.9.1 Distributions of Distributable Cash. The Board of
Directors shall make distributions on a quarterly basis of
Distributable Cash or other property to the Members (or assignees) in
accordance with their respective Percentage Shares.
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3.9.2 Restrictions on Use of Distributions. Nothing contained
herein is intended nor shall be construed or applied to violate the
fraud and abuse prohibitions under the Medicare and Medicaid programs.
3.9.3 Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any
payment of taxes of Members or distribution to the Members shall be
treated as amounts distributed to the Members pursuant to this Section
3.9 for all purposes under this Agreement.
3.9.4 Distributions in Kind. No Member shall have the right to
demand or receive distributions of property other than cash.
Distributions in kind of Company property, in liquidation or otherwise,
shall be made only with the written consent of the Board of Directors,
VHMC and NC-DSH and only at a value agreed to in writing by the Board
of Directors, VHMC and NC-DSH. Prior to any such distribution in kind,
the difference between such agreed value and the book value of such
property shall be credited or charged, as the case may be, to the
Members' (and assignees') Capital Accounts in proportion to their
Percentage Shares, except as may otherwise be required under Code
Section 704(c). Upon the distribution of such property, such agreed
value shall be charged to the Capital Accounts of the Members (or
assignees) receiving such distribution.
ARTICLE 4
MANAGEMENT OF THE COMPANY'S AFFAIRS;
BOARD OF DIRECTORS
4.1 General Powers of the Board of Directors. The business and affairs
of the Company shall be managed by its "BOARD OF DIRECTORS" (herein so called)
and the persons serving on the Board of Directors (the "DIRECTORS"), who shall
serve in the capacity of "Managers" as defined in the Act. The Board of
Directors shall direct, manage and control the Company's business to the best of
its ability and shall have full and complete authority, power, and discretion to
make any and all decisions and do any and all things which the Board of
Directors deems necessary or desirable for that purpose, subject to the rights
and responsibilities of the Members including provisions of this Agreement
requiring the approval of VHMC and/or NC-DSH prior to the taking of certain
actions . Unless expressly authorized by the Board of Directors, no Member shall
have any authority to bind or obligate the Company; provided that the acts of
VHMC and NC-DSH on behalf of the Company taken for purposes of forming the
Company prior to the adoption of this Agreement are hereby ratified in full.
Certain aspects of the Company's day to day operations shall be managed by UHS
of Delaware, Inc., a Delaware Corporation, pursuant to the Management Agreement
described in Section 4.16, subject at all times to the provisions of this
Agreement requiring the approval of VHMC and/or NC-DSH prior to the taking of
certain actions.
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4.2 Composition of Board of Directors. The Board of Directors shall be
comprised of five (5) Directors, consisting of three (3) Directors appointed by
VHMC and two (2) Directors appointed by NC-DSH. No other Member shall have any
appointees. Each Director shall be an employee of a Member or an employee of a
person controlling, controlled by or under common control with such Member.
After initial appointments to the Board of Directors are made, the failure to
timely appoint or select Directors shall not affect the validity of actions
taken by those who are serving and such unfilled positions shall not be counted
in determining a quorum. The Board of Directors shall annually elect one (1) of
the Directors to serve as "CHAIRMAN." The Chairman shall preside over all
meetings of the Board of Directors (and any meetings of the Members) and shall
have such other duties and responsibilities as the Board of Directors may from
time to time designate. No Director shall receive any compensation from the
Company for service on the Board of Directors.
4.3 Regular Meetings. The Board of Directors may provide, by
resolution, the time and place for the holding of regular meetings without other
notice than such resolution. Notwithstanding the foregoing, the Board of
Directors shall meet no less than once per calendar quarter. Pursuant to Section
4.9, such meetings need not be held in person.
4.4 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board of Directors, who shall
fix any place as the place for holding such special meeting.
4.5 Notice of Special Meetings. Written notice of any special meeting
of the Board of Directors setting forth the matters to be discussed at the
special meeting shall be given by the Chairman of the Board of Directors as
follows:
4.5.1 By mail to each Director at his or her business address
at least five (5) business days prior to the meeting; or
4.5.2 By personal delivery, telegram or telecopy at least
seventy-two (72) hours prior to the meeting to the business address of
each Director, or in the event such notice is given on a Saturday,
Sunday or holiday, to the residence address of each Director. If
mailed, such notice shall be deemed to be delivered when deposited in
the United States mail, so addressed, with postage thereon prepaid. If
notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. If
notice is delivered by telecopy, such notice shall be deemed to be
delivered when a confirmation of receipt of the telecopy is printed by
the sending telecopier.
4.5.3 Any Director may waive notice of any meeting. The
attendance of a Director at any meeting shall constitute a waiver of
notice of such meeting, except where a Director attends a meeting for
the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
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4.5.4 When any notice is required to be given to a Director, a
waiver thereof in writing signed by such Director, whether before, at
or after the time stated therein, shall constitute the giving of such
notice.
4.6 Quorum of Directors. A majority of the of Directors provided in
Section 4.2 hereof shall constitute a quorum for the transaction of business of
the Board of Directors so long as at least one Director appointed by each of
VHMC and NC-DSH is present, but if less than such majority is represented at a
meeting, a majority of the Board of Directors represented may adjourn the
meeting from time to time without further notice.
4.7 Manner of Acting; Super-Majority Vote. Each Director shall have one
(1) vote with respect to any matter put to a vote of the Board of Directors. Any
Director may act in person or by proxy. The act of all Directors voting at a
meeting at which a quorum is represented shall be deemed the act of a
"SUPER-MAJORITY" of the Board of Directors. The act of the majority of the
Directors represented at a meeting at which a quorum is represented shall be
deemed the act of the Board of Directors, except that each of the following
actions shall require the vote of a Super-Majority of the Board of Directors:
4.7.1 Changing the Business of the Company.
4.7.2 Amending this Agreement or the Certificate of Formation.
4.7.3 Approving the selection of or any change in the location
of the Company's principal office if outside the city of Las Vegas,
Nevada.
4.7.4 Except as specifically provided in Section 7.5, and as
set forth in Article 8, the Transfer by a Member of the whole or any
portion of its Interest.
4.7.5 Except as specifically provided in Section 7.5, and as
set forth in Article 8, approving the admission of any Person as a new
Member.
4.7.6 Issuing additional Units or Unit Equivalents other than
to VHMC and/or NC-DSH in exchange for additional Capital Contributions
pursuant to Section 2.3.
4.7.7 Approving the dissolution and liquidation of the
Company.
4.7.8 Incurring any debt or interest bearing obligations other
than: (i) trade payables and other short-term liabilities and leases in
the ordinary course of business and (ii) debt incurred pursuant to the
Revolving Credit and Cash Management Agreement described on Exhibit
4.16.
4.7.9 Electing not to make a quarterly distribution of
Distributable Cash pursuant to Section 3.9.
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4.7.10 Selling, in any twelve (12) month period, in excess of
$5,000,000 of the Company's assets or engaging in any merger,
partnership, joint venture or other business combination or transaction
of a similar nature with a value in excess of $5,000,000 in any twelve
(12) month period.
4.8 Informal Action by Board of Directors. The Board of Directors may
act without meeting by written consents describing the action taken and signed,
via facsimile or otherwise, by all Directors. Action taken under this Section
4.8 is effective when all Directors have signed the consent, unless the consent
specifies a different effective date.
4.9 Participation by Electronic Means or Proxy. Any Director may
participate in a meeting of the Board of Directors by communications equipment
by which all persons participating in the meeting can hear each other at the
same time, or by written proxy. Such participation shall constitute presence in
person at the meeting.
4.10 Resignation. Any Director of the Company may resign at any time by
giving written notice to the Chairman of the Board of Directors. The resignation
of any Director shall take effect upon receipt of notice thereof or at such
later time as shall be specified in such notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. Vacancies created by the resignation of one or more Directors shall
be filled as provided in Section 4.2 hereof.
4.11 Removal. Each Member shall have the unilateral right to remove any
Director appointed by such Member. Vacancies created by the removal of one or
more Directors shall be filled as provided in Section 4.2 hereof.
4.12 No Committees. The Board of Directors shall have no committees.
4.13 Presumption of Assent. A Director of the Company who is present at
a meeting of the Board of Directors or committee thereof, at which action on any
matter is taken, shall be presumed to have assented to the action taken unless
such Director objects at the beginning of such meeting to the holding of the
meeting or to the transacting of business at the meeting, unless his or her
dissent is entered in the minutes of the meeting, or unless he shall file a
written dissent to such action with the presiding officer of the meeting before
the adjournment thereof or shall forward such dissent by registered mail to the
Company immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a Director who voted in favor of such action.
4.14 Duty of Loyalty; Conflicts of Interest. The Board of Directors of
the Company shall perform its duties and each Director shall perform his or her
duties, in good faith, in a manner he or she reasonably believes to be in the
best interests of the Company.
4.15 Liability and Indemnity of the Directors and Officers. Directors
and Officers shall be indemnified by the Company with respect to their service
as Directors and Officers
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to the fullest extent permitted by Delaware law during their term as such and
thereafter, with respect to the period during which they served as such.
4.15.1 Notwithstanding any provisions of this Agreement or
applicable Delaware law to the contrary, neither a Director nor an
Officer shall be personally liable to the Company or to the Members for
monetary damages for breach of fiduciary duty, except with respect to
(1) any breach of the duty of loyalty; (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law; or (3) any transactions from which the Director or
Officer derived an improper personal benefit.
4.15.2 Notwithstanding any provisions of this Agreement or
applicable Delaware law to the contrary, neither a Director nor an
Officer shall be liable to the Company or to any Member for any action
taken or omitted to be taken by such Director or Officer, provided that
such Director or Officer acted in good faith and in a manner he
reasonably believed to be in the best interests of the Company and such
action or omission does not involve the gross negligence, willful
misconduct or fraud of such Director or Officer.
4.16 Related Party Transactions. The Company shall not enter into or
modify transactions with any Members, Affiliates, Affiliates of Members or other
Persons in which the Company or its Affiliates have an ownership or investment
interest or that have an Interest in the Company except for transactions
evidenced by written agreements that are at arm's-length and fair market value
and otherwise on terms and conditions that are intrinsically fair and reasonable
to the Company within its market area. If the Company enters into or makes a
material modification to a Material Interested Agreement (as defined below), the
Company shall provide written notice of the Material Interested Agreement
(including a brief summary of its key terms) and a true and complete copy of the
Material Interested Agreement to NC-DSH. A Material Interested Agreement is one
that involves expenditures of or revenue to the Company of greater than One
Hundred Thousand Dollars ($100,000.00) in any twelve (12) month period or an
agreement that, when combined with all other agreements to which the first
sentence of this Section 4.16 applies, involve, in the aggregate, expenditures
or revenue to the Company of greater than Three Hundred Thousand Dollars
($300,000.00) in any twelve (12) month period. In the event that NC-DSH objects
to a Material Interested Agreement on the grounds that such Material Interested
Agreement fails to satisfy the requirements of the first sentence of this
Section 4.16 and there is a dispute involving this Section 4.16, VHMC and NC-DSH
shall initiate arbitration proceedings with respect to the dispute. Such
arbitration proceedings shall be conducted in the state of Nevada in accordance
with the rules and procedures of the American Arbitration Association, provided
that VHMC shall bear the burden of demonstrating that the Material Interested
Agreement meets the requirements of the first sentence of this Section 4.16. Any
such arbitration shall be binding upon the parties to the fullest extent
permitted by law. VHMC and NC-DSH shall each pay one-half of the costs of such
arbitration. The Company is authorized to enter into those agreements set forth
on Exhibit 4.16 attached hereto. Except for fees paid pursuant to the agreements
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described on Exhibit 4.16 or agreements permitted pursuant to this Section 4.16,
no Member or Affiliate thereof shall be entitled to any salary or other
compensation from the Company and the compensation for each Member shall be
limited to Distributable Cash distributed to the Members pursuant to Section
3.9.
4.17 Related Party Agreements. In the event that the Company is party
to an agreement with a Member or an Affiliate of a Member, or a Member or an
Affiliate of a Member has an interest in such agreement (such Member being an
"INTERESTED MEMBER"), decisions with respect to the enforcement of the Company's
rights and obligations with respect to breaches, defaults and waivers under such
agreement shall be made by VHMC if NC-DSH is the Interested Member and by NC-DSH
if VHMC is the Interested Member. The Company and Interested Member shall
provide VHMC or NC-DSH, as appropriate, with written notice of each issue
requiring decision and the facts and information necessary and appropriate for
VHMC or NC-DSH, as appropriate, to exercise its rights under this Section 4.17.
ARTICLE 5
OFFICERS
5.1 Appointment and Term of Office. The "OFFICERS" of the Company
shall from time to time be appointed by the Board of Directors and shall have
such duties and responsibilities as are established by the Board of Directors.
Such Officers shall include, without limitation, a Chief Executive Officer
("CEO"), Secretary, and such other Officers as may be appointed from time to
time by the Board of Directors. Each Officer shall hold office until his or her
successor shall have been duly appointed and shall have qualified or until his
or her death or until he or she shall resign or shall have been removed. A
vacancy in any office may be filled as if the person had never been occupied.
5.2 Removal. Any Officer may be removed at any time by the Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the Officer so removed. Election or appointment of an Officer shall
not of itself create contract rights.
ARTICLE 6
MEMBERS
6.1 Admission of New Members. A Person may be admitted as a new Member
only upon compliance with the following conditions: (i) except for Persons
acquiring an Interest pursuant to Section 7.5 or Article 8, VHMC and NC-DSH
shall each have consented in writing to the admission of such Person as a
Member, (ii) the Person shall have executed and delivered such documents as
requested by the Board of Directors as may be necessary or appropriate to
evidence the Person's consent to be bound by the terms and conditions of this
Agreement; (iv) the Person shall have contributed to the capital of the Company
as required by the Board of Directors, VHMC and NC-DSH; and (v) the
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Person shall have paid or caused to be paid all costs related to such
membership, including legal fees and expenses incurred by the Company
6.2 Meetings. Meetings of the Members shall be held at such time, date
and place and upon such notice as is reasonably determined by the Board of
Directors but no less often than once per calendar year.
6.3 Quorum. Members holding more than fifty percent (50%) of the
Percentage Share of all Members entitled to vote shall constitute a quorum at
any meeting of Members provided that, regardless of the Percentage Share
represented, VHMC and NC-DSH must be present at such meeting for a quorum to be
constituted. In the absence of a quorum at any such meeting, a majority of the
Members so represented may adjourn the meeting from time to time for a period
not to exceed thirty (30) days without further notice. However, if the
adjournment is for more than thirty (30) days, a notice of the adjourned meeting
shall be given to each Member of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed.
6.4 Manner of Acting. If a quorum is present, the affirmative vote of
the Members owning a majority of all Percentage Shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
Members; provided, however, that if the Members are acting upon any of the items
that are the subject to Section 4.7 hereof or otherwise require the approval of
VHMC and NC-DSH, the affirmative vote of each of VHMC and NC-DSH shall be the
required to constitute the act of the Members.
6.5 Proxies. At all meetings of Members, a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Company before or at the
time of the meeting.
6.6 Voting by Certain Members.
6.6.1 Units owned in the name of a corporation may be voted by
such officer, agent or proxy as the Bylaws of such corporation may
prescribe, or, in the absence of such provision, as the board of
directors of such corporation may determine.
6.6.2 Units owned in the name of a receiver may be voted by
such receiver and Units held by or under the control of a receiver may
be voted by such receiver either in person or by proxy, but no receiver
shall be entitled to vote Units without a transfer thereof into the
receiver's name.
6.6.3 A Member whose Units are pledged shall be entitled to
vote such Units until the Units have been transferred into the name of
the pledgee, and thereafter the pledgee shall be entitled to vote the
Units so transferred.
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6.7 Action by Members Without a Meeting. The Members may act without
meeting by written consents describing the action taken and signed by all
Members. Action taken under this Section 6.7 is effective when all Members
entitled to vote have signed the consent, unless the consent specifies a
different effective date.
6.8 Voting by Ballot. Voting on any question or in any election may be
by voice vote unless the Board of Directors or at least one (1) Member shall
demand that voting be by ballot.
6.9 Waiver of Notice. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the person entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice. The attendance of a Member at any
meeting shall constitute a waiver of notice, waiver of objection to defective
notice of such meeting, and a waiver of objection to the consideration of a
particular matter at the meeting unless the Member, at the beginning of the
meeting, objects to the holding of the meeting, the transaction of business at
the meeting, or the consideration of a particular matter at the time it is
presented at the meeting.
6.10 Resignation or Withdrawal. No Member shall have the right to
resign or withdraw from the Company, or to assign its Interest prior to the
dissolution and winding up of the Company, except as expressly contemplated by
this Agreement.
ARTICLE 7
TRANSFERS OF MEMBERSHIP INTERESTS BY MEMBERS
7.1 Transfers. Except as specifically provided in Section 7.5 or
Article 8, each Member covenants and agrees that it will not directly or
indirectly, by operation of law or otherwise, sell, assign, transfer, alienate,
mortgage, pledge or otherwise dispose of or encumber (each a "TRANSFER") all or
any part of such Member's Units in the Company to any Person, including the
Company. A Transfer shall be deemed to include any merger, share exchange, stock
transfer, transfer of partnership interest or other transfer of the ownership,
equity or control of any Member or any Person owning or holding, directly or
indirectly through its Affiliates, an interest in a Member.
7.2 Effect of Permitted Transfer. In the event a Member Transfers all
or any part of its Units in the Company pursuant to this Agreement, the Company
shall continue and the transferee of such Units shall be admitted to the Company
as a Member subject to the same obligations, with the same Units and Percentage
Share in the Company, and with the same rights in and to the capital, profits,
losses and distributions of the Company as the transferring Member had with
respect to the Units so Transferred; provided, however, that the transferee
shall be subject to all of the terms and conditions of this Agreement and shall
promptly execute and deliver such documents as requested by the Board of
Directors and as may be necessary or appropriate, in the opinion of counsel for
the Company, to evidence the transferee's consent to be bound by such terms and
conditions; and provided,
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further, that if such Transfer is a pledge or other encumbrance of Units in the
Company, then such transferee shall not become a substituted Member and shall
only be an assignee.
7.3 Prohibited Transfers. Any attempted Transfer by a Member of all or
any part of its Units in the Company in violation of the terms of this Agreement
shall be null and void and of no force or effect and: (i) if a third party offer
has been made, then it shall be treated as an offer to sell the Interest of such
Member as provided in Section 8.1 and 8.3, or (ii) otherwise, it shall be
treated as an Involuntary Withdrawal as provided in Section 7.4.
7.4 Involuntary Withdrawal. Upon the Involuntary Withdrawal of any
Member, the Company shall be dissolved unless within 90 days thereof VHMC and
NC-DSH (or Members holding a majority of all Interests in the Company if VHMC
and NC-DSH do not collectively hold a majority in Interests (as such phrase is
defined in Revenue Procedure 94-46) in the Company) elect to continue the
business of the Company. The Involuntary Withdrawal of the Member shall be
treated as an offer to sell the Interest of such Member as provided in Section
8.2. In the event the remaining Members do not purchase the Interest of the
withdrawing Member and continue the business of the Company upon the Involuntary
Withdrawal of a Member, the successor in interest may, upon the written consent
of the other Members, become a transferee with respect to the Interest of the
Member with the rights set forth in Section 7.2. The "INVOLUNTARY WITHDRAWAL" of
a Member shall be deemed to have occurred with respect to a Member in the event
such Member:
7.4.1 suffers a "bankruptcy event" as defined in Act
ss.18-304;
7.4.2 attempts to resign or withdraw from the Company in
breach of this Agreement;
7.4.3 is dissolved, liquidated, terminated or otherwise ceases
to exist;
7.4.4 makes a Transfer or attempts to Transfer any part of
such Member's Units in violation of Section 7.1 and such Transfer is
not treated as an offer to sell the Interest of such Member pursuant to
Section 8.1 or 8.3; or
7.4.5 is responsible for any occurrence, event or state of
facts that would otherwise cause the dissolution and liquidation of the
Company.
7.5 Exceptions to Restrictions. Neither: (i) any conveyance by VHMC or
NC-DSH of its Interest to a Person that controls or is controlled by or is under
common control with VHMC or NC-DSH, respectively; nor (ii) the sale of all or
substantially all of the assets of or the Transfer of the stock, merger or
change of control of Universal Health Services, Inc., a Delaware corporation, or
of Quorum Health Group, Inc., a Delaware Corporation, shall be deemed a Transfer
or Involuntary Withdrawal pursuant to this Agreement (and shall not be subject
to Article 8).
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7.6 Loss of Voting Rights. Upon the occurrence of an Involuntary
Withdrawal, no voting rights shall be exercisable with respect to the Interest
of the Member until such Units are disposed of in accordance with Article 8.
7.7 Tax Treatment of Acquisitions of Interests by Company. The parties
hereto expressly agree that any withdrawal of all of a Member's Capital Account
whereby the Company acquires the Interest of one or more Members pursuant to
Article 7 shall be treated as a complete liquidation of such Member's Interest
pursuant to Section 736 of the Code. The Members hereby expressly agree and
acknowledge that the amount of money (or the fair market value of property)
distributed to a Member withdrawing all of his or her Capital Account shall be
treated as a payment in liquidation under Section 736(b) of the Code to the
extent of the fair market value of the withdrawing Member's "interest in
partnership property" within the meaning of Section 736 of the Code and the
excess, if any, of the withdrawal payments shall be treated as a Section 707(c)
"guaranteed payment" under Section 736(a) of the Code. Further, if in connection
with such transaction, interest is paid to a Member, the Members hereby agree
and acknowledge that the payment of such interest shall be treated as a
"guaranteed payment" which in turn shall be treated as a Code Section 736(a)
payment. Each Member agrees that the price at which the Company may reacquire
the Interests of a Member shall be agreed upon at arm's length as described in
the second paragraph of Regulation Section 1.704-1(b)(2)(ii)(b)(3).
ARTICLE 8
PURCHASE RIGHTS AND OPTIONS
8.1 Purchase Right. Subject to the exceptions contained in Section 7.5
and as set forth in Section 8.1.4, prior to any Transfer by a Member ("SELLING
MEMBER"), the other Members ("PURCHASING MEMBERS") shall have a right of first
refusal to purchase ("PURCHASE RIGHT") the Interest of the Selling Member as
provided in this Section 8.1. The terms of the Purchase Right are as follows:
8.1.1 Offer By Selling Member. In the event a Selling Member
desires to make a Transfer pursuant to a bona fide written offer
presented to the Selling Member by any prospective third party
transferee(s) (the "THIRD PARTY OFFER"), it shall make an offer in
writing to the Purchasing Members (the "OFFER"), and the Offer shall
include: (i) a statement of the Selling Member's intention to make a
Transfer, (ii) the name(s) and address(es) of the prospective third
party transferee(s), (iii) the number of Units involved in the proposed
third party transaction, and (iv) the full terms and conditions of the
transaction (which shall include, but not be limited to, a detailed
description of the transaction, the price, time, method and other
conditions of payment), including a true copy of the Third Party Offer.
8.1.2 Acceptance of Offer. The Purchasing Members may, at each
of their option, provide a written notice to the Selling Member of
their acceptance of the Offer within 60 days of the date the Purchasing
Members received the Offer. If
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there is more than one Purchasing Member, the Purchasing Members shall
be entitled to purchase pursuant to the Offer in proportion to their
respective Percentage Share of Units at the time of the Offer. If the
Offer is not accepted by all Purchasing Members, the Selling Member
shall give notice thereof to the accepting Purchasing Members and then
any accepting Purchasing Member shall have the right to purchase all of
the remaining Units involved in the Offer within the succeeding 15 day
period. If not all of the Units described in the Offer have been
accepted in the fashion described above, the Offer shall be deemed not
accepted by any Purchasing Members. If the Offer is not accepted, the
Selling Member may make a bona fide Transfer to the third party
transferee named in the statement attached to the Offer but only in
strict accordance with the Third Party Offer.
8.1.3 Purchase Price Determination. The purchase price and the
terms and conditions subject to the Offer shall be the same as set
forth in the Third Party Offer. The closing of the purchase shall take
place at the principal office of the Company and shall occur within 30
days of acceptance of the Offer. At closing, the purchase price shall
be paid in the manner set forth in the Third Party Offer, provided that
if the Third Party Offer includes any consideration other than cash,
the accepting Purchasing Member(s), at their option, may pay in cash
the fair market value of such non-cash consideration.
8.1.4 Exception. Notwithstanding the foregoing provisions of
Section 8.1, VHMC shall be entitled to Transfer up to twenty percent
(20%) of its Interest without compliance with Section 8.1 provided that
NC-DSH has approved the transferee in advance in writing and such
transferee shall be subject to the terms and conditions of this
Agreement and otherwise comply with Section 7.2.
8.1.5 Additional Assets. In the event any Third Party Offer
received by a Selling Member is part of an acquisition which extends to
or includes assets in addition to the Interest of the Selling Member
("ADDITIONAL ASSETS"), the Offer shall be deemed to extend to and
include the Additional Assets and the Offer shall contain the
information set forth in Section 8.1.1 with respect to the Additional
Assets. In such case, if the Offer is not accepted in its entirety,
including, without limitation, the purchase of Additional Assets by the
Purchasing Members, the Selling Member may consummate the transactions
contemplated by the Third Party Offer but only in strict accordance
with such Third Party Offer. This Section 8.1.5 shall not be
interpreted or construed to apply to Third Party Offers that are the
subject of clause (ii) of Section 7.5.
8.2 Purchase Option. Upon the Involuntary Withdrawal of a Member (the
"SELLING MEMBER") the other Members ("PURCHASING MEMBERS") shall have the right
(the "INVOLUNTARY WITHDRAWAL OPTION") to purchase the Interest of the Selling
Member for a price and upon the terms set forth in this Section 8.2.
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8.2.1 Exercise. To exercise the Involuntary Withdrawal Option,
the Purchasing Members may, at each of their options, provide written
notice to the Selling Member suffering an Involuntary Withdrawal of
their intention to exercise their Involuntary Withdrawal Option as
provided in this Section 8.2 within 15 days of the date the Purchasing
Members receive notice of the event of Involuntary Withdrawal. If there
is more than one Purchasing Member, the Purchasing Members shall be
entitled to purchase in accordance with their respective Percentage
Share of Units at the time of the written notice to the Selling Member.
8.2.2 Purchase Price Determination. Within 20 days of the date
of the exercise of an Involuntary Withdrawal Option, the affected
Members shall mutually agree upon a purchase price for the Interest
being sold. If the affected Members are unable to mutually agree upon a
purchase price, the affected Members shall mutually select a
disinterested appraiser nationally recognized as experienced in valuing
healthcare businesses including hospitals to evaluate the Business and
determine the fair market value of the Company. If the affected Members
cannot select an appraiser, then the American Arbitration Association
shall be petitioned to designate an appraiser. The cost of the
appraisal and any necessary arbitration shall be paid one-half by the
Selling Member and one-half by the Purchasing Members. The appraiser
shall promptly provide a written notice ("FAIR MARKET VALUE NOTICE") to
each affected Member of its determination of the fair market value,
which determination shall be binding upon the affected Members. The
purchase price for the Interest being acquired pursuant to this Section
8.2 shall then be the product of (i) the fair market value of the
Company pursuant to the Fair Market Value Notice multiplied by (ii) the
Percentage Share of the Selling Member.
8.2.3 Closing. The closing of the purchase pursuant to this
Section 8.2 shall take place at the principal office of the Company as
such time during reasonable business hours on such day as designated by
the Purchasers or Purchasing Members, provided that such closing shall
not be later than 10 days after the purchase price has been determined
in accordance with Section 8.2.2. Unless otherwise agreed by the
Members, the purchase price shall be payable in immediately available
funds.
8.3 Tag Along/Co-Sale Rights on Transfers by a Member. Should a Member
(the "SELLING MEMBER") receive a bona fide offer from an unrelated Person to
purchase all, but not less than all, of its Interest, the Selling Member shall
not consummate a Transfer to the proposed purchaser until the proposed purchaser
shall have offered to buy all Interests of all remaining Members (the "REMAINING
MEMBERS") at the same price and on the same terms and conditions. In the event
the Selling Member is unable to cause the proposed purchaser to offer to buy all
Interests of Remaining Members as set forth in this Section 8.3 and any
Remaining Member declines to exercise its Purchase Right pursuant to Section
8.1, the Selling Member shall not consummate the Transfer to the proposed
purchaser.
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8.4 Put Right.
8.4.1 NC-DSH shall have the right to require the Company to
purchase NC-DSH's Interest (the "PUT RIGHT") at any time following the
occurrence of any one of the following events (each a "TRIGGERING
EVENT"): (i) the Consolidated EBITDA Margin (as defined below) of
Valley Health System LLC and Summerlin Hospital Medical Center LLC
(collectively the "LLCS") for any trailing twelve (12) month period
beginning twenty-five (25) months following consummation of the
transactions contemplated under the Contribution Agreement is less than
seventeen percent (17%) provided that the Put Notice (as defined below)
is given within sixty (60) days following receipt by NC-DSH of the
LLCs' financial statements that indicate the existence of a Triggering
Event; (ii) the total cash distributions to NC-DSH for any trailing
twelve (12) month period beginning twenty-five (25) months following
consummation of the transactions contemplated under the Contribution
Agreement are less than NC-DSH's Percentage Share of twelve percent
(12%) of Consolidated Net Revenues (as defined below) of the LLCs
provided that the Put Notice is given within sixty (60) days following
receipt by NC-DSH of the LLCs' financial statements that indicate the
existence of a Triggering Event; (iii) any material violation of
Section 2.2.7 or 6.2 or 8.2 of the Management Agreement (or comparable
provisions of any renewal or successor or replacement thereof) entered
into by the Company pursuant to Section 4.16 of this Agreement; (iv)
the Percentage Share of NC-DSH is reduced to less than twenty percent
(20%) provided that the Put Notice is given within sixty (60) days
following such reduction; (v) the Percentage Share of NC-DSH is reduced
to less than seventeen and one-half percent (17.5%) provided that the
Put Notice is given within sixty (60) days following such reduction;
(vi) the Percentage Share of NC-DSH is reduced to less than fifteen
percent (15%) provided that the Put Notice is given within sixty (60)
days following such reduction; (vii) the Percentage Share of NC-DSH is
reduced to less than twelve and one-half percent (12.5%) provided that
the Put Notice is given within sixty (60) days following such
reduction; or (viii) the Percentage Share of NC-DSH is reduced to less
than ten percent (10%) and the Put Notice is given any time thereafter.
Upon a Triggering Event, the Put Right shall be exercisable by NC-DSH,
at NC-DSH's sole option, by written notice (the "PUT NOTICE") to the
Company. Notwithstanding the foregoing, in the event the Triggering
Event is (ii) above and was caused by a capital project that was
approved by NC-DSH in writing and which approval refers specifically to
clause (ii) of this Section 8.4.1 and but for such capital project no
Triggering Event would have occurred, then such Triggering Event shall
be deemed not to have occurred.
8.4.2 Upon receipt of the Put Notice, NC-DSH and the Company
shall negotiate in good faith for sixty (60) days to determine the
purchase price payable pursuant to the Put Right. If agreement has not
been reached on the purchase price within sixty (60) days, each of
NC-DSH and the Company shall promptly appoint a disinterested appraiser
of national reputation who is a member of the American Society of
Appraisers and holds MAI designation with the Appraisal Institute to
provide a written appraisal of the fair market value of the Company as
of the date of the Put Notice. If a party does not select an appraiser
as provided in
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the preceding sentence within fifteen (15) days after the other party
has given written notice of the name of its appraiser, such party shall
lose its right to appoint an appraiser and the appraiser already
selected shall determine the fair market value of the Company. In the
event that both appraisers are timely selected and the lower of the two
appraisals is not less than ninety percent (90%) of the higher of the
two appraisals, the product of the average of the two appraisals
multiplied by the Percentage Share of NC-DSH shall be the purchase
price payable by the Company for NC-DSH's Interest.
8.4.3 In the event that the lower of the two appraisals is
more than seventy-five percent (75%) but less than ninety percent (90%)
of the higher of the two appraisals, the two appraisers shall promptly
appoint a third appraiser (of the same qualifications described in
Section 8.4.2) to provide a written appraisal of the fair market value
of the Company as of the date of the Put Notice. The product of the
third appraisal (subject to the other two appraisals as lower and upper
limits) multiplied by the Percentage Share of NC-DSH shall be the
purchase price payable by the Company for NC-DSH's Interest.
8.4.4 In the event that the lower of the two appraisals is
less than seventy-five percent (75%) of the higher of the two
appraisals, NC-DSH and the Company shall promptly cause the American
Arbitration Association to appoint an arbitrator who will select two
appraisers (of the same qualifications described in Section 8.4.2) and
each appraiser shall provide a written appraisal of the fair market
value of the Company as of the date of the Put Notice. The product of
the average of the two appraisals (subject to the two original
appraisals as the lower and upper limits) multiplied by the Percentage
Share of NC-DSH shall be the purchase price payable by the Company for
NC-DSH's Interest.
8.4.5 The rights of NC-DSH as a Member shall cease upon the
Put Notice. the Company shall pay one dollar ($1.00) of the purchase
price upon receipt of the Put Notice and shall pay the remainder of the
purchase price in immediately available funds on the date of the
closing described below plus interest at the following rates: (i) for
the first six (6) months following the date of the Put Notice the rate
of interest per annum shall be the rate of interest paid on one month
certificates of deposit published in the Money Rates section of the
Wall Street Journal plus one percent (1%), and (ii) for the remainder
of the period the rate of interest per annum shall be equal to the
prime rate published by the Wall Street Journal plus two percent (2%)
as such rate changes from time-to-time. Interest shall accrue from the
date of the Put Notice through the date of receipt of payment by
NC-DSH. Closing of the purchase pursuant to this Section 8.4 shall take
place at the principal office of the Company or at such other location
and at such time during normal business hours as the Company and NC-DSH
shall agree. The Company shall use its reasonable best efforts to close
the transaction contemplated by this Section 8.4 as quickly as possible
following the date of the Put Notice. In the event the parties are
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unable to agree on a Closing Date, the closing shall occur
three-hundred and sixty seven (367) days following the date of the
Put Notice.
8.4.6 For purposes of this Section 8.4 the following
definitions shall apply: (i) "CONSOLIDATED EBITDA MARGIN" shall
mean that fraction, expressed as a percentage, obtained by dividing
the combined total EBITDA of the LLCs by Consolidated Net Revenues;
(ii) "EBITDA" shall mean Consolidated Net Revenues less
Consolidated Operating Expenses; (iii) "CONSOLIDATED NET REVENUES"
shall mean the combined totals of the LLCs' patient revenues and
other operating revenues (but not non-operating revenues) less
contractual allowances, adjustments, discounts and charity (but not
bad debts); and (iv) "CONSOLIDATED OPERATING EXPENSES" shall mean
the combined totals of the LLCs' expenses including management fees
payable pursuant to the Management Agreement identified on Exhibit
4.16 but excluding interest expense, depreciation and amortization,
income taxes and non-operating and extraordinary expenses. For
purposes of this Section 8.4, all items of revenue and expense will
be determined and classified in accordance with generally accepted
accounting principles consistently applied.
8.4.7 Each party shall bear and promptly pay the expenses and
fees of their appraiser selected in accordance with Section 8.4.2
and shall bear and promptly pay one-half of the expenses and fees
of any appraiser and/or arbitrator selected in accordance with
Sections 8.4.3 and 8.4.4. Copies of all appraisals shall be
addressed to and provided to both the Company and NC-DSH.
8.4.8 Universal Health Services, Inc. hereby guarantees the
payment and performance of the obligations of the Company under
this Section 8.4.
ARTICLE 9
DISSOLUTION AND LIQUIDATION OF THE COMPANY
9.1 Liquidating Events. The existence of the Company shall be
perpetual provided, however, that the Company shall be dissolved
and liquidated upon the occurrence of any of the following events:
9.1.1 The unanimous written agreement of VHMC and NC-DSH to
terminate the Company;
9.1.2 The entry of a final judgment, order or decree of a
court of competent jurisdiction adjudicating the Company to be a
Bankrupt and the expiration of the period, if any, allowed by
applicable law in which to appeal therefrom;
9.1.3 The entry of a final judgment, order or decree of
judicial dissolution of the Company issued by a court of competent
jurisdiction under the authority of Act
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Section 18-802, and the expiration of the period, if any, allowed by
applicable law in which to appeal therefrom; or
9.1.4 The administrative dissolution of the Company by action
of the Secretary of State of the State of Delaware and the expiration
of the period, if any, allowed by applicable law in which to appeal
therefrom or to become reinstated.
Notwithstanding any other provision of this Agreement, in no event shall the
redemption or purchase of the Units of a Member by the Company be a dissolving
event and any such redemption or purchase by the Company shall constitute and
evidence the consent of the Members to the continued existence and business of
the Company as provided in Act Section 18-801(4).
9.2 Method of Liquidation. Upon the happening of any of the events
specified in Section 9.1, the Company shall continue solely for the purpose of
winding up its affairs, liquidating its assets, and satisfying the claims of its
creditors and Members. The Board of Directors shall be responsible for
overseeing the winding up and liquidation of the Company. In the course of
winding up its affairs, any of the Company's assets may be sold upon the consent
of the Board of Directors, and any proceeds derived from any such sale, together
with all assets that are not sold, shall be applied and distributed in the
following manner and in the following order of priority:
9.2.1 To the payment of the debts and liabilities of the
Company and to the expenses of liquidation in the order of priority as
provided by law, and to the establishment of any reserves that the
Board of Directors, VHMC and NC-DSH deem necessary for any contingent
liabilities or obligations of the Company. Such reserves shall be paid
over to a bank to be held in escrow for the purpose of paying any such
contingent liabilities or obligations, and at the expiration of such
period as the Board of Directors, VHMC and NC-DSH deem advisable,
distributing the balance of such reserves in the manner hereinafter
provided; then
9.2.2 To the payment of any liabilities or debts, other than
Capital Accounts, of the Company to any of the Members; then
9.2.3 To the Members (and assignees) in accordance with the
relative positive balances of their Capital Accounts, after giving
effect to all contributions, distributions and allocations under this
Agreement for all periods as required by Section 704(b) of the Code and
the Regulations promulgated thereunder.
In the course of any liquidation, the difference between the fair market value
and book value of any assets that are distributed in kind shall be credited or
charged, as the case may be, to the Members' (or assignees') Capital Accounts in
the manner provided in Subsection 3.9.5.
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9.3 Reasonable Time for Liquidation. A reasonable time (not to exceed
twelve (12) months) shall be allowed for the orderly liquidation and winding up
of the Company in order to minimize any losses that may be attendant upon such
liquidation.
9.4 Distribution to Liquidating Trust. In the discretion of the Board
of Directors, VHMC and NC-DSH, assets otherwise distributable to the Members (or
assignees) pursuant to Section 9.2 may be distributed to a liquidating trust
established for the benefit, and upon the agreement, of all Members (and
assignees) for purposes of liquidating Company assets, collecting amounts owed
to the Company, and paying any contingent or potential liabilities or
obligations of the Company.
9.5 Date of Termination. The Company shall be completely terminated
when all property of the Company shall have been disposed of by the Company in
accordance with Section 9.2. The establishment of any reserves in accordance
with the provisions of Section 9.2 or the creation of a liquidating trust in
accordance with Section 9.4 shall not have the effect of extending the existence
of the Company, but any remaining balance in any such reserve or liquidating
trust shall be distributed in the manner provided in Section 9.2 upon expiration
of the period of such reserve or liquidating trust, as the case may be.
9.6 Certificate of Cancellation. Upon completing the winding up and
liquidation of the Company, the Company shall cause to be filed a Certificate of
Cancellation of the Company as provided by Act Section 18-203. The Members agree
to join in executing such document if such joinder is required by the Act or
deemed necessary or appropriate by the Company. Upon the filing of the
Certificate of Cancellation, the Members shall cease to be such and the Company
and this Agreement shall be terminated.
ARTICLE 10
COMPANY FUNDS AND ACCOUNTING
10.1 Books of Account; Records and Information. The books of account of
the Company shall be maintained at the Company's principal executive office and
at all reasonable times each Member (and its auditors, attorneys and
representatives) shall have access thereto, as well as to information received
by the Company pursuant to any management or similar agreement. The Company
shall also maintain such records and information required by Act Section 18-305
and shall permit the inspection and copying of such records and information by
the Members. In addition to the foregoing, the Company shall promptly provide
each Member, on a monthly basis, financial statements (including balance sheet,
income statement and statement of cash flows) of the Company. Such financial
statements shall be internally prepared in accordance with generally accepted
accounting principles consistently applied. The Company shall cause an
unqualified audit of its books and records to be performed no less than annually
by an independent certified public accountant of recognized national standing
and shall promptly provide each Member a complete copy of the audit report. No
manager of the Company shall keep confidential from the Members any information
regarding the Company pursuant to Act Section 10-305
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or otherwise except to the extent such information is the proprietary
information of such manager.
10.2 Period and Method of Accounting. The Company's books of account
shall be maintained on such fiscal year basis as may be required by Code Section
706, and such books shall be kept in accordance with such method of accounting
as may be required by the Code.
10.3 Reports. As soon as reasonably practicable after the end of each
fiscal year, the Company shall furnish each Member (and assignee) with a copy of
a statement of income or loss of the Company for such year, and a statement
showing the amounts allocated to such Member (or assignee) pursuant to this
Agreement during or in respect of such year, and any items of income, expense or
credit allocated to it for purposes of federal income taxation pursuant to this
Agreement, all prepared in accordance with the accounting method adopted by the
Company, all of which information will be reflected in the Company's federal
income tax return. Delivery of a copy of such tax return to each Member (and
assignee) shall be sufficient to fulfill the obligation of the Company with
respect to providing such information. The Company shall use its reasonable best
efforts to provide each Member such income tax information (including Schedule
K-1) within ninety (90) days after the end of each fiscal year (for tax
purposes) of the Company.
10.4 Tax Elections. Except as specified in Section 3.3.7, 3.6 or
elsewhere in this Agreement, the Board of Directors shall have the
responsibility for making (and revoking) all tax elections on behalf of the
Company (and which are to be made by the Company as opposed to the Members)
under the Code. Upon the transfer of an Interest in the Company or a
distribution of property to a Member (or assignee), the Company may, but is not
required to, elect, pursuant to Section 754 of the Code, to adjust the basis of
Company Property as allowed by Section 734(b) and 743(b) thereof.
10.5 Tax Matters Manager. VHMC shall be Tax Matters Manager and shall
act as the Tax Matters Partner as defined in the Code Section 6231(a)(7). As
such, shall keep all the Members informed of all administrative and judicial
proceedings, as required by Code Section 6223(g) and shall furnish all Members a
copy of each notice or communication received by VHMC (as the Tax Matters
Manager) from the Internal Revenue Service regarding any such administrative or
judicial proceeding. The Tax Matters Manager shall execute, on behalf of the
Company, any and all documents and returns necessary to comply with the
Regulations promulgated under Code Sections 6221 through 6232.
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ARTICLE 11
NONCOMPETE
11.1 Business Activities of Members. Except as set forth in this
Article 11, each Member and its Affiliates may engage in other business
activities, including but not limited to preferred provider organizations,
health maintenance organizations or other health care provider businesses,
without liability or accounting to the Company. It shall not be deemed a breach
of any Member's duty of loyalty to the Company for that Member to pursue, for
that Member's own benefit, any opportunity outside of the Noncompete Area
described in Section 11.2 after compliance with the provisions of this Article
11.
11.2 Covenant Not to Compete. Each of the Members, Universal Health
Services, Inc. and Quorum Health Group, Inc., for itself and on behalf of their
respective Affiliates, hereby covenant and agree that during the Noncompete
Period within the Noncompete Area they shall not directly or indirectly, (a)
build, develop, invest in, acquire, lease, manage, be a member of, consult for,
finance or own any part of (as member, shareholder, partner or otherwise) any
Person or health care facility which provides any services similar to the
services provided by the Business or Hospitals, or (b) disrupt or attempt to
disrupt any past, present or reasonably foreseeable future relationship,
contractual or otherwise between the Company, on the one hand, and any
physician, physician group, or other healthcare provider with whom the Company
contracts in connection with Business or Hospitals, on the other hand. The
"NONCOMPETE PERIOD" shall commence as to each Member upon such Member's
admission as a Member and terminate at such time as such Person is no longer a
Member. The "NONCOMPETE AREA" shall mean the entire area included within the
city of Las Vegas, Nevada and within a fifty (50) mile radius of the boundaries
of the city of Las Vegas, Nevada. Notwithstanding the foregoing, none of the
following shall be deemed a breach of this Section 11.2: (i) ownership of less
than five percent (5%) of the stock of a publicly held company; (ii) the
activities described in the second sentence of Section 11.1; (iii) VHMC or its
Affiliates' continued operation of Goldring Surgery Center ("GOLDRING") and
Nevada Radiation Oncology Center ("NEVADA") together with any expansion thereof
provided such expansion is consistent with and limited to the operations and
services of such businesses as of the date hereof and is located at the current
sites of such businesses; and (iv) the continued operation by a Person who is an
indirect transferee of an Interest in the Company pursuant to clause (ii) of
Section 7.5 of the business of such Person conducted within the Noncompete Area
on the date the transaction undertaken pursuant to clause (ii) of Section 7.5 is
first contemplated. Further, in the event a Member or one of its Affiliates
acquires, directly or indirectly, a healthcare business with operations in the
Noncompete Area from an unrelated third Person ("UTP") as part of an acquisition
from such UTP of multiple healthcare facilities then such Member or its
Affiliate shall sell the business operated within the Noncompete Area to the
Company on commercially reasonable terms acceptable to VHMC and NC-DSH. The
parties hereto acknowledge and agree that capital projects engaged in by the
Company pursuant to Section 2.3 shall not be subject to this Article 11. VHMC
and its Affiliates covenant and agree that they shall not initiate an increase
in or otherwise seek to increase, directly or indirectly, their ownership
interests (beneficial or otherwise) (collectively, the "OWNERSHIP") in Goldring
and Nevada or in any entity or organization owning or operating Goldring or
Nevada or any successor to Goldring and Nevada or the organizations owning or
operating Goldring and Nevada. VHMC and its Affiliates further covenant and
agree that in the event they are required, despite their compliance with the
immediately preceding sentence, to increase their Ownership they shall use their
reasonable best efforts to promptly convey
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such increased Ownership to the Company on terms and conditions reasonably
acceptable to the Company, VHMC and NC-DSH.
11.3 Enforcement. In the event of a breach of Section 11.2 hereof, the
breaching party recognizes that monetary damages shall be inadequate to
compensate the nonbreaching party(ies) and the nonbreaching party(ies) shall be
entitled, without the posting of a bond, to an injunction restraining such
breach, with the costs (including attorneys fees) of securing such injunction to
be borne by the breaching party and its Affiliates, jointly and severally.
Nothing herein contained shall be construed as prohibiting the nonbreaching
party(ies) from pursuing any other remedy available for such breach or
threatened breach.
11.4 Reasonableness. All parties hereto hereby acknowledge the
necessity of protection against the competition of the Members and their
respective Affiliates and that the nature and scope of such protection has been
carefully considered by the parties. The period provided and the area covered
are expressly represented and agreed to be fair, reasonable and necessary. The
consideration provided for herein is deemed to be sufficient and adequate to
compensate the parties for agreeing to the restrictions contained in Section
11.2 hereof. If, however, any court determines that the forgoing restrictions
are not reasonable, such restrictions shall be modified, rewritten or
interpreted to include as much of their nature and scope as will render them
enforceable.
ARTICLE 12
GENERAL
12.1 Filings. The Company shall execute and cause to be filed such
certificates and documents required by any jurisdiction in which the Company
engages in business. The Company shall take all other actions reasonably
necessary to perfect and maintain the status of the Company as a limited
liability company under the laws of Delaware and any other jurisdiction in which
the Company engages in business.
12.2 Status of Company for Tax Purposes. The Members intend that the
Company be classified as a partnership for federal income tax purposes. The
Members shall be under a continuing obligation to perform their duties and
responsibilities under this Agreement in light of such intention, and the
Company shall do any and all things and acts necessary or appropriate to
maintain such classification including filing Form 8832 with the Internal
Revenue Service.
12.3 Waiver of Action for Partition. Each Member (and assignee)
irrevocably waives, during the term of the Company, any right that it may have
to maintain any action for partition with respect to the Company and its
property.
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12.4 Nonrecourse Loans. If the Company borrows money on a nonrecourse
basis, then the creditor who makes such a loan to the Company will not have or
acquire at any time as a result of making the loan, any direct or indirect
interest in the profits, capital or property of the Company other than as a
secured creditor.
12.5 Notice. Any notice or request required or desired to be given
pursuant to this Agreement shall be deemed to have been properly given if the
same shall be in writing and shall be either personally delivered, or deposited
in the United States certified or registered mail, with postage prepaid, or
deposited with any other generally recognized delivery service with charges
prepaid or billed to the sender, and addressed to the Company at its principal
executive office or addressed to such other person to whom such notice or
request is intended to be given at such address as such person may have
previously furnished in writing to the Company or to such person's last known
address.
12.6 Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the Members and their respective heirs, representatives,
transferees, successors and assigns. This Agreement may be executed in
counterparts and by facsimile, which together shall deemed one and the same
instrument.
12.7 Construction. As herein used, the singular number shall include
the plural, the plural the singular, and the use of any gender shall be
applicable to all genders, unless the context would otherwise fairly require.
The titles of the Articles and Sections herein have been inserted for
convenience of reference only and shall not control or affect the meaning or
construction of any of the terms or provisions hereof. All references herein to
Articles and Sections shall mean the appropriate numbered Article or Section
hereof except where reference is made to the Act, the Code, the Regulations or
to some other specified law, regulation or instrument. The parties to this
Agreement shall be under a duty to act in good faith when exercising or
declining to exercise any right or obligation hereunder, provided that, with
respect to items that are the subject of Super-Majority approval or VHMC or
NC-DSH consent, no reasonableness standard will be imposed and such decisions
shall be in each of VHMC and NC-DSH's complete and unfettered discretion; each
such party having a veto power with respect to the action proposed to be taken
by the Company. It is acknowledged by the parties that this Agreement has
undergone several drafts with the negotiated suggestions of each and, therefore,
no presumptions will arise favoring any party by virtue of the authorship of any
of its provisions or the changes made through revisions.
12.8 Survival of Provisions. Whenever possible, each provision and term
of this Agreement shall be interpreted in such manner as to be valid and
enforceable; provided that in the event any provision or term of this Agreement
should be determined to be invalid or unenforceable, all other provisions and
terms of this Agreement and the application thereof to all persons and
circumstances subject thereto shall remain unaffected to the extent permitted by
law.
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12.9 Integrated Agreement. This Agreement constitutes the entire
understanding and agreement among the Members with respect to the subject matter
hereof and shall control over any inconsistent understanding, restriction,
representation, or warranty among the Members.
12.10 Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State of Delaware except where reference is
herein made to sections or provisions of the Code or Regulations. All references
to sections or provisions of the Act, Code and Regulations shall mean such
sections or provisions as now or hereafter amended and shall include any
successor sections or provisions.
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The undersigned Members have executed this Agreement as of the date
first above written.
"VHMC"
Valley Hospital Medical Center, Inc.
By:
-------------------------------------
Title:
-----------------------------------
"NC-DSH"
NC-DSH, Inc.
By:
-------------------------------------
Roland P. Richardson, Vice President
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The undersigned have executed this Agreement as of the date first above
written for purposes of acknowledging their agreement to the provisions of
Article 11. Universal Health Services, Inc. has executed this Agreement as of
the date first above written for the further purpose of acknowledging its
agreement to the provisions of Section 8.4.
Universal Health Services, Inc.
By:
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Title:
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Quorum Health Group, Inc.
By:
-------------------------------------
Title:
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38
<PAGE> 1
SUMMERLIN CONTRIBUTION AGREEMENT
Table of Contents
<TABLE>
<CAPTION>
Page No.
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<S> <C>
1. Contribution of Assets; Purchase and Sale of
Membership Interest ........................................................2
1.1 Creation of Subsidiary; Agreement to Contribute;
Purchase and Sale of Membership Interest. .............................2
1.2 Excluded Assets........................................................4
1.3 Contract Assignments...................................................5
1.4 Instruments of Conveyance..............................................6
1.5 Issuance of Membership Interest to Desert Springs;
Working Capital Shortage/Overage.......................................6
1.6 Liabilities Assumed....................................................8
1.7 Liabilities Not Assumed................................................8
1.8 Closing ..............................................................10
2. Representations and Warranties of Summerlin ...............................11
2.1 Existence; Good Standing; Partnership Authority .....................11
2.2 Authorization; Validity and Effect of Agreements......................11
2.3 Subsidiaries..........................................................12
2.4 Capitalization........................................................12
2.5 Records.............................................................. 13
2.6 Financial Statements..................................................13
2.7 Absence of Undisclosed Liabilities ...................................13
2.8 Absence of Certain Changes or Events Since the
Date of the Summerlin Balance Sheet ..............................13
2.9 Taxes.................................................................15
2.10 Real Property.........................................................16
2.11 Title to Property and Assets; Sufficiency of
Facilities Assets.....................................................18
2.12 Condition of Property.................................................18
2.13 List of Contracts and Other Data......................................19
2.14 No Breach or Default..................................................20
2.15 Labor Controversies...................................................21
2.16 Litigation............................................................21
2.17 Patents; Trademarks, Etc..............................................22
2.18 Licenses; Permits; Authorizations.....................................22
2.19 Compliance with Applicable Law;
Environmental Laws....................................................22
</TABLE>
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<TABLE>
<S> <C>
2.20 Employee Benefit Plans; Employees and Employee
Relations.............................................................25
2.21 Adverse Agreements; No Adverse Change.................................26
2.22 Trade Notes and Accounts Receivable; Trade Accounts
Payable; Prepaid Contracts............................................26
2.23 Inventories and Supplies..............................................27
2.24 Illegal Payments......................................................27
2.25 Insurance Policies....................................................27
2.26 Professional Staff, Medicare, Medicaid and
Other Health Care Programs............................................28
2.27 UHS Facility Surveys..................................................39
2.28 Related Party Transactions............................................39
2.29 No Brokers............................................................30
2.30 No Misrepresentation or Omission......................................30
3. Representations and Warranties of Desert Springs...........................39
3.1 Existence; Good Standing; Corporate Authority .......................39
3.2 Authorization; Validity and Effect of Agreements......................39
3.3 No Brokers............................................................31
4. Covenants of the Summerlin and Desert Springs .............................33
4.1 Access to UHS Facilities and Additional
Information...........................................................32
4.2 Operations.......................................................... 332
4.3 Negative Covenants....................................................33
4.4 Governmental Approvals................................................34
4.5 Insurance Ratings.....................................................34
4.6 Employees; Employee Benefit Plans.....................................35
4.7 Further Acts and Assurances...........................................35
4.8 Valley Transaction....................................................35
4.9 Additional Properties and Assets
[Intentionally Omitted]...........................................36
5. Matters Pertaining to the Company..........................................36
5.1 Employee Matters......................................................36
5.2 Further Acts and Assurances...........................................37
6. Conditions of Closing......................................................37
6.1 Conditions of Closing.................................................37
7. Nature and Survival of Representations
and Warranties; Indemnification............................................40
7.1 Events of Default.....................................................40
7.2 Survival of Representations, Etc......................................41
</TABLE>
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<TABLE>
<S> <C>
7.3 Indemnification.......................................................41
7.4 Representation, Cooperation and Settlement............................42
8. Transactions Subsequent to the Closing Date................................42
8.1 Access to Records.....................................................42
8.2 Litigation Cooperation................................................43
9. Termination................................................................44
9.1 Methods of Termination................................................44
9.2 Procedure Upon Termination............................................44
10. Miscellaneous..............................................................44
10.1 Notice...............................................................44
10.2 Execution of Additional Documents....................................46
10.3 Waivers and Amendment................................................46
10.4 Expenses.............................................................47
10.5 Occurrence of Conditions Precedent...................................47
10.6 Confidentiality Obligations; Public Announcements....................47
10.7 Binding Effect; Benefits.............................................48
10.8 Entire Agreement.....................................................48
10.9 Governing Law........................................................48
10.10 Counterparts.........................................................48
10.11 Headings.............................................................48
10.12 Incorporation of Exhibits and Schedules..............................49
10.13 Severability.........................................................49
10.14 Assignability........................................................49
Joinder Agreement - Universal Health Services, Inc.........................51
Joinder Agreement - Quorum Health Group, Inc...............................52
</TABLE>
<PAGE> 4
SUMMERLIN CONTRIBUTION AGREEMENT
This Agreement (the "Agreement") is dated this 30th day of January,
1998, by and among SUMMERLIN HOSPITAL MEDICAL CENTER, L.P.,a Delaware limited
partnership formerly known as Summerlin Medical Center, L.P. ("Summerlin") and
NC-DSH, INC., a Nevada corporation ("Desert Springs")(Summerlin and Desert
Springs are sometimes hereinafter referred to collectively as the "Parties" and
individually as a "Party").
WITNESSETH:
WHEREAS, Summerlin owns all of the right, title and interest in and to
certain assets used to operate Summerlin Hospital Medical Center and certain
related businesses operated by Summerlin in and around Las Vegas, Nevada
(collectively, the "UHS Facilities"); and
WHEREAS, Summerlin desires to operate the UHS Facilities as a limited
liability company pursuant to the Limited Liability Company Act as enacted in
the State of Delaware (the "LLC Act"); and
WHEREAS, pursuant to the terms of this Agreement Summerlin desires to
contribute the UHS Facilities in exchange for a 100% membership interest in such
limited liability company, such membership interest to be subsequently reduced
to a 73.885% membership interest pursuant to the terms of this Agreement; and
WHEREAS, Desert Springs desires to acquire from Summerlin, subsequent
to the formation of such limited liability company and the contribution of the
UHS Facilities by Summerlin, a 26.115% membership interest in such limited
liability company in exchange for the payment of $23,078,619 to Summerlin; and
WHEREAS, the Parties desire to enter into this Agreement for the
purpose of setting forth their respective rights and obligations as hereinafter
set forth.
<PAGE> 5
NOW, THEREFORE, in consideration of the premises, the provisions and
the respective agreements hereinafter set forth, the Parties, intending to be
legally bound hereby, agree as follows:
1. CONTRIBUTION OF ASSETS; PURCHASE AND SALE OF MEMBERSHIP
INTEREST.
1.1 CREATION OF SUBSIDIARY; AGREEMENT TO CONTRIBUTE; PURCHASE
AND SALE OF MEMBERSHIP INTEREST. On or prior to the Closing Date (as hereinafter
defined) Summerlin shall create Summerlin Hospital Medical Center LLC, a wholly
owned limited liability company (the "Company") pursuant to the LLC Act. Upon
the terms and subject to the conditions set forth in this Agreement, on the
Closing Date, Summerlin shall contribute, convey, assign, transfer and deliver
to the Company all of Summerlin's right, title and interest in and to the
Facilities Assets (as defined below), except for the Excluded Assets (as
hereinafter defined), free and clear of all liens, charges, claims, pledges,
security interests and encumbrances of any nature whatsoever (collectively,
"Liens"), except for Permitted Encumbrances (as hereinafter defined).
Immediately following the contribution, conveyance, assignment, transfer and
delivery of the Facilities Assets in accordance with the preceding sentence,
Desert Springs shall purchase from Summerlin, and Summerlin shall sell and
transfer to Desert Springs, a 26.115% membership interest in the Company, and in
exchange therefore, Desert Springs shall pay and deliver to Summerlin, by wire
transfer of immediately available funds to an account or accounts designated by
Summerlin, the sum of $23,078,619 (the "Desert Springs Payment"). Following the
contribution, conveyance, assignment, transfer and delivery of the Facilities
Assets and the payment and delivery of the Desert Springs Payment as provided in
this Section 1.1, Summerlin shall own a 73.885% membership interest in the
Company and Desert Springs shall own a 26.115% membership interest in the
Company. The "Facilities Assets" shall mean and include all those personal,
tangible and intangible properties, and the real properties and improvements of
Summerlin used in connection with the operation of the UHS Facilities as set
forth below, other than the Excluded Assets, including, without limitation,(i)
the going concern value of the UHS Facilities, if any, and (ii) the following:
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<PAGE> 6
(a) all fee or leasehold title to all real property, including
the real property described in Schedule 2.10, which Schedule identifies the
property as fee or leasehold, together with all improvements, buildings and
fixtures located thereon or therein, including the UHS Facilities and all
construction in progress (such real properties owned in fee are hereafter
collectively, the "Real Property");
(b) all equipment, computers, computer hardware and software
(subject to any restrictions by the licensor on the assignment thereof), tools,
supplies, furniture, vehicles and other tangible personal property and assets
owned or leased by Summerlin related to the UHS Facilities as of the date of
this Agreement, as such items may be modified prior to the Closing Date in the
ordinary course of business, and including without limitation those items set
forth on Schedule 1.1(b);
(c) all items of inventory listed on the Summerlin Balance
Sheet (as hereinafter defined), as such items may be modified prior to the
Closing Date in the ordinary course of business;
(d) all patients accounts, notes and other receivables,
whether or not written off, or recorded or not recorded, exclusive of any third
party cost report payables or receivables, petty cash and those prepaid expenses
usable by the Company;
(e) all financial records located at the UHS Facilities and
all patient, medical staff, research and development, and other records
(including equipment records, medical/ administrative libraries, medical
records, documents, production reports and records, personnel records, catalogs,
books, records, files, equipment logs and operating manuals) located at the UHS
Facilities or necessary for the operation of the UHS Facilities;
(f) all of Summerlin's interest in the Assumed Contracts, as
defined in Section 1.3.1;
(g) all licenses, permits and other governmental approvals
(including certificates of need), to the extent assignable, held or used by
Summerlin in connection with the
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<PAGE> 7
ownership, development and operations of the UHS Facilities (including any
pending or approved governmental approvals regarding the UHS Facilities);
(h) all marks, names, trademarks, service marks, patents,
patent rights, assumed names, logos and copyrights used in the business of the
UHS Facilities;
(i) the interest in all property, real, personal or mixed,
tangible or, to the extent assignable, intangible, arising or acquired in the
ordinary and regular course of Summerlin's business in connection with the UHS
Facilities between the date hereof and the Closing Date;
(j) all insurance proceeds (including applicable deductibles,
copayments or self-insured requirements) arising in connection with damage to
the UHS Facilities occurring prior to the Closing Date, to the extent not
expended for the repair or restoration of the UHS Facilities;
(k) all assets included in the Summerlin Balance Sheet
generally as "inventories", "property, plant or equipment", and
"other assets";
(l) all of Summerlin's membership interest in Oasis
Health System LLC (25% of which is owned by Summerlin); and
(m) all other property of every kind, character or
description, to the extent assignable, owned by Summerlin and used or held for
use in the business of the UHS Facilities, whether or not reflected on the
Financial Statements (as hereinafter defined) of Summerlin, located at the UHS
Facilities or necessary for the operation of the UHS Facilities and whether or
not similar to the things specifically set forth above, except the Excluded
Assets.
Except as expressly set forth in this Agreement, including the
Schedules and Exhibits hereto, all of the Facilities Assets contributed by
Summerlin to the Company shall be contributed on an "as is" basis.
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<PAGE> 8
1.2 EXCLUDED ASSETS. The following items are not part
of the contributions contemplated hereunder and are excluded from
the Facilities Assets (collectively, the "Excluded Assets");
(a) all of Summerlin's deferred taxes and intercompany
receivables;
(b) personnel records and any other records which Summerlin is
required by law to retain in its possession, but only to the extent such records
are not necessary for the continued operation of the UHS Facilities in the
manner in which they are currently being operated;
(c) all claims for amounts due, or that may become due from
Medicare, Medicaid or any other health care payment intermediary resulting from
cost reports for periods through the Closing Date;
(d) all refunds relating to any federal, state, local
or foreign taxes paid by, or on behalf or for the benefit of Summerlin or, to
the extent they relate to the period prior to the Closing Date, the UHS
Facilities, whether received prior to or after the Closing Date;
(e) any proprietary information contained in Summerlin's
employee or operation manuals;
(f) Summerlin's corporate and financial records; and
(g) cash and cash equivalents.
1.3 CONTRACT ASSIGNMENTS.
1.3.1 ASSIGNMENT OF INTEREST IN CONTRACTS.
Except for intercompany and non-physician employment contracts, on the Closing
Date and upon and subject to the terms and conditions set forth in this
Agreement, Summerlin shall transfer or cause to be transferred and assign or
cause to be assigned to the Company, and the Company shall assume and perform
all of Summerlin's interest in (including all rights, benefits and obligations)
all commitments, contracts, leases, licenses, agreements and understandings, and
all outstanding offers or
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<PAGE> 9
solicitations to enter into any of the foregoing, including those described on
Schedule 1.3.1 hereto (the "Assumed Contracts").
1.3.2 CONSENTS TO ASSIGNMENTS. Notwithstanding
anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement to assign or transfer any of the Assumed Contracts or part thereof
or right or benefit arising thereunder or resulting therefrom if an attempted
assignment or transfer thereof, without the consent of a third party thereto,
would constitute a breach thereof or in any way affect the rights of the Company
following the Closing Date. If such consent is not obtained, or if an attempted
assignment thereof would be ineffective or would affect the rights of the
Company following the Closing Date so that the Company would not in fact receive
all such rights, Summerlin (i) shall cooperate with the Company in its request
in endeavoring to obtain such consent promptly at no cost to the Company, and
(ii) if any such consent is unobtainable, shall cooperate with the Company in
any reasonable arrangement (the "Assignment Substitute") designed to provide the
Company the benefits under any such Assumed Contract or part thereof or any
right or benefit arising thereunder or resulting therefrom, including
enforcement for the benefit of the Company of any and all rights of Summerlin
against a third party arising out of the breach or cancellation by such third
party or otherwise. Summerlin shall, to the extent necessary, perform under the
Assignment Substitute without a fee to the Company except the consideration
being tendered hereunder.
1.4 INSTRUMENTS OF CONVEYANCE.
On the Closing Date, Summerlin shall deliver to the Company
such deeds (in the case of the real property and the improvements thereon
described in Schedules 2.10 hereto, a special warranty deed or the equivalent
thereof in use in accordance with local practice), bills of sale, endorsements,
assignments and other good and sufficient instruments of conveyance and
assignment as shall be effective to vest in the Company all of Summerlin's
right, title and interest in and to the Facilities Assets, free and clear of all
Liens except for the Permitted Encumbrances. Simultaneously with such delivery,
Summerlin will take all reasonable additional steps as may be necessary to put
the Company in possession of the Facilities Assets. Summerlin shall pay all
transfer costs, title insurance
6
<PAGE> 10
fees, recording fees and transfer or stamp taxes or similar charges payable by
reason of the contribution, conveyance, assignment, transfer and delivery
hereunder of the Facilities Assets.
1.5 ISSUANCE OF MEMBERSHIP INTEREST TO DESERT SPRINGS;
WORKING CAPITAL SHORTAGE/OVERAGE.
1.5.1 On the Closing Date, immediately following the issuance
of the Summerlin membership interest to Summerlin in accordance with Section 1.1
hereof, Summerlin shall sell, transfer and deliver to Desert Springs, and Desert
Springs shall purchase and acquire from Summerlin, a 26.115% membership interest
in the Company. Accordingly, in consideration of and subject to the payment of
the Desert Springs Payment by Desert Springs and the receipt by Summerlin of the
full amount of such Desert Springs Payment in immediately available funds as
provided in Section 1.1 hereof, on the Closing Date Summerlin shall cause the
Company to issue a 26.115% membership interest in the Company to Desert Springs,
which 26.115% membership interest in the Company shall be free and clear of all
Liens except for those listed or described on Schedule 1.5 (the "Permissible
Liens").
1.5.2 Within 45 days after the Closing Date, the Parties will
determine the amount of Working Capital (as defined below) contributed to the
Company by Summerlin as of the Closing Date. Desert Springs will pay to
Summerlin in cash 26.115% of the amount of the Working Capital. For the sole
purpose of determining the amount to be paid by Desert Springs to Summerlin on
account of Working Capital, Working Capital will be defined as the sum of the
following items that have been contributed to or assumed by the Company, all
valued in accordance with generally accepted accounting principles, consistently
applied (unless otherwise specified):
(a) patient accounts receivable, net of allowances for
contractual adjustments and discounts and bad debts;
(b) plus inventories, based on a physical count at the Closing
Date, priced at latest invoice cost, and including only those items and areas
that have historically been counted;
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<PAGE> 11
(c) plus prepaid expenses, but only to the extent that
they are usable by the Company;
(d) plus other receivables, net of allowances for
uncollectibles;
(e) less trade accounts payable;
(f) less accrued compensation and related taxes thereon and
related liabilities, including accrued vacation, sick leave payable in cash for
reasons other than actual absence, paid time off, or the like;
(g) less other accrued liabilities and expenses;
(h) less the present value (computed using the prime rate as
the discount factor) of remaining payments due under any capitalized lease
included in the Assumed Contracts; and
(i) less any other liabilities assumed by the Company
to the extent such liabilities are to be included on the balance
sheet under generally accepted accounting principles.
Each of the Parties will work together in good faith to agree
on the amount of Working Capital and the amount to be paid by Desert Springs to
Summerlin pursuant to this Section 1.5.2. No later than 45 days after the
Closing Date, the Parties hereto shall prepare the "Final Closing Statement"
reflecting the items listed above determined as set forth above. If the Parties
are unable to agree on the Final Closing Statement within the 45 day period,
they shall appoint Coopers & Lybrand, a firm of independent certified public
accounts of recognized national standing (the "Accountants"), to make such
determination, which determination shall be final and binding on the Parties
hereto for the purposes of this Agreement, and Summerlin and Desert Springs
shall each pay one-half of the fee. Each Party represents that the Accountants
are not its auditor. Upon determination of the Final Closing Statement, whether
by agreement of the Parties or by determination of the Accountants, Desert
Springs shall immediately pay to Summerlin in cash 26.115% of the amount of the
Working Capital.
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1.6 LIABILITIES ASSUMED. In further consideration for the
contribution of the Facilities Assets, on and as of the Closing Date, subject to
the exclusion of liabilities described in Section 1.7 below, the Parties
acknowledge and agree that the Company, following the contribution of the
Facilities Assets, shall assume and agree to pay, perform and discharge the
following liabilities (collectively, the "Assumed Liabilities"):
(a) all current liabilities of Summerlin (except for the
current portion of long term debt, accrued interest, pension plan liabilities,
employer benefit plan liabilities, intercompany liabilities and self-insurance
costs);
(b) all obligations under the Assumed Contracts and
Section 4.6 hereof; and
(c) such other liabilities of Summerlin which the Company
agrees in writing at or prior to the Closing Date that the Company will assume,
which liabilities are listed on Schedule 1.6(c).
1.7 LIABILITIES NOT ASSUMED. The Company, following the
contribution of the Facilities Assets, shall assume only those liabilities and
obligations specified in Section 1.6 above. Without limiting the generality of
the foregoing sentence, the Company shall not assume and Summerlin shall retain
and be responsible for the following obligations and liabilities to the extent
they relate to Summerlin (each reference in this Section 1.7 to Summerlin shall
include Summerlin and its affiliates):
(a) any and all obligations for the payment of any long term
debt existing at the Closing Date (including the current portion thereof)
relating to Summerlin and whether or not set forth on the Summerlin Balance
Sheet;
(b) any and all accrued interest payable by Summerlin
in respect of periods through the Closing Date;
(c) liabilities or obligations of Summerlin arising under
Medicare, Medicaid, Blue Cross or other comparable third party payor programs
(the "Government Reimbursement Programs") for periods through the Closing Date
and as a result of the
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consummation of the transactions contemplated herein, including reimbursement
recapture or any other adjustments;
(d) liabilities or obligations for Taxes (as
hereinafter defined) of Summerlin in respect of periods prior to
the Closing Date or resulting from the consummation of the
transactions contemplated;
(e) liabilities under any Employee Benefit Plan (as
hereinafter defined) of Summerlin; and liabilities for any and all EEOC, wage
and hour, unemployment compensation, employee medical or workers' compensation
claims relating to periods prior to the Closing Date;
(f) except as provided in Section 4.6 below, liabilities or
obligations for any and all workers' compensation, health, disability or other
benefits due to or for the benefit of any employees of Summerlin (or their
covered dependents);
(g) liabilities arising out of or in connection with claims,
litigations or proceedings described in Section 2.16, and claims, litigations or
proceedings (whether instituted prior to or after the Closing Date) for acts or
omissions which allegedly occurred prior to or at the Closing Date;
(h) liabilities attributable to legal, accounting or
brokerage fees, and similar costs incurred by Summerlin related
to the contribution of any of the Facilities Assets;
(i) except as expressly set forth herein, liabilities
arising from Summerlin's assignment and the Company's assumption
of the Assumed Liabilities;
(j) liabilities for the payment by Summerlin of any
deductibles, copayments or other self-insurance requirements
relating to events occurring prior to the Closing Date;
(k) any and all liabilities respecting any intercompany
transactions of Summerlin, whether or not such transaction relates to the
provision of goods and services, tax sharing arrangements, payment arrangements,
intercompany charges or balances, or the like;
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(l) except for Assumed Liabilities, any and all actual or
contingent liabilities or obligations of or demands upon Summerlin arising from
acts or omissions of Summerlin (actual or alleged) prior to the Closing Date;
(m) all liabilities arising out of or in connection
with the existence of Materials of Environmental Concern (as hereinafter
defined) upon, about, beneath or migrating to or from any of the Real Property
on or before the Closing Date or the existence on or before the Closing Date of
any Environmental Claim (as hereinafter defined) or any violation of any
Environmental Laws (as hereinafter defined) pertaining to such Real Property or
the operation of the UHS Facilities by Summerlin or any other business operated
therefrom;
(n) any liability of Summerlin which allegedly occurred out of
any negligence, medical malpractice or similar acts or omissions which allegedly
occurred prior to the Closing Date;
(o) sales, income, franchise, use and other taxes payable with
respect to the business or operations of Summerlin through the Closing Date or
the transactions contemplated hereby;
(p) except as expressly set forth herein, liabilities for
rights or remedies claimed by third parties under any of the Assumed Liabilities
which broaden or vary the rights and remedies such third parties would have had
against Summerlin if the contribution of the Facilities Assets were not to
occur; and
(q) liabilities on account of those liens or mortgages
set forth on Schedule 1.7(g).
With respect to Subsection 1.7(m) above, for a period of five
(5) years from and after the Closing Date, in the event that it cannot be proven
that the event giving rise to a Subsection 1.7(m) liability occurred after the
Closing Date then it shall be presumed to have occurred on or before the Closing
Date and Summerlin can rebut this presumption with a Phase I environmental
study. From and after five (5) years following the Closing Date, the presumption
shall shift and thereafter all events giving rise to a Subsection 1.7(m)
liability shall be presumed to have occurred from and after the Closing Date.
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1.8 CLOSING. The closing of the transactions provided herein
will be accomplished by means of overnight courier delivery and facsimile
transmission or by such other method as may be agreed upon by the Parties. Upon
contribution of the Facilities Assets which shall be effective as of 11:59 p.m.
Pacific Time on January 31, 1998, payment of the Desert Springs Payment and the
issuance of membership interests to Desert Springs in accordance with Section
1.5 hereof, the closing shall be deemed to be effective as of 12:01 a.m. Pacific
Time on February 1, 1998. Such date of effectiveness of closing is herein
referred to as the "Closing Date". On the date of effectiveness of the Closing,
Summerlin shall receive good funds in the amount of the Desert Springs Payment
if a business day, otherwise the parties shall agree on whether it shall be
prior or after such effectiveness. The parties have agreed that if the Closing
is to be effective February 1, 1998, the parties shall use their best efforts to
close the transaction sufficiently so that the funds shall be wired on January
30, 1998. In the event that the Desert Springs Payment is received by Summerlin
before or after the date of the effectiveness of the Closing, the Desert Springs
Payment shall be reduced or increased on a per diem basis, based on the prime
rate as reported in The Wall Street Journal five (5) business days before the
actual date of closing.
2. REPRESENTATIONS AND WARRANTIES OF SUMMERLIN. Summerlin
hereby represents, warrants and agrees as follows:
2.1 EXISTENCE; GOOD STANDING; PARTNERSHIP AUTHORITY. Summerlin
is a Delaware limited partnership duly formed, validly existing and in good
standing under the laws of the State of Delaware. Summerlin has all requisite
partnership power and authority to own its properties and carry on its business
as now conducted. The copies provided to Desert Springs of the Agreement of
Limited Partnership of Summerlin, as amended to date, are complete and correct
and presently in effect. Summerlin has not failed to qualify in any jurisdiction
in which property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary and where the failure to so
qualify would have a material adverse effect on it. Summerlin is not in default
with respect to any order of any court, governmental authority or arbitration
board or tribunal to which it is a party or is subject.
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2.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENTS. The
execution, delivery and performance of this Agreement and all agreements and
documents contemplated hereby by Summerlin and the consummation by it of the
transactions contemplated hereby, have been duly and effectively authorized by
all necessary partnership action on its part. This Agreement constitutes, and
all agreements and documents contemplated hereby when executed and delivered
pursuant hereto will constitute, the valid and legally binding obligations of
Summerlin, enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other similar laws of general application now or
hereafter in effect relating to the enforcement of creditors' rights generally
and except that remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity jurisdiction, equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought. Except as set forth on Schedule 2.2 hereto, the execution and
delivery of this Agreement by Summerlin does not, and the consummation of the
transactions contemplated hereby will not, except to the extent the same would
not have a material adverse effect on it: (i) require the consent, approval or
authorization of any person, corporation, partnership, joint venture or other
business association or any governmental, public authority or accrediting body;
(ii) violate, with or without the giving of notice or the passage of time, or
both, any provisions of law or statute or any rule, regulation, order, award,
judgment, or decree of any court or governmental authority applicable to such
Party;(iii) result in the breach or termination of any term or provision of, or
constitute a default under, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or the lapse of time or
both) any obligation under, or result in the creation or imposition of any lien,
charge, pledge, security interest or other encumbrance upon any part of the
property of Summerlin pursuant to any provision of, any order, judgment,
arbitration award, injunction, decree, indenture, mortgage, lease, license,
lien, or other agreement or instrument to which Summerlin is a party or by which
it is bound, or violate any provision of the Agreement of Limited Partnership of
Summerlin, as amended to the date of this Agreement; or (iv) result in any
suspension, revocation, impairment, forfeiture or nonrenewal of any License (as
hereinafter defined) relating to the ownership and operation
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<PAGE> 17
by Summerlin of health care facilities which are the subject of the transactions
contemplated hereby, subject to the Company obtaining new Licenses for its
operation of the UHS Facilities.
2.3 SUBSIDIARIES. Except as set forth on Schedule 2.3,
Summerlin does not own, directly or indirectly, any debt or equity securities
issued by any other partnership or corporation, or any interest in any
partnership, joint venture or other business enterprise. During the period
between the effective time of its creation and the effective time of the
transactions described in Section 1.1 above, the Company shall not have
conducted any business or incurred any liabilities.
2.4 CAPITALIZATION. Schedule 2.4 sets forth a list of the
general and limited partnership interests issued and outstanding and owned of
record and beneficially by each of the partners in Summerlin. Except as set
forth on Schedule 2.4, there are no outstanding or authorized rights, warrants,
options, subscriptions, agreements or commitments of any character giving anyone
any right to require Summerlin to sell or issue any partnership interests or
other securities, nor are there any voting trusts or other agreements or
understandings with respect to the partnership interests in Summerlin. On and as
of the date of payment of the Desert Springs Payment, Summerlin shall be the
owner of 100% of the outstanding membership interests in the Company, free and
clear of all Liens other than the Permissible Liens.
2.5 RECORDS. The books, records and work papers of Summerlin
will be made available to Desert Springs for inspection prior to the Closing
Date and (a) will contain the minutes of all meetings of partners and actions
taken by partners, (b) have been maintained in accordance with good business
practice and (c) accurately reflect the basis for the financial condition and
results of operations of Summerlin set forth in the financial statements
referred to in Section 2.6 hereof except to the extent the same would not have a
material adverse effect on it.
2.6 FINANCIAL STATEMENTS. Summerlin has furnished true,
complete and correct copies of its unaudited balance sheet as of December 31,
1997 and related statements of income and operations for the period then ended
(the "Summerlin Balance
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Sheet, or sometimes the "Financial Statements"). Copies of the Financial
Statements are attached hereto as Schedule 2.6. The Financial Statements of
Summerlin are in accordance with its books and records, are complete and correct
in all material respects, fully and fairly set forth the financial condition of
Summerlin as of the dates indicated, and the results of its operations for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except as otherwise stated therein
and except for normal year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and the absence of
notes.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Summerlin has no
liabilities or obligations of any nature, either accrued, absolute, contingent
or otherwise, which are not reflected or provided for in the Financial
Statements, except (i) those arising after the date of the Summerlin Balance
Sheet which are in the ordinary course of business, in each case in normal
amounts and none of which is materially adverse, and (ii) as and to the extent
specifically described in Schedule 2.7 hereof. Except as set forth on Schedule
2.7, Summerlin does not know and has no reasonable grounds to know of any
reasonable basis, as of the date hereof, for assertion against it of any claim
or liability of any nature in excess of $25,000 individually or $50,000 in the
aggregate not fully disclosed in the Summerlin Balance Sheet.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS SINCE THE DATE OF THE
SUMMERLIN BALANCE SHEET. Except as otherwise disclosed in Schedule 2.8, since
the date of the Summerlin Balance Sheet Summerlin has not, except to the extent
the same would not have a material adverse effect on it:
2.8.1 incurred any obligation or liability
(fixed, contingent or otherwise), except normal trade or business obligations
incurred in the ordinary course of business and consistent with past practice,
none of which is materially adverse, and except in connection with this
Agreement and the transactions contemplated hereby;
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2.8.2 discharged or satisfied any lien, security
interest or encumbrance or paid any obligation or liability (fixed, contingent
or otherwise), including intercompany obligations and liabilities except in the
ordinary course of business;
2.8.3 mortgaged, pledged or subjected to any Lien
any of its assets or properties (other than mechanic's, materialman's and
similar statutory liens arising in the ordinary course of business and purchase
money security interests arising as a matter of law between the date of delivery
and payment);
2.8.4 sold, assigned, conveyed, transferred,
leased or otherwise disposed of, or agreed to sell, assign, convey, transfer,
lease or otherwise dispose of any of its assets or properties except for a fair
consideration in the ordinary course of business and consistent with past
practice or, except in the ordinary course of business and consistent with past
practice, acquired any assets or properties;
2.8.5 canceled or compromised any debt or claim
in excess of $2,500 for any individual debt or claim or $10,000 in the aggregate
except patient account bad debt which is addressed in Section 2.8.14;
2.8.6 waived or released any rights of material
value;
2.8.7 made or granted any wage or salary increase
applicable to any group or classification of employees generally except merit
increases and bonuses pursuant to prior personnel practices, entered into any
employment contract with, or made any loan to, or entered into any material
transaction of any other nature with any partner, officer or employee, been the
subject of any material labor dispute or, to its knowledge, threat thereof;
2.8.8 entered into any transaction or contract
(other than Immaterial Contracts as defined in Section 2.13.4), except (i)
contracts listed on Schedule 2.8 and (ii) this Agreement and the transactions
contemplated hereby;
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2.8.9 suffered any casualty loss or damage
(whether or not such loss or damage shall have been covered by insurance) which
affects in any material respect its ability to conduct business;
2.8.10 authorized or effected any amendment or
restatement of its Agreement of Limited Partnership, or taken any
steps looking toward its dissolution or liquidation;
2.8.11 suffered any material adverse change in
its operations, earnings, assets, liabilities, properties or business or in its
condition, financial or otherwise, other than changes in the general market
conditions and prospects for the UHS Facilities;
2.8.12 made capital expenditures or entered into
any commitment therefore which, in the aggregate, exceed
$500,000;
2.8.13 suffered any material adverse change in
its relations with, or any material loss or, to its knowledge, material adverse
threatened loss of any of its material suppliers, managed care contracts, or
Medicare or Medicaid contracts;
2.8.14 written off as uncollectible any accounts
receivable or trade notes in excess of reserves; or
2.8.15 introduced any material change with
respect to the operation of its business, including its method of
accounting.
2.9 TAXES. Except as set forth in Schedule 2.9, Summerlin (i)
has duly and timely filed or caused to be filed all federal, state, local and
foreign tax returns and reports of "Taxes" (as hereinafter defined) required to
be filed by it prior to the date of this Agreement which relate to it or with
respect to which it or its assets or properties are liable or otherwise in any
way subject, (ii) has paid or fully accrued for all Taxes, interest, penalties,
assessments and deficiencies shown to be due and payable on such returns and
reports (which Taxes, interest, penalties, assessments and deficiencies are all
the Taxes,
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interest, penalties, assessments and deficiencies due and payable under the laws
and regulations pursuant to which such returns were filed), and (iii) has
properly accrued for all such Taxes accrued in respect of it or its assets and
properties for periods subsequent to the periods covered by such returns. Except
as set forth in Schedule 2.9, no deficiency in payment of taxes for any period
has been asserted by any taxing body and remains unsettled at the date of this
Agreement. Such Party has made all withholdings of Taxes required to be made
under all applicable United States, state and local tax regulations and such
withholdings have either been paid to the respective governmental agencies or
set aside in accounts for such purpose or accrued, reserved against and entered
upon the books of such Party. As used herein, the term "Tax" or "Taxes" means
any federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Internal Revenue Code ("Code") Sec. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum or
estimated tax, assessment, charge, levy or fee of any kind whatsoever, which are
due or alleged to be due to any taxing authority, whether disputed or not.
2.10 REAL PROPERTY. Except as set forth on Schedule 2.10:
(a) Schedule 2.10 hereto identifies all interests
in real property, including land and improvements held by Summerlin as of the
date hereof, together with the nature of such interest. Summerlin owns fee
simple title to the tracts of Real Property. To the extent that any interest in
Real Property set forth thereon is shared, Schedule 2.10 sets forth the nature
and proportion of the sharing arrangement;
(b) the Real Property comprises all of the real
property associated with or employed or used in the business of
the UHS Facilities;
(c) except as set forth in Schedule 2.10(c), to
the best knowledge of Summerlin, no part of the Real Property contains, is
located within or abuts any navigable water or other
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body of water, tideland, wetland, marshland or any other area which is subject
to special state, federal or municipal regulation, control or protection;
(d) such Real Property adjoins dedicated public
roadways and there is access for motor vehicles from the Real
Property to such roadways by valid public or private easements; and, to the best
knowledge of Summerlin, there are no conditions existing which could result in
the termination or reduction of the current access from the Real Property to
existing roadways;
(e) all essential utilities (including water,
sewer, electricity and telephone service) are available to the
Real Property;
(f) to the best knowledge of Summerlin, the UHS
Facilities and the Real Property and the businesses conducted thereon are in
material compliance with all applicable planning, zoning, land use, public
health, fire safety and building codes and ordinances; the consummation of the
transactions contemplated herein will not result in a violation of any
applicable planning, land use, public health, fire safety, zoning or building
code or ordinance, or the termination of any applicable zoning variances,
conditional use permits, waivers, exemptions or "grandfathering" now existing
with respect to the Real Property; and final, permanent and unconditional
certificates of occupancy and/or use have been duly issued by the applicable
governmental authority having jurisdiction for all buildings located on the Real
Property;
(g) Summerlin has not received actual notice of a
violation of any ordinance or other law, order, regulation or requirement, and
has not received actual notice of condemnation or similar proceedings relating
to any part of the Real Property;
(h) the Real Property is subject only to the
Liens described in Schedule 2.10(h), and on the Closing Date will be subject
only to the Liens described on Schedule 2.10(h) which are not designated therein
as "excluded" and any other Liens approved by the Company in writing on or after
the effective date hereof (the "Permitted Encumbrances");
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(i) Summerlin has not created or may not assert
any rights in respect of any Liens which will interfere with the
Company's use of the Real Property after the Closing Date;
(j) except for those tenants in possession of the
Real Property under contracts described in Schedule 2.10(j), there are no
parties in possession of, or claiming any possession, adverse or not, to or
other interest in, any portion of the Real Property as lessees, tenants at
sufferance, trespassers or otherwise;
(k) with respect to the Real Property, no tenant
is entitled to any rebate, concession or free rent, other than as set forth in
the contract with such tenant; no commitments have been made to any tenant for
repairs or improvements other than for normal repairs and maintenance in the
future or as set forth in the contract with such tenant; and no rents due under
any of the tenant contracts have been assigned or hypothecated to, or encumbered
by, any person, other than pursuant to the encumbrances relating to indebtedness
to be satisfied on or prior to the Closing Date, or Permitted Encumbrances, as
additional security for the payment thereof;
(l) no part of the Real Property is currently
subject to condemnation, eminent domain or other proceedings for the taking
thereof, and to the best of Summerlin's knowledge, no condemnation or taking is
threatened or known by Summerlin to be contemplated; and
(m) the improvements to the Real Property are
located entirely within the boundaries of the Real Property and, to Summerlin's
knowledge, do not materially violate any building set back lines or materially
encroach upon any easements located on the Real Property.
2.11 TITLE TO PROPERTY AND ASSETS; SUFFICIENCY OF
FACILITIES ASSETS.
(a) Summerlin has good and marketable title to
the Facilities Assets (including, without limitation, the properties and assets
reflected in the Summerlin Balance Sheet except any thereof since disposed of
for value in the ordinary course of business) except for the Permitted
Encumbrances, and
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none of such properties or assets is, except as disclosed in the Summerlin
Balance Sheet or the Schedules hereto, subject to a contract of sale not in the
ordinary course of business, or, except for Permitted Encumbrances, subject to
any Liens.
(b) Except as described on Schedule 2.11, the
Facilities Assets constitute, in the aggregate, all the properties and assets
necessary for the operation of the UHS Facilities as currently conducted. The
Facilities Assets, together with the Excluded Assets, comprise all of the
following: (i) all assets owned by Summerlin, (ii) all assets used in connection
with the UHS Facilities and their related businesses and (iii) all assets owned,
used or operated by any affiliate of Summerlin located within a fifty (50) mile
radius of Las Vegas, Nevada.
2.12 CONDITION OF PROPERTY. All buildings on the Real Property
and all items of tangible personal property, equipment, fixtures and inventories
included within the assets and properties of Summerlin or required to be used in
the ordinary course of its business are being contributed and transferred
pursuant to this Agreement on an "as is, where is" basis with no representations
or warranties express or implied as to their physical condition and WITHOUT ANY
WARRANTIES FROM ANY PARTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
2.13 LIST OF CONTRACTS AND OTHER DATA. Schedule 2.13 sets
forth the following information with respect to the properties and assets of
Summerlin, other than the Excluded Assets (indicating in each case, where
appropriate, whether or not consent by a third party is required for the
transfer by Summerlin of such properties and assets to the Company):
2.13.1 a description of all real property leased
by Summerlin and all leases of real property to which Summerlin
is a party;
2.13.2 a list of all personal property owned of
record or beneficially by Summerlin having a value per item or group of items in
excess of $1,000 and all leases of personal property, licenses, permits,
franchises, concessions,
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certificates of public convenience or the like to which Summerlin is a party;
2.13.3 a list of (i) all United States and
foreign patents, trademarks and trade names, trademark and trade name
registrations, service marks and service mark registrations, copyrights and
copyright registrations, unexpired as of the date hereof, all United States and
foreign applications pending on said date for patents, for trademark or trade
name registrations, for service mark registrations, or for copyright
registrations, and all trademarks, trade names, service marks, labels and other
trade rights in use on said date, all of the foregoing being owned in whole or
in part as noted thereon on said date by Summerlin, (ii) a description of all
action taken by Summerlin to protect all tradenames used by it, and (iii) all
licenses granted by or to Summerlin and all other agreements to which Summerlin
is a party, which relate in whole or in part to any items of the categories
mentioned in clause (i) above or to any other proprietary rights, whether owned
by Summerlin or otherwise;
2.13.4 a list of all existing contracts and
commitments to which Summerlin is a party or by which Summerlin
or any of its respective properties or assets is bound, except for Immaterial
Contracts. "Immaterial Contracts" shall mean contracts which (i) no party
thereto is a physician, physician group or other referral source to a UHS
Facility, and is not a third party payor contract and is not a real estate lease
and (ii) requires payment by Summerlin of less than $100,000 per year; and
2.13.5 a list of (i) all collective bargaining
agreements, multi-employer pension plans, employment, consulting and separation
agreements, executive compensation plans, bonus plans, incentive compensation
plans, deferred compensation agreements, employee pension plans or retirement
plans, employee profit sharing plans, employee stock purchase and stock option
plans and hospitalization insurance or other plans or arrangements providing for
benefits for employees or former employees of Summerlin, and (ii) all
Multiemployer Plans (as defined in ERISA as hereinafter defined) which Summerlin
maintains or has maintained or to which Summerlin makes, is
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required to make, has made or has been required to make a contribution.
All documents, rights, obligations and commitments referred to
in this Section 2.13 are, to the best knowledge of Summerlin, valid and
enforceable in accordance with their terms for the period stated therein and
there is not under any of them any existing breach, default, event of default or
event which with the giving of notice or lapse of time, or both, would
constitute a default, by Summerlin, or, to Summerlin's knowledge, by any other
party thereto, nor, except as set forth on Schedule 2.13, has any party thereto
given notice of or made a claim with respect to any breach or default. There are
no existing laws, regulations or decrees, nor to Summerlin's knowledge are there
any proposed laws, regulations or decrees, which adversely affect any of such
documents, rights, obligations or commitments. Except as set forth on Schedule
2.13, no part of the business or operations of Summerlin is dependent to any
material extent on any patent, trademark, copyright, or license or any
assignment thereof or any secret processes or formulae. Except as set forth on
Schedule 2.13, none of the rights of Summerlin under such documents, rights,
obligations or commitments is subject to termination or modification as a result
of the transactions contemplated hereby.
2.14 NO BREACH OR DEFAULT. Summerlin is not in default under
any contract to which it is a party or by which it is bound, nor has any event
occurred which, after the giving of notice or the passage of time or both, would
constitute a default under any such contract except as set forth in Schedule
2.14. Summerlin has no reason to believe that the parties to such contracts will
not fulfill their obligations under such contracts in all material respects or
are threatened with insolvency.
2.15 LABOR CONTROVERSIES. Neither Summerlin nor any of its
employees is a party to any collective bargaining agreement except as included
in Schedule 2.13. There are not any controversies pending or, to the knowledge
of Summerlin, threatened between Summerlin and any of its employees which might
reasonably be expected to materially adversely affect the conduct of its
business, or any unresolved labor union grievances or unfair labor practice or
labor arbitration proceedings pending or, to the knowledge of Summerlin,
threatened relating to its
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business, and to the knowledge of Summerlin, there are not any further
organizational efforts presently being made or threatened involving any of the
employees of Summerlin. Except as set forth on Schedule 2.15, Summerlin has not
received any notice or claim that it has not complied with any laws relating to
the employment of labor, including any provisions thereof relating to wages,
hours, collective bargaining, the payment of social security and similar taxes,
equal employment opportunity, employment discrimination and employment safety,
or that Summerlin is liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing.
No person or Party (including, but not limited to, any
governmental agency) has any claim or basis for any action or proceeding,
against Summerlin, arising out of any statute, ordinance or regulation relating
to wages, collective bargaining, discrimination in employment or employment
practices or occupational safety and health standards (including, but not
limited to, the Fair Labor Standards Act, Title VII of the Civil Rights Act of
1964, as amended, the Occupational Safety and Health Act, or the Age
Discrimination in Employment Act of 1967 or the Americans With Disabilities Act
of 1990). Summerlin has complied with all laws and regulations with respect to
the determining of independent contractor or employee status.
2.16 LITIGATION. Except as set forth in Schedule 2.16, there
are no claims, actions, suits or proceedings or, to the knowledge of Summerlin,
investigations with respect to Summerlin, involving claims by or against
Summerlin which are pending or, to Summerlin's knowledge, threatened against
Summerlin, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or before the internal grievance mechanisms of Summerlin. To
Summerlin's knowledge, no basis for any action, suit or proceeding exists, and
there are no orders, judgments, injunctions or decrees of any court or
governmental agency with respect to which it has been named or to which it is a
party, which directly apply, in whole or in part, to the business of Summerlin,
or to any of its assets or properties, or which would result in any material
adverse change in its business.
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2.17 PATENTS; TRADEMARKS, ETC. No patents, trademarks, trade
names, copyrights, registrations or applications are necessary for the conduct
of the business of Summerlin as now conducted, other than those listed in
Schedule 2.13 hereto. Except as described in Schedule 2.13 hereto, all such
patents, trademarks, trade names, copyrights and registrations are in good
standing, are valid and enforceable and are free from any default on the part of
Summerlin. Summerlin is not a licensor in respect of any patents, trademarks,
trade names, copyrights or registrations or applications therefor. Summerlin is
not in violation of any patent, patent license, trade name, trademark, or
copyright of others. No officer, partner or employee of Summerlin owns, directly
or indirectly, in whole or in part, any patents, trademarks, trade names,
copyrights, registrations or applications therefor or interests therein which
Summerlin has used, is presently using, or the use of which is necessary for its
business as now conducted.
2.18 LICENSES; PERMITS; AUTHORIZATIONS. Schedule 2.18 hereto
is a schedule of all rights, approvals, authorizations, consents, licenses,
orders, accreditations, franchises, concessions, certificates and permits of all
governmental agencies, whether United States, state or local, and accrediting
bodies, (collectively, the "Licenses") required by the nature of the business
conducted by Summerlin to permit the continued operation of its business in the
manner in which it was conducted as of the date hereof (indicating in each case
of a License held by Summerlin, where appropriate, whether or not the consent by
a third party to the transfer to the Company of such License is required).
Summerlin has all Licenses required to permit the operation of its business as
presently conducted; Summerlin's business is and has been operated in all
material respects in compliance therewith and all such Licenses are in full
force and effect and no action or claim is pending, nor to the knowledge of
Summerlin, is threatened to revoke, terminate or declare invalid any of the
foregoing.
2.19 COMPLIANCE WITH APPLICABLE LAW; ENVIRONMENTAL
LAWS.
(a) Except as set forth on Schedule 2.19 hereto,
the conduct of the business of Summerlin does not (i) violate or infringe any
domestic or foreign laws, statutes, rules or
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regulations or any material ordinances, including, without limitation, any of
the foregoing that pertain to or regulate the operation of a hospital, consumer
protection, health and safety or occupational safety matters, or (ii) violate or
infringe any right or patent, trademark, trade name, service mark, copyright,
know-how or other proprietary right of third parties, the enforcement of which
would adversely affect the business of Summerlin or the value of its properties
or assets.
(b) Neither Summerlin nor, to the knowledge of
Summerlin, any of its employees, partners and officers in their capacities as
such, have engaged in any activities which are prohibited under any federal
laws, or the regulations promulgated pursuant to such laws or related state or
local laws, statutes or regulations or which are prohibited by rules of
professional conduct, including but not limited to the following: (i) knowingly
and willfully making or causing to be made a false statement or representation
of a material fact in any application for any benefit or payment; (ii) knowingly
and willfully making or causing to be made any false statement or representation
of a material fact for use in determining rights to any benefit or payment;
(iii) presenting or causing to be presented a claim for reimbursement for
services under Medicare, Medicaid or other state health care programs that is
for an item or service that is known or should be known to be (a) not provided
as claimed, or (b) false or fraudulent; (iv) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; (v) knowingly and willfully
offering, paying, soliciting, or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare, Medicaid or other state
health care program, or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare, Medicaid or other state health care program; (vi) knowingly making a
payment, directly or indirectly, to a physician as an inducement to reduce or
limit necessary services to individuals who are under the
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direct care of the physician and who are entitled to benefits under Medicare,
Medicaid, or other state health care programs; (vii) providing to any person
information that is known or should be known to be false or misleading that
could reasonably be expected to influence the decision when to discharge a
patient from a UHS Facility; (viii) knowingly and willfully making or causing to
be made or inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statement contained therein not misleading) of
a material fact with respect to (a) the conditions or operations of a UHS
Facility in order that the UHS Facility may qualify for Medicare, Medicaid or
other state health care program certification, or (b) information required to be
provided under ss. 1124A of the Social Security Act (42 U.S.C. ss. 1320a-3); or
(ix) knowingly and willfully (a) charging for any Medicaid service money or
other consideration at a rate in excess of the rates established by the state,
or (b) charging, soliciting, accepting or receiving, in addition to amounts paid
by Medicaid, any gift money, donation or other consideration (other than a
charitable, religious or other philanthropic contribution from an organization
or from a person unrelated to the patient) (1) as a precondition of admitting
the patient, or (2) as a requirement for the patient's continued stay in the UHS
Facility.
(c) All Licenses currently held by Summerlin
pursuant to the Environmental Laws are identified in Schedule
2.18.
(d) Summerlin is in compliance in all material
respects with all applicable Environmental Laws except as
disclosed in Schedule 2.19.
(e) In regards to the UHS Facilities and the Real
Property, there is no Environmental Claim pending or, to such Party's knowledge,
threatened against the UHS Facilities or the Real Property, or, to Summerlin's
best knowledge after due inquiry, any other person whose liability for any
Environmental Claim Summerlin has retained or assumed contractually; to
Summerlin's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including the release, emission,
discharge or disposal of any Materials of Environmental Concern, that could form
the basis of
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any Environmental Claim against Summerlin or against any person whose liability
for any Environmental Claim Summerlin has retained or assumed contractually; and
Summerlin has not received any written communication, whether from a
governmental authority or otherwise, that alleges that Summerlin is not in full
compliance with all applicable Environmental Laws.
(f) In regards to the UHS Facilities and the Real
Property, without in any way limiting the generality of the foregoing, (i) all
on-site and off-site locations where Summerlin has stored, disposed or arranged
for the disposal of Materials of Environmental Concern are identified in
Schedule 2.19, (ii) all Contracts dealing with the removal, storage, disposal
and handling of Materials of Environmental Concern are with properly licensed
and registered vendors, (iii) all underground storage tanks, and the capacity
and contents of such tanks, located on the Real Property identified in Schedule
2.19, (iv) except as set forth on Schedule 2.19, there is no asbestos contained
in or forming part of the Real Property, and (v) except as set forth on Schedule
2.19, no polychlorinated biphenyls (PCBs) are used or stored on the Real
Property.
(g) As used herein: (i) "Environmental Claim"
means any written notice by a person alleging potential liability (including
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on or resulting from, directly or
indirectly, the presence, or release into the environment, of any Materials of
Environmental Concern (as defined below); (ii) "Environmental Laws" means any
and all federal, state, local and foreign laws and regulations (including common
law) relating to pollution or protection of human health or the environment
(including ground water, land surface or subsurface strata), including laws and
regulations relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
recycling, reporting or handling of Materials of Environmental Concern; and
(iii) "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes (including medical waste), toxic substances,
polychlorinated biphenyls (PCB's), ureaformaldehyde, petroleum and petroleum
products and such other substances,
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materials and wastes which are defined or classified as hazardous or toxic under
any Environmental Laws.
2.20 EMPLOYEE BENEFIT PLANS; EMPLOYEES AND EMPLOYEE
RELATIONS.
2.20.1 Attached hereto is an accurate list
(Schedule 2.20.1) of all "employee welfare benefit plans" and "employee pension
benefit plans" (collectively, "Qualified Plans"), as such terms are defined by
the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), and
any other group employee benefit plan, agreement, arrangement or understanding
maintained for the benefit of Summerlin (the Qualified Plans, together with such
other plans, arrangements and understandings, collectively, the "Employee
Benefit Plans"). To the extent available, complete and genuine copies of the
summary plan descriptions have been provided to Desert Springs, which summary
plan descriptions accurately summarize the material provisions of the Employee
Benefit Plans. Neither Summerlin nor any other members of the Controlled Group
of Corporations (as defined in Section 1563 of the Code) that includes Summerlin
contributes to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan (as defined in Section 3(37) of ERISA) or has any
liability (including withdrawal liability) under any Multiemployer Plan. There
is no lien, encumbrance or claim of any type on the Facilities Assets or against
Summerlin with respect to the Employee Benefit Plans, and Summerlin has not
taken any action, or omitted to take any action, with respect to the Employee
Benefit Plans (or has any knowledge of the same) that would or could be expected
to result in a Lien on the Facilities Assets or against Summerlin.
2.20.2 Schedule 2.20.2 sets forth a complete list
(as of the date set forth therein) of names, positions, current annual salaries
or wage rates, and bonus and other compensation arrangements of all full-time
and part-time employees of Summerlin.
2.21 ADVERSE AGREEMENTS; NO ADVERSE CHANGE.
(a) Summerlin is not a party to or subject to any
agreement or instrument or subject to any charter or other
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corporate restriction or any judgment, order, writ, injunction, decree or rule
specifically naming Summerlin which adversely affects the business, operations,
properties, assets or conditions, financial or otherwise, of Summerlin.
(b) To the best of Summerlin's knowledge there
has not been any material adverse change in, or development materially adversely
affecting the business, assets, financial position or results of operations of
any of Summerlin since the Summerlin Balance Sheet date.
2.22 TRADE NOTES AND ACCOUNTS RECEIVABLE; TRADE
ACCOUNTS PAYABLE; PREPAID CONTRACTS.
(a) Except as set forth on Schedule 2.22 hereto,
the trade notes and accounts receivable of Summerlin are reflected on the
Summerlin Balance Sheet and all trade notes and accounts receivable arising
thereafter and prior to the Closing Date arose and will arise from bona fide
transactions in the ordinary course of business of Summerlin, and are (except
for normal claims and allowances which are consistent with past experience of
Summerlin and which in the aggregate are not material) current, arose in the
usual and ordinary course of business of Summerlin from arms-length
transactions, are not subject to any defenses, counterclaims or set-offs which
would materially adversely affect such trade notes and accounts receivable, and,
to Summerlin's knowledge, are fully collectible, less the applicable allowance
for doubtful accounts. Summerlin has fully performed all obligations with
respect to such trade notes and accounts receivable which it was obligated to
perform prior to the date hereof and Schedule 2.22 sets forth an aging schedule,
as of December 31, 1997, for all such trade notes and accounts receivable.
(b) The trade accounts payable of Summerlin
reflected on the Summerlin Balance Sheet and all trade accounts payable arising
thereafter and prior to the Closing Date arose and will arise from bona fide
transactions in the ordinary course of business of Summerlin and were paid or
are not yet due and payable.
(c) Schedule 2.22 hereto sets forth the amounts
and dates of all payments (the "Prepayments") received by
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Summerlin which relate to services to be performed by Summerlin subsequent to
the Closing Date, including, without limitation, all such payments expressly
authorized to be made in advance by any of the terms of any contract or
agreement with Summerlin.
2.23 INVENTORIES AND SUPPLIES. All inventories and supplies of
Summerlin, whether or not reflected in the Summerlin Balance Sheet, consist of a
quality and quantity useable and salable in the ordinary course of business,
without discount or reduction, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Summerlin Balance Sheet. All inventories and
supplies not written off are valued at the lower of cost (applied on a first in,
first out basis) or market in accordance with generally accepted accounting
principles. The present quantities of inventory and supplies are not excessive
and are reasonable and consistent with the past inventory and supply practices
of Summerlin.
2.24 ILLEGAL PAYMENTS. Summerlin has not, nor to the
knowledge of Summerlin, has any of its respective partners, directors or
officers, in their capacity as such, either directly or indirectly, made any
illegal payments to, or provided any illegal benefit or inducement for, any
person pursuant to an action illegal under any federal, state or local law.
2.25 INSURANCE POLICIES. (a) Schedule 2.25 contains a correct
and complete description of all insurance policies of Summerlin covering
Summerlin and its employees, agents and assets. Each such policy is in full
force and effect and, to the knowledge of Summerlin, is reasonably adequate in
coverage and amount to insure against customarily insured risks to which
Summerlin and its employees, businesses, properties and other assets may likely
be exposed in the operation of its business. All premiums with respect to such
insurance policies have been paid on a timely basis, and no notice of
cancellation or termination has been received with respect to any such policy.
To the knowledge of Summerlin, and except as set forth on Schedule 2.25, there
are no pending claims against such insurance by Summerlin as to which the
insurers have denied coverage or otherwise reserved rights. Since January 1,
1994, Summerlin has not been refused any insurance with respect to its assets or
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operations, nor has its coverage been limited by any insurance carrier to which
it has applied for any such insurance or with which it has carried insurance.
(b) Schedule 2.25 contains a correct and complete
description of all insurance policies of Summerlin covering the Real Property.
Each such policy is in full force and effect and, to the knowledge of Summerlin,
is reasonably adequate in coverage and amount to insure against customarily
insured risks with respect to property of this type. All premiums with respect
to such insurance policies have been paid on a timely basis, and no notice of
cancellation or termination has been received with respect to any such policy.
Except as set forth on Schedule 2.25, there are no pending claims against such
insurance by Summerlin as to which the insurers have denied coverage or
otherwise reserved rights.
2.26 PROFESSIONAL STAFF, MEDICARE, MEDICAID AND OTHER
HEALTH CARE PROGRAMS.
(a) The professional licensed provider staff of
the UHS Facilities consists of the persons whose names and status are set forth
on Schedule 2.26(a) hereto.
(b) Except as set forth on Schedule 2.26(b)
hereto, Summerlin is certified for participation in the Medicare and Nevada
Medical Assistance ("Medicaid") programs, and has a current and valid provider
contract with such programs.
(c) Except as set forth on Schedule 2.26(c)
hereto, Summerlin has timely filed or caused to be timely filed all cost reports
and other reports of every kind whatsoever required by any governmental or other
entity to be made by it with respect to the purchase of services by third-party
purchasers, including but not limited to Medicare and Medicaid programs and
other insurance carriers, and all such reports are complete and accurate in all
material respects. Summerlin has paid or caused to be paid all refunds,
discounts or adjustments which have become due in accordance with said reports
as filed and, except as set forth on Schedule 2.26(c), have not been notified
that there is any further liability now due (whether or not disclosed in any
report heretofore or hereafter made) for any such refund, discount or
adjustment, or any interest or penalties
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accruing with respect thereto. Summerlin has delivered to Desert Springs
complete copies of all of its Medicare and Medicaid cost reports submitted by
Summerlin for the two most recent fiscal years.
(d) To the knowledge of Summerlin, Summerlin and
its partners, officers, employees or agents (acting in their capacities as
such), have not engaged in any activities which (i) could subject Summerlin or
such person to sanctions under 42 U.S.C. ss. 1320a-7 (other than subparagraph
(b)(7) thereof) or (ii) at the time such activities were engaged in were known
or reasonably could have been known to be prohibited under Federal Medicare and
Medicaid statutes, 42 U.S.C. ss. ss. 1320a-7a and 1320a-7b, or the regulations
promulgated pursuant to such statutes or related state or local statutes or
regulations or which are prohibited by rules of professional conduct.
2.27 UHS FACILITY SURVEYS. True and complete copies of any and
all licensure survey reports and any and all Medicare and/or Medicaid and JCAHO
or other accreditation survey reports issued within the 24-month period
preceding the execution of this Agreement with respect to each UHS Facility for
which surveys are conducted by the appropriate state or Federal agencies having
jurisdiction thereof and JCAHO or accreditation bodies have been furnished to
Desert Springs, along with true and complete copies of any and all plans of
correction which the agencies required to be submitted in response to said
survey reports.
2.28 RELATED PARTY TRANSACTIONS. To the knowledge of
Summerlin, except as set forth in Schedule 2.28, and except for compensation to
employees for services rendered, no current partner or officer of Summerlin or
any affiliate thereof is presently, or during the last fiscal year has been, (a)
a party to any material transaction with Summerlin (including, but not limited
to, any contract or other arrangement providing for the furnishing of service
by, or rental of real or personal property from, or otherwise requiring payments
to, any such partner or officer, or (b) the direct or indirect owner of any
interest in any person which is a present competitor, supplier or customer of
Summerlin with respect to the business, nor does any such person receive income
from any source other than Summerlin which should properly accrue to Summerlin.
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2.29 NO BROKERS. Summerlin has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company or the other Party to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, and Summerlin is not aware of any claim or basis for any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
2.30 NO MISREPRESENTATION OR OMISSION. No representation or
warranty by Summerlin in this Article 2 or in any other Article or Section of
this Agreement, or in any certificate or other document furnished or to be
furnished by or on behalf of Summerlin pursuant hereto, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained therein not misleading.
3. REPRESENTATIONS AND WARRANTIES OF DESERT SPRINGS. Desert
Springs hereby represents, warrants and agrees as follows:
3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Desert
Springs is a Nevada corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. Desert Springs has all requisite
corporate power and authority to own its properties and carry on its business as
now conducted. The copies provided to Summerlin of the Articles of Incorporation
and Bylaws of Desert Springs, as amended to date, are complete and correct and
presently in effect. Desert Springs has not failed to qualify in any
jurisdiction in which property owned, leased or operated by it or the nature of
the business conducted by it makes such qualification necessary and where the
failure to so qualify would have a material adverse effect on it. Desert Springs
is not in default with respect to any order of any court, governmental authority
or arbitration board or tribunal to which it is a party or is subject.
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3.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENTS. The
execution, delivery and performance of this Agreement and all agreements and
documents contemplated hereby by Desert Springs and the consummation by it of
the transactions contemplated hereby, have been duly and effectively authorized
by all necessary corporate action on its part. This Agreement constitutes, and
all agreements and documents contemplated hereby when executed and delivered
pursuant hereto will constitute, the valid and legally binding obligations of
Desert Springs, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws of general
application now or hereafter in effect relating to the enforcement of creditors'
rights generally and except that remedies of specific performance, injunction
and other forms of equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the court before which
any proceeding therefor may be brought. Except as set forth on Schedule 3.2
hereto, the execution and delivery of this Agreement by Desert Springs does not,
and the consummation of the transactions contemplated hereby will not, except to
the extent the same would not have a material adverse effect on it: (i) require
the consent, approval or authorization of any person, corporation, partnership,
joint venture or other business association or any governmental, public
authority or accrediting body; (ii) violate, with or without the giving of
notice or the passage of time, or both, any provisions of law or statute or any
rule, regulation, order, award, judgment, or decree of any court or governmental
authority applicable to such Party; or (iii) result in the breach or termination
of any term or provision of, or constitute a default under, or result in the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or the lapse of time or both) any obligation under, or result in the
creation or imposition of any lien, charge, pledge, security interest or other
encumbrance upon any part of the property of Desert Springs pursuant to any
provision of, any order, judgment, arbitration award, injunction, decree,
indenture, mortgage, lease, license, lien, or other agreement or instrument to
which Desert Springs is a party or by which it is bound, or violate any
provision of the Articles of Incorporation or Bylaws of Desert Springs, as
amended to the date of this Agreement.
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3.3 NO BROKERS. Desert Springs has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company or the other Party to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, and Desert Springs is not aware of any claim or basis for
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
4. COVENANTS OF SUMMERLIN AND DESERT SPRINGS.
4.1 ACCESS TO UHS FACILITIES AND ADDITIONAL INFORMATION.
4.1.1 From the date hereof until the Closing
Date, Summerlin shall provide, and cause its agents (including counsel and
accountants) to provide to Desert Springs reasonable access to and the right to
inspect the Facilities Assets and the books and records pertaining to the
Facilities Assets, and Summerlin will furnish and cause to be furnished to
Desert Springs all material information concerning its businesses not otherwise
disclosed pursuant to this Agreement, and such additional financial, operating
and other data and information regarding Summerlin and its businesses and the
Facilities Assets, as Desert Springs may from time to time reasonably request,
without regard to where such information may be located.
4.1.2 Promptly after the execution of this
Agreement, Summerlin shall deliver to Desert Springs, to the extent not already
delivered, copies of all title insurance policies and binders in the possession
of Summerlin for any of the Real Property and copies of all surveys of any of
the Real Property in the possession of Summerlin.
4.2 OPERATIONS. From the date hereof until the Closing Date
and except as otherwise expressly provided in this Agreement:
(a) each of Summerlin and Desert Springs will
carry on its business in substantially the same manner as heretofore and not
make any material change in its personnel,
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operations, finances, accounting policies, or real or personal property;
(b) Summerlin will maintain the Facilities Assets
and all parts thereof in their current condition, ordinary wear
and tear excepted;
(c) Summerlin will perform all of its obligations
relating to or affecting the Facilities Assets or the business of
the UHS Facilities;
(d) Summerlin will use its reasonable efforts to
obtain appropriate releases, consents, estoppels and other
instruments as Desert Springs may reasonably request;
(e) Summerlin will keep in full force and effect
present insurance policies or other comparable insurance and maintain sufficient
liquid reserves to meet all deductible, self-insurance and copayment
requirements under present insurance policies;
(f) Summerlin will maintain and preserve its
business organizations and operations intact, and deal with its present
employees at the UHS Facilities in a manner consistent with its existing
personnel policies; Summerlin will maintain its relationships with physicians,
suppliers and other persons having business relations with it; and Summerlin
will take such actions as are reasonably necessary to facilitate the smooth,
efficient and successful transition to the Company following the Closing Date of
the business organizations and operations and employee and other relations of
Summerlin; and
(g) Summerlin will permit and allow reasonable
access by the Company to discuss post-closing employment with any of its
personnel and to establish relationships with physicians, suppliers and others
having business relations with it.
4.3 NEGATIVE COVENANTS. From the date hereof until the Closing
Date, except as otherwise expressly permitted by this Agreement or without the
prior written consent of Desert Springs:
(a) Summerlin will not amend or terminate any of
the Assumed Contracts, enter into any contract or agreement or
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incur or agree to incur any liability, except in the ordinary and regular course
of business, and in no event that requires the payment by Summerlin prior to the
Closing Date or the Company following the Closing Date of an amount greater than
twenty-five thousand dollars ($25,000) per contract or agreement, or that is not
terminable without cause or penalty within thirty (30) days following the
Closing Date;
(b) Summerlin will not make offers to any of its
employees for employment with it after the Closing Date;
(c) Summerlin will not increase compensation
payable or to become payable to, make a bonus payment to, or otherwise enter
into one or more bonus agreements with, any of its employees or agents, except
in the ordinary and regular course of business in accordance with existing
personnel policies;
(d) Summerlin will not create, assume or permit
to exist any new Lien upon any of the Facilities Assets other than purchase
money liens arising in the ordinary course of business;
(e) Summerlin will not sell, assign, transfer,
distribute or otherwise dispose of any property, plant or equipment, except in
the ordinary and regular business of the UHS Facilities with comparable
replacement thereof;
(f) Summerlin will not take any action outside
the ordinary and regular course of business;
(g) Summerlin will not take any action relating
to its liquidation or dissolution; and
(h) Summerlin will not create, incur, assume,
guarantee or otherwise become liable for, cancel, pay, agree to cancel or pay,
provide for a complete or partial discharge in advance of a scheduled payment
date with respect to, or waive any right to receive any direct or indirect
payment or other benefit under, any liability except in the ordinary and regular
course of business and in an amount not exceeding $25,000 individually or
$50,000 in the aggregate.
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4.4 GOVERNMENTAL APPROVALS. From the date hereof until the
Closing Date, Summerlin shall (a) promptly apply for and use its reasonable best
efforts to obtain prior to the Closing Date all consents, approvals,
authorizations and clearances of governmental and regulatory authorities
required of it to consummate the transactions contemplated hereby, (b) provide
such information and communications to governmental and regulatory authorities
as such authorities may reasonably request, and (c) assist and cooperate with
such other Party to obtain all consents, licenses, permits, approvals,
authorizations and clearances of governmental and regulatory authorities that
such other Party reasonably deems necessary or appropriate, and to prepare any
document or other information required of the Company following the Closing by
any such authorities, in order to consummate the transactions contemplated
herein.
4.5 INSURANCE RATINGS. From the date hereof until the Closing
Date, Summerlin will take all action it deems reasonably necessary to enable the
Company following the Closing Date to succeed to the worker's compensation and
unemployment insurance ratings of Summerlin with respect to the UHS Facilities
for insurance purposes. The Company shall not be obligated to succeed to any
such rating except as it may elect to do so.
4.6 EMPLOYEES; EMPLOYEE BENEFIT PLANS. Summerlin shall retain
all liabilities and obligations for all benefits under its Employee Benefit
Plans, regardless of whether any such liabilities and obligations are disclosed
on the Summerlin Balance Sheet (including, without limitation, any and all
workers' compensation, health, disability or other benefits due to or for the
benefit of any employees of Summerlin or their covered dependents) with the
exception of vacation, sick leave, paid time off and the like, and COBRA, all of
which will be assumed by the Company. As of the Closing Date, Summerlin shall
terminate the participation of all employees in any Employee Pension Benefit
Plan in which any of Summerlin's employees participates, and provide for
distributions pursuant to the terms of the plans, ERISA and the Code.
4.7 FURTHER ACTS AND ASSURANCES. At any time and from time to
time at and after the Closing Date, upon request of the Company, Summerlin shall
do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, such
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further acts, deeds, assignments, transfers, conveyances, powers of attorney,
confirmations and assurances as the Company may reasonably request to more
effectively convey, assign and transfer to and vest in the Company, full legal
right, title and interest in and actual possession of the Facilities Assets and
the business of Summerlin, to confirm each Party's capacity and ability to
perform its post-closing covenants and agreements under this Agreement, and to
generally carry out the purposes and intent of this Agreement. Summerlin shall
also furnish the Company with such information and documents in its possession
or under its control, or which Summerlin can execute or cause to be executed, as
will enable the Company to prosecute any and all petitions, applications, claims
and demands by or against third parties relating to or constituting a part of
the Facilities Assets and the business of Summerlin. After the Closing Date,
Summerlin shall promptly remit to the Company any payments received by Summerlin
with respect to any accounts receivable or other amounts sold to the Company;
and similarly, after the Closing Date the Company shall promptly remit to
Summerlin any payments received by the Company with respect to accounts
receivable or other amounts retained by Summerlin. Any funds so collected will
be remitted within five (5) days following receipt of such payment.
4.8 VALLEY TRANSACTION. Simultaneous with the contribution of
the Facilities Assets and the payment of the Desert Springs Payment to Summerlin
pursuant to this Agreement, (i) Valley Hospital Medical Center, Inc., a Nevada
corporation ("Valley"), shall contribute, convey, assign, transfer and deliver
to Valley Health System LLC, a limited liability company ("Newco UHS-1") created
by Valley pursuant to the LLC Act, and Desert Springs shall contribute, convey,
assign, transfer and deliver to Newco Q LLC, a limited liability company ("Newco
Q-1") created by Desert Springs pursuant to the LLC Act, those assets and
properties of Valley, in the case of Newco UHS-1, and those assets and
properties of Desert Springs, in the case of Newco Q-1, which are in the nature
of the Facilities Assets (but excluding those assets and properties which are in
the nature of Excluded Assets), (ii) Newco UHS-1 shall assume and agree to pay,
perform and discharge the liabilities and obligations of Valley which are in the
nature of Assumed Liabilities, and (iii) Newco Q-1 shall assume and agree to
pay, perform and discharge the liabilities and obligations of Desert Springs
which are in the nature of Assumed Liabilities. Immediately following the
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consummation of such transactions in accordance with the preceding sentence,
Newco Q-1 shall be merged with and into Newco UHS-1 pursuant to an agreement of
merger on such terms and conditions as are mutually acceptable to Valley,
Summerlin and Desert Springs (the "Merger"). Following the Merger, the separate
legal existence of Newco Q-1 shall cease and Newco UHS-1 shall continue as the
entity surviving the Merger (the "Valley Company"), with Valley thereafter
owning a 72.5% membership interest in the Valley Company and Desert Springs
thereafter owning a 27.5% membership interest in the Valley Company.
4.9 ADDITIONAL PROPERTIES AND ASSETS. [INTENTIONALLY
OMITTED.]
5. MATTERS PERTAINING TO THE COMPANY.
5.1 EMPLOYEE MATTERS. Subject to the exclusions set forth in
this Section, Summerlin and Desert Springs will cause the Company to offer to
employ as of the Closing Date, on an at-will basis (subject to any existing
union contracts), all employees working at the UHS Facilities immediately prior
to the Closing Date (including those on leave) so that Summerlin may avoid the
imposition of any liability under the WARN Act and the Company shall pay all
liability of Summerlin under the WARN Act resulting from the Company's failure
to do so. For the employees who accept the Company's offer of employment, the
Company shall recognize the employee's length of service with Summerlin for
vesting and benefits eligibility purposes under the Company's employee benefit
programs. Notwithstanding the foregoing, the Company shall have no obligation to
offer employment to, except as required under any union contract, (i) those
employees who are "part-time employees" (as defined in the WARN Act) and (ii)
those employees who voluntarily elect to leave the employment of Summerlin.
5.2 FURTHER ACTS AND ASSURANCES. At any time and from time to
time at and after the Closing Date, Summerlin and Desert Springs shall cause the
Company to execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered such further acts, deeds, assignments, transfers,
conveyances, powers of attorney, confirmations and assurances as the Parties may
reasonably request to confirm the capacity and ability of the Company to perform
those acts relating to the
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post-closing covenants and agreements of the Parties (with respect to causing
the Company to perform such acts) under this Agreement, and to generally carry
out the purposes and intent of this Agreement. Summerlin and Desert Springs
shall cause the Company to furnish Summerlin with such information and documents
in its possession or under its control, or which it can execute or cause to be
executed, as will enable Summerlin to prosecute any and all petitions,
applications, claims and demands by or against third parties relating to or
constituting a part of the Facilities Assets and the business of the UHS
Facilities for which Summerlin is liable hereunder or relating to Government
Reimbursement Programs.
6. CONDITIONS OF CLOSING.
6.1 CONDITIONS OF CLOSING. The obligations of Summerlin to
contribute the Facilities Assets and of Desert Springs to make the Desert
Springs Payment, the obligation of Summerlin to sell and deliver to Desert
Springs a 26.115% membership interest in the Company, and the obligations of the
Parties to otherwise cause the consummation of the transactions contemplated by
this Agreement, shall be subject to and conditioned upon the satisfaction at the
Closing Date of each of the following conditions (it being understood and agreed
that (i) the conditions to the benefit of Summerlin are solely with respect to
the Desert Springs Payment and Desert Springs and not with respect to itself or
the UHS Facilities, and (ii) the conditions to the benefit of Desert Springs are
solely with respect to the UHS Facilities and Summerlin and not with respect to
itself or the Desert Springs Payment):
6.1.1 All representations and warranties of the
Parties contained in this Agreement and the Schedules hereto shall be true and
correct in all material respects at and as of the Closing Date, the Parties
shall have performed in all material respects all agreements and covenants and
satisfied all conditions on their part to be performed or satisfied by the
Closing Date pursuant to the terms of this Agreement, and each Party shall have
received a certificate of the other Party dated the Closing Date to such effect.
6.1.2 Except as caused solely by any change in
the relevant market conditions and prospects, for which the other such Party
shall assume all risk, there shall have been no
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material adverse change since September 30, 1997 in the financial condition,
business or affairs of Summerlin or Desert Springs; and neither Summerlin nor
Desert Springs shall have suffered any material loss (whether or not insured) by
reason of physical damage caused by fire, earthquake, accident or other calamity
which substantially affects the value of its assets, properties or business the
insurance proceeds related to which are not, in the reasonable opinion of such
other Party, adequate to repair such damage and compensate for any lost business
related thereto. Summerlin and Desert Springs each shall have received a
certificate of the other such Party dated the Closing Date that the statements
set forth in this Section 6.1.2 are true and correct.
6.1.3 Each Party shall have delivered to the other
Party a Certificate of the Secretary of State (or other authorized officer) of
the State of its jurisdiction of incorporation or formation, and certifying as
of a date reasonably close to the Closing Date that such Party has filed all
required reports, paid all required fees and taxes, and is, as of such date, in
good standing and authorized to transact business as a domestic corporation or
limited partnership, as the case may be.
6.1.4 Each Party shall have delivered to the other
Parties a certificate of its corporate or partnership Secretary certifying:
(i) The Resolutions of its Board of
Directors or its general partner authorizing the execution, performance and
delivery of this Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated hereby;
(ii) The incumbency of its officers or the
officers of its general partner executing this Agreement and all
agreements and documents contemplated hereby; and
(iii) That the Articles of Incorporation and
Bylaws of Desert Springs, or the Agreement of Limited Partnership of Summerlin,
as the case may be, attached to such certificate are complete and correct and in
effect as of the date of such certification.
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6.1.5 Each Party shall have received from counsel
for the other Party (which may be house counsel), an opinion, dated the Closing
Date, satisfactory to such Party in the form attached hereto as Exhibit A.
6.1.6 All material authorizations, consents,
waivers, approvals, orders, registrations, qualifications, designations,
declarations, filings or other actions required with or from any governmental
entity (including without limitation receipt of licenses (or commitments to
issue licenses) to own and operate the UHS Facilities and for the Company
following the Closing Date to conduct the businesses of Summerlin as currently
conducted) in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained and shall be reasonably satisfactory to the Parties, and
copies thereof shall be delivered to the Parties prior to the Closing Date.
6.1.7 On the Closing Date, no injunction or order
shall be in effect prohibiting consummation of the transactions contemplated
hereby or which would make the consummation of such transactions unlawful and no
action or proceeding shall have been instituted and remain pending before a
governmental entity to restrain or prohibit the transactions contemplated by
this Agreement and no adverse decision shall have been made by any such
governmental entity which is reasonably likely to materially adversely affect
the Company, the Parties or the Facilities Assets. No federal, state or local
statute, rule or regulation shall have been enacted the effect of which would be
to prohibit, materially restrict, impair or delay the consummation of the
transactions contemplated hereby or materially restrict or impair the ability of
the Company following the Closing Date to own the Facilities Assets or to
conduct the businesses relating thereto.
6.1.8 The receipt by Summerlin and Desert Springs
of standard ALTA or CLTA fee owner's title insurance policies using the current
ALTA or CLTA form(the "Title Policies") insuring title (at standard market rates
for fee simple or leasehold title) to each parcel of Real Property in the
Company, as fee owner, subject only to the Permitted Encumbrances, in the
aggregate amount of $60,000,000, and issued by a national title insurance
company (the "Title Company"). The Title Policies shall be issued
44
<PAGE> 48
with all standard or general printed exceptions (other than the survey contain a
so-called "non-imputation" endorsement and such additional endorsements as the
Parties may reasonably require.
6.1.9 Execution and delivery by Summerlin of the
Instruments of Conveyance set forth in Section 1.4.
6.1.10 Execution and delivery by the Company and
the parties thereto of the Management Agreement in substantially the form
attached hereto as Exhibit B (the "Management Agreement").
6.1.11 Execution and delivery by the Company,
Summerlin and Desert Springs of the Operating Agreement in substantially the
form attached hereto as Exhibit C (the "Operating Agreement").
6.1.12 The Company's receipt of current as-built
surveys of the Real Property, prepared and certified by a registered surveyor
licensed in the State of Nevada (the "Surveys"). The Surveys shall be in form
and substance mutually satisfactory to Summerlin and Desert Springs.
6.1.13 Summerlin's receipt of the membership
interest in the Company to be distributed to it in accordance with Section 1.1
hereof.
6.1.14 Summerlin's receipt of the Desert Springs
Payment in immediately available funds in accordance with Sections 1.1 and 1.5
hereof.
6.1.15 Desert Springs' receipt from Summerlin of a
26.115% membership interest in the Company free and clear of all Liens other
than Permissible Liens.
6.1.16 Execution and delivery by the parties
thereto of the Survey Agreement substantially in the form attached hereto as
Exhibit D.
7. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
7.1 EVENTS OF DEFAULT. A breach as a result of the failure of
a Party to perform any of its agreements, covenants
46
<PAGE> 49
and obligations under this Agreement, shall be considered a default hereunder
giving rise to the indemnification set forth in Section 7.3 hereof.
7.2 SURVIVAL OF REPRESENTATIONS, ETC. All representations
and warranties made by the Parties in this Agreement or in any exhibit,
schedules or certificates hereof or in connection with the transactions
contemplated hereby shall terminate at the Closing Date, and thereafter be of no
further force or effect and no action or cause of action on account thereof
shall survive. All other agreements, covenants and obligations of the Parties in
this Agreement or in any exhibit, schedules, certificate, document or instrument
delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby, and the remedies of the Parties with respect
thereto, shall survive the closing of the transactions contemplated by this
Agreement.
7.3 INDEMNIFICATION. From and after the Closing Date, each
Party, as the case may be (an "Indemnifying Party"), severally and not jointly,
shall indemnify and hold the other Party and the Company, as the case may be,
and their respective affiliates, agents and representatives (an "Indemnified
Party"), harmless from and against any and all claims, losses, expenses, damages
or liabilities arising out of or relating to any of the following: (i) any
breach, violation or nonperformance of a covenant, agreement or obligation to be
performed hereunder on the part of any Indemnifying Party; (ii) any claims
against, or liabilities or obligations of an Indemnifying Party not specifically
assumed by an Indemnified Party pursuant to this Agreement; (iii) any claims
against, or liabilities or obligations relating to the Summerlin Limited
Partnership Agreement, or the partnership actions involved in accomplishing this
transaction; or (iv) any actions, judgments, costs and expenses (including
reasonable attorneys' fees and all other expenses incurred in investigating,
preparing or defending any litigation or proceedings, commenced or threatened)
incident to any of the foregoing or the enforcement of this Section. In addition
to the foregoing, following the Closing Date the Parties shall cause the Company
to indemnify and hold the Parties and their affiliates harmless from and against
any and all claims, losses, expenses, damages or liabilities arising out of or
relating to the Company's assumption of the Assumed Liabilities and any actions,
judgments, costs and expenses (including
47
<PAGE> 50
reasonable attorneys' fees and all other expenses incurred in investigating,
preparing or defending any litigation or proceedings, commenced or threatened)
incident to the foregoing. Any indemnification payment pursuant to the foregoing
shall include interest at a floating rate equal the prime rate of Citibank N.A.,
from time to time, from the date the Indemnified Party provides the Indemnifying
Party notice of the loss, cost, expenses or damages until the date of payment.
7.4 REPRESENTATION, COOPERATION AND SETTLEMENT.
(a) An Indemnified Party agrees to give prompt
written notice to an Indemnifying Party of any claim against it which might give
rise to a claim by such Indemnified Party based on the indemnity agreement
contained in Section 7.3 hereof, stating the nature and basis of the
first-mentioned claim and the amount thereof; provided, that the failure of the
Indemnified Party to give the Indemnifying Party prompt notice shall not relieve
the Indemnifying Party of any of its obligations hereunder, but may create a
cause of action for breach for damages directly attributable to such delay.
(b) The Indemnifying Party shall have full
responsibility and authority with respect to the payment, settlement, compromise
or other disposition of any third party dispute, action, suit or proceeding
subject to indemnification by such Indemnifying Party hereunder, including,
without limitation, the right to conduct and control all negotiations with
respect to the settlement, compromise or other disposition thereof, and the
Indemnified Party agrees to cooperate with the Indemnifying Party in any
reasonable manner requested by the Indemnifying Party in connection with any
such negotiations. The Indemnified Party shall have the right, without prejudice
to the Indemnifying Party's rights under this Agreement, at the Indemnified
Party's sole expense, to be represented by counsel of its own choosing and with
whom counsel for the Indemnifying Party shall confer in connection with the
defense of any such action, suit or proceeding. The Parties agree to render to
each other such assistance as may reasonably be requested in order to insure the
proper and adequate defense of any such action, suit or proceeding.
Notwithstanding the foregoing, the Indemnifying Party may compromise and settle
any claim, action, or suit to which it must indemnify an Indemnified Party
hereunder, provided that it gives the Indemnified Party advance notice of any
48
<PAGE> 51
proposed compromise or settlement and shall obtain the consent of the
Indemnified Party to such proposed compromise or settlement, which consent shall
not be unreasonably withheld.
8. TRANSACTIONS SUBSEQUENT TO THE CLOSING DATE
8.1 ACCESS TO RECORDS. From time to time after the Closing
Date, upon the request of the Company, Summerlin will provide the Company with
reasonable access to any records, documents and data relating to the Facilities
Assets retained by Summerlin wherever located. From time to time after the
Closing Date, upon the request of either Summerlin or Desert Springs, the other
such Party shall cause the Company to make available to the requesting Party any
records, documents and data relating to the Facilities Assets acquired by the
Company as needed for any lawful purpose (including such Party's inspection and
copying of the same), and Summerlin shall have the same rights of access to
inspect and copy that Summerlin had prior to the Closing Date; provided,
however, that any records, documents and data delivered to or made available to
such Party and its representatives will be treated as strictly confidential by
such Party and its representatives, will not be directly or indirectly divulged,
disclosed or communicated to any other person other than such Party and its
representatives who are reasonably required to have access to such information
(unless such Party is compelled to disclose the same by judicial or
administrative process), and will be returned to the Company when such Party's
use therefor has terminated. Summerlin and Desert Springs shall cause the
Company to instruct the appropriate employees of the Company to cooperate in
providing access to such records to such Parties and their authorized
representatives as contemplated herein. Access to such records shall be,
wherever reasonably possible, during normal business hours, with reasonable
prior written notice to the Company of the time when such access shall be
needed. Summerlin and Desert Springs shall cause the Company to provide
sufficient office space to such requesting Party without charge to conduct the
activities described herein. The employees, representatives and agents of
Summerlin and Desert Springs shall conduct themselves in such a manner so that
the Company's normal business activities shall not be unduly or unnecessarily
disrupted. For a period of seven (7) years following the Closing Date, neither
Summerlin nor Desert Springs shall, and each of such Parties shall cause the
Company not to, discard, destroy or otherwise dispose of records, documents and
data relating to the
49
<PAGE> 52
Facilities Assets or such Parties without first making such records, documents
and data available to the other such Party for inspection and copying. Summerlin
and Desert Springs shall cause the Company to retain the records, documents and
data pertaining to the UHS Facility at the UHS Facility (or at such other
locations as the Company and such Parties shall determine by their mutual
agreement from time to time) at the Company's cost, until the expiration of
seven (7) years from the Closing Date.
8.2 LITIGATION COOPERATION. After the Closing Date, upon prior
reasonable written request, each Party shall cooperate with the other and with
the Company, at the requesting Party's expense (but including only out-of-pocket
expenses to third parties and not the costs incurred by any Party for the wages
or other benefits paid to its partners, officers, directors or employees), in
furnishing information, testimony and other assistance in connection with any
actions, tax or cost report audits, proceedings, arrangements or disputes
involving any of the Parties hereto (other than in connection with disputes
between the Parties hereto) and based upon contracts, arrangements or acts of
any Party or any of their respective affiliates which were in effect or occurred
on or prior to the Closing Date and which related to the Facilities Assets,
including, without limitation, arranging discussions with, and the calling as
witnesses of, officers, directors, managers, employees, agents and
representatives of the Company.
9. TERMINATION.
9.1 METHODS OF TERMINATION. The transactions contemplated
herein may be terminated at any time before or after approval thereof by the
Parties, but not later than the Closing Date:
(i) By mutual consent of the Parties; or
(ii) by a Party after March 1, 1998 if any of the
conditions in Section 6.1 to the benefit of such Party shall not have been met
or waived in writing prior to such date.
9.2 PROCEDURE UPON TERMINATION. In the event of termination
pursuant to Section 9.1 hereof, written notice thereof shall forthwith be given
to the other Parties and the transactions contemplated by this Agreement shall
be terminated,
50
<PAGE> 53
without further action by any party. If the transactions contemplated by this
Agreement are terminated as provided herein:
(i) Each Party will redeliver all documents, work
papers and other material of the other Parties relating to the transactions
contemplated hereby, whether so obtained before or after the execution of this
Agreement, to the Party furnishing the same; and
(ii) No Party shall have any liability or further
obligation to the other Parties other than the confidentiality obligations set
forth in Section 10.6 hereof.
10. MISCELLANEOUS.
10.1 NOTICE. Any notice required or permitted hereunder shall
be in writing and shall be sufficiently given if personally delivered or mailed
by certified or registered mail, return receipt requested, addressed as follows:
IF TO SUMMERLIN: Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais,
Senior Vice President
COPIES TO: Bruce Gilbert, Esq.
General Counsel
Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
AND
Klett Lieber Rooney & Schorling
A Professional Corporation
40th Floor, One Oxford Centre
Pittsburgh, Pennsylvania 15219
Attention: Robert T. Harper, Esq.
IF TO DESERT SPRINGS:
51
<PAGE> 54
Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
Facsimile No. (615) 371-4788
COPIES TO: Ernest E. Hyne, II, Esquire
Harwell Howard Hyne
Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
IF TO THE
COMPANY: Summerlin Hospital Medical Center LLC
c/o Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais,
Senior Vice President
and
Summerlin Hospital Medical Center LLC
c/o Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
(or to such other address as any Party or the Company, as the case may be, shall
specify by written notice so given), and shall be deemed to have been duly
delivered: (a) if delivered personally or sent by facsimile, on the date
received and (b) if delivered by overnight courier, on the day after mailing.
10.2 EXECUTION OF ADDITIONAL DOCUMENTS. The Parties will at
any time, and from time to time after the Closing Date, upon request of any
other Party, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required
52
<PAGE> 55
to carry out the intent of this Agreement and to transfer and vest title to any
Facilities Assets or membership interests being transferred hereunder, and to
protect the right, title and interest in and enjoyment of such membership
interests and of all of the Facilities Assets granted, assigned, transferred,
delivered and conveyed pursuant to this Agreement with all costs being borne by
the Company; provided, however, that this Agreement shall be effective
regardless of whether any such additional documents are executed.
10.3 WAIVERS AND AMENDMENT.
(a) Each Party may, by written notice to each of
the other Parties executed by a properly authorized officer, in the case of
Desert Springs, or its general partner, in the case of Summerlin, (i) extend the
time for the performance of any of the obligations or other actions of another
Party; (ii) waive any inaccuracies in the representations or warranties of
another Party contained in this Agreement; (iii) waive compliance with any of
the covenants of another Party contained in this Agreement; and (iv) waive or
modify performance of any of the obligations of another Party.
(b) This Agreement may be amended, modified or
supplemented only by a written instrument executed by all the Parties. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any Party,
shall be deemed to constitute a waiver by the Party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein. The waiver by any Party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
10.4 EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated, each Party shall pay the fees
and expenses of their respective counsel, accountants, other experts and all
other expenses incurred by them incident to the negotiation, preparation and
execution of this Agreement and the performance by them of their obligations
hereunder.
53
<PAGE> 56
10.5 OCCURRENCE OF CONDITIONS PRECEDENT. Each of the
Parties agrees to use its reasonable efforts to cause all conditions precedent
to its obligations under this Agreement to be satisfied.
10.6 CONFIDENTIALITY OBLIGATIONS; PUBLIC
ANNOUNCEMENTS.
(a) Each Party agrees that it will treat in
confidence all documents, materials and other information which it shall have
obtained regarding the other Party during the course of the negotiations leading
to the consummation of the transactions contemplated hereby (whether obtained
before or after the date of this Agreement), the investigation provided for
herein and the preparation of this Agreement and other related documents, and,
in the event the transactions contemplated hereby shall not be consummated, each
Party will return to the other Parties all copies of non-public documents and
materials which have been furnished in connection therewith. The obligation of
each Party to treat such documents, materials and other information in
confidence shall not apply to any information which (i) such Party can
demonstrate was already lawfully in its possession prior to the disclosure
thereof by any other Party, (ii) is known to the public and did not become so
known through any violation of a legal obligation, (iii) became known to the
public through no fault of such Party or (iv) is later lawfully acquired by such
Party from other sources. Except as required by law and except for disclosures
to its advisors, who shall be advised of the confidentiality requirements
herein, no Party shall disclose to any person the identity of any other Party,
the terms or provisions of this Agreement or the content of any discussions or
communications between any of the Parties.
(b) Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as the Parties determine.
Unless consented to by each Party in advance or required by law, prior to the
Closing Date, each Party shall keep this Agreement strictly confidential and may
not make any disclosure of this Agreement to any person. Summerlin will consult
with Desert Springs concerning the means by which the employees, customers, and
suppliers of Summerlin and others having dealings with it will be informed of
the transactions contemplated by this Agreement.
54
<PAGE> 57
10.7 BINDING EFFECT; BENEFITS. Subject to Section 10.14, this
Agreement shall be binding upon and shall inure to the benefit of the Parties
and their respective heirs, successors, executors, administrators and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the Parties or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
10.8 ENTIRE AGREEMENT. This Agreement, together with the
Exhibits, Schedules and other documents contemplated hereby, constitute the
final written expression of all of the agreements between the Parties, and is a
complete and exclusive statement of those terms. It supersedes all prior
understandings and negotiations (written and oral) concerning the matters
specified herein. Any representations, promises, warranties or statements made
by a Party that differ in any way from the terms of this written Agreement and
the Exhibits, Schedules and other documents contemplated hereby, shall be given
no force or effect. The Parties specifically represent, each to the other, that
there are no additional or supplemental agreements between them related in any
way to the matters herein contained unless specifically included or referred to
herein. No addition to or modification of any provision of this Agreement shall
be binding upon any party unless made in writing and signed by all Parties.
10.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada exclusive of the
conflict of law provisions thereof.
10.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same instrument.
10.11 HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the Parties only, and shall be given no
substantive or interpretive effect whatsoever.
55
<PAGE> 58
10.12 INCORPORATION OF EXHIBITS AND SCHEDULES. All Exhibits
and Schedules attached hereto are by this reference incorporated herein and made
a part hereof for all purposes as if fully set forth herein.
10.13 SEVERABILITY. If for any reason whatsoever, any one or
more of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable or invalid as applied to any particular case or in
all cases, such circumstances shall not have the effect of rendering such
provision invalid in any other case or of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid.
10.14 ASSIGNABILITY. Neither this Agreement nor any of the
Parties' rights hereunder shall be assignable by any Party without the prior
written consent of the other Parties.
[SIGNATURES ARE ON THE NEXT FOLLOWING PAGES]
56
<PAGE> 59
IN WITNESS WHEREOF, the Parties have executed this Agreement
and caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
SUMMERLIN HOSPITAL MEDICAL CENTER,
L.P.
BY: UHS HOLDING COMPANY, INC., ITS
GENERAL PARTNER
By:________________________
Title:_____________________
NC-DSH, INC.
By:________________________
Title:_____________________
57
<PAGE> 60
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that
certain Contribution Agreement (the "Contribution Agreement") by and among
Summerlin Hospital Medical Center, L.P., a Delaware limited partnership
("Summerlin") and NC-DSH, Inc., a Nevada corporation ("Desert Springs"), for the
sole purpose of unconditionally guaranteeing the performance of the obligations
of and the payments by Summerlin under Section 7.3 of the Contribution Agreement
and for no other purpose. By executing this Joinder Agreement the undersigned
hereby guarantees the due and punctual payment and performance by Summerlin of
its obligations under Section 7.3 of the Contribution Agreement. This Joinder
Agreement may not be terminated by the undersigned until such time as all
amounts due and obligations owing or to be owed by Summerlin under such Section
shall have been fully paid and performed. In the event of breach under Section
7.3, the parties thereto shall have the right to proceed against the undersigned
or Summerlin separately, jointly, or against the undersigned without first
proceeding against Summerlin. Bankruptcy or the like of Summerlin shall be no
defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the undersigned has executed this Joinder Agreement this 30th day of January,
1998.
UNIVERSAL HEALTH SERVICES, INC.
By:________________________________
Title:_____________________________
58
<PAGE> 61
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that
certain Contribution Agreement (the "Contribution Agreement") by and among
Summerlin Hospital Medical Center, L.P., a Delaware limited partnership
("Summerlin") and NC-DSH, Inc., a Nevada corporation ("Desert Springs"), for the
sole purpose of unconditionally guaranteeing the performance of the obligations
of and payments by Desert Springs under Section 7.3 of the Contribution
Agreement and for no other purpose. By executing this Joinder Agreement the
undersigned hereby guarantees the due and punctual payment and performance by
Desert Springs of its obligations under Section 7.3 of the Contribution
Agreement. This Joinder Agreement may not be terminated by the undersigned until
such time as all amounts due and obligations owing or to be owed by Desert
Springs under such Section shall have been fully paid and performed. In the
event of breach under Section 7.3, the parties thereto shall have the right to
proceed against the undersigned or Desert Springs separately, jointly, or
against the undersigned without first proceeding against Desert Springs.
Bankruptcy or the like of Desert Springs shall be no defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the undersigned has executed this Joinder Agreement this 30th day of January,
1998.
QUORUM HEALTH GROUP, INC.
By:________________________________
Title:_____________________________
59
<PAGE> 62
SCHEDULES, EXHIBITS AND APPENDICES
TO CONTRIBUTION AGREEMENT
<TABLE>
<CAPTION>
Schedule
- ---------
<S> <C>
1.1(b) Tangible Personal Property
1.3.1 Assumed Contracts
1.5 Permissible Liens
1.6(c) List of Additional Assumed Liabilities
1.7(g) Liens and Mortgages Not Released at Closing
2.2 Authorization; Validity and Effect of Agreements
2.3 Subsidiaries; Debt and Equity Securities
2.4 Partnership Interests; Outstanding Rights,
Warrants, etc.
2.6 Financial Statements
2.7 Absence of Undisclosed Liabilities
2.8 Absence of Certain Changes or Events
2.9 Taxes
2.10 Real Property
2.10(c) Navigable Water
2.10(h) Liens on Real Property
2.10(j) Leases of Real Property
2.11 Exceptions to Sufficiency of Facilities Assets
2.13 List of Contracts and Other Data
2.14 Exceptions to No Breach or Default
</TABLE>
i
<PAGE> 63
<TABLE>
<S> <C>
2.15 Labor Controversies
2.16 Litigation
2.18 Licenses; Permits; Authorizations
2.19 Compliance with Applicable Law; Environmental Laws
2.20.1 Employee Benefit Plans
2.20.2 Employees
2.22 Trade Notes and Accounts Receivable; Aging
Schedule; Prepayments
2.25 Insurance Policies; Pending Insurance Claims
2.26(a) Professional Staff
2.26(b) Medicare and Medicaid Participation
2.26(c) Cost Reports
2.28 Related Party Transactions
3.2 Authorization; Validity and Effect of Agreements
</TABLE>
ii
<PAGE> 64
<TABLE>
<CAPTION>
Exhibit
- --------
<S> <C>
A Form of Opinion of Parties' Counsel
B Form of Management Agreement
C Form of Operating Agreement
D Form of Survey Agreement
</TABLE>
iii
<PAGE> 1
EXHIBIT 10.4
LIMITED LIABILITY COMPANY AGREEMENT
OF
SUMMERLIN HOSPITAL MEDICAL CENTER LLC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 1
CERTAIN DEFINITIONS..................................................................................... 1
1.1 Certain Definitions............................................................................ 1
ARTICLE 2
INTERESTS IN AND CAPITAL OF THE COMPANY................................................................. 7
2.1 Units; Percentage Shares....................................................................... 7
2.2 Initial Capital Contributions.................................................................. 7
2.3 Assessments.................................................................................... 8
2.4 Return of Capital.............................................................................. 8
2.5 Limited Liability of Members, Assignees and Directors.......................................... 8
2.6 Options and Other Rights to Purchase Units..................................................... 8
2.7 Restoration of Deficit Capital Account......................................................... 9
2.8 Restrictions on Sale or Exchange............................................................... 9
ARTICLE 3
ALLOCATIONS AND DISTRIBUTIONS........................................................................... 9
3.1 Allocation of Profits.......................................................................... 9
3.2 Allocation of Losses........................................................................... 9
3.3 Special Allocations............................................................................ 10
3.4 Curative Allocations........................................................................... 12
3.5 Other Allocations Rules........................................................................ 12
3.6 Tax Allocations: Code Section 704(c)........................................................... 13
3.7 Allocations with Respect to Transferred Interests.............................................. 13
3.8 Allocation Definitions......................................................................... 14
3.9 Distributions.................................................................................. 15
ARTICLE 4
MANAGEMENT OF THE COMPANY'S AFFAIRS;
BOARD OF DIRECTORS...................................................................................... 15
4.1 General Powers of the Board of Directors....................................................... 15
4.2 Composition of Board of Directors.............................................................. 16
4.3 Regular Meetings............................................................................... 16
4.4 Special Meetings............................................................................... 16
4.5 Notice of Special Meetings..................................................................... 16
4.6 Quorum of Directors............................................................................ 17
4.7 Manner of Acting; Super-Majority Vote.......................................................... 17
4.8 Informal Action by Board of Directors.......................................................... 18
4.9 Participation by Electronic Means or Proxy..................................................... 18
4.10 Resignation.................................................................................... 18
4.11 Removal........................................................................................ 18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
4.12 No Committees.................................................................................. 18
4.13 Presumption of Assent.......................................................................... 18
4.14 Duty of Loyalty; Conflicts of Interest......................................................... 19
4.15 Liability and Indemnity of the Directors and Officers.......................................... 19
4.16 Related Party Transactions..................................................................... 19
4.17 Related Party Agreements....................................................................... 20
ARTICLE 5
OFFICERS................................................................................................ 20
5.1 Appointment and Term of Office................................................................. 20
5.2 Removal........................................................................................ 20
ARTICLE 6
MEMBERS................................................................................................. 21
6.1 Admission of New Members....................................................................... 21
6.2 Meetings....................................................................................... 21
6.3 Quorum......................................................................................... 21
6.4 Manner of Acting............................................................................... 21
6.5 Proxies........................................................................................ 21
6.6 Voting by Certain Members...................................................................... 22
6.7 Action by Members Without a Meeting............................................................ 22
6.8 Voting by Ballot............................................................................... 22
6.9 Waiver of Notice............................................................................... 22
6.10 Resignation or Withdrawal...................................................................... 22
ARTICLE 7
TRANSFERS OF MEMBERSHIP INTERESTS BY MEMBERS............................................................ 22
7.1 Transfers...................................................................................... 22
7.2 Effect of Permitted Transfer................................................................... 23
7.3 Prohibited Transfers........................................................................... 23
7.4 Involuntary Withdrawal......................................................................... 23
7.5 Exceptions to Restrictions..................................................................... 24
7.6 Loss of Voting Rights.......................................................................... 24
7.7 Tax Treatment of Acquisitions of Interests by Company.......................................... 24
ARTICLE 8
PURCHASE RIGHTS AND OPTIONS............................................................................. 24
8.1 Purchase Right................................................................................. 24
8.2 Purchase Option................................................................................ 26
8.3 Tag Along/Co-Sale Rights on Transfers by a Member.............................................. 27
8.4 Put Right...................................................................................... 27
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 9
DISSOLUTION AND LIQUIDATION OF THE COMPANY.............................................................. 30
9.1 Liquidating Events............................................................................. 30
9.2 Method of Liquidation.......................................................................... 30
9.3 Reasonable Time for Liquidation................................................................ 31
9.4 Distribution to Liquidating Trust.............................................................. 31
9.5 Date of Termination............................................................................ 31
9.6 Certificate of Cancellation.................................................................... 31
ARTICLE 10
COMPANY FUNDS AND ACCOUNTING............................................................................ 32
10.1 Books of Account; Records and Information...................................................... 32
10.2 Period and Method of Accounting................................................................ 32
10.3 Reports........................................................................................ 32
10.4 Tax Elections.................................................................................. 32
10.5 Tax Matters Manager............................................................................ 33
ARTICLE 11
NONCOMPETE.............................................................................................. 33
11.1 Business Activities of Members................................................................. 33
11.2 Covenant Not to Compete........................................................................ 33
ARTICLE 12
GENERAL................................................................................................. 35
12.1 Filings........................................................................................ 35
12.2 Status of Company for Tax Purposes............................................................. 35
12.3 Waiver of Action for Partition................................................................. 35
12.4 Nonrecourse Loans.............................................................................. 35
12.5 Notice......................................................................................... 35
12.6 Binding Effect................................................................................. 35
12.7 Construction................................................................................... 35
12.8 Survival of Provisions......................................................................... 36
12.9 Integrated Agreement........................................................................... 36
12.10 Governing Law.................................................................................. 36
</TABLE>
iii
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LIMITED LIABILITY COMPANY AGREEMENT
OF
SUMMERLIN HOSPITAL MEDICAL CENTER LLC
This Limited Liability Company Agreement ("AGREEMENT") of SUMMERLIN
HOSPITAL MEDICAL CENTER LLC (the "COMPANY") is made and entered into effective
as of 12:01 A.M. Pacific Time February 1, 1998 (the "EFFECTIVE DATE"), by and
among SUMMERLIN HOSPITAL MEDICAL CENTER, L.P., a Delaware limited partnership
("SHMC"), and NC-DSH, INC., a Nevada corporation ("NC-DSH") (each of the
foregoing, and each additional Person admitted as a member of the Company, shall
be referred to individually as a "MEMBER" and collectively as "MEMBERS").
A. The Company was formed as a Delaware limited liability company under
the Delaware Limited Liability Company Act (6 Delaware Code Section
18-101, et seq., as it may be amended or succeeded from time to time
(the "ACT")) by filing a Certificate of Formation with the Office of
the Delaware Secretary of State on January 16, 1998.
B. NC-DSH acquired its Interest from SHMC. Notwithstanding anything in
this Agreement to the contrary, NC-DSH is admitted as a Member as of
the Effective Date and such transfer is approved by the Members and
Company and shall not be subject to the restrictions on Transfers or
otherwise contained in this Agreement.
C. The Members desire to enter into this Agreement to set forth the
provisions governing the management and conduct of the business of the
Company and the rights and obligations of the Members.
The Members, in consideration of the foregoing premises and their
mutual covenants and agreements set forth herein, agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
capitalized terms shall have the meanings set forth below (certain other
definitions may be found in Section 3.8 or elsewhere in this Agreement):
1.1.1 Affiliate shall mean, when used with reference to a
specified Person: (i) any Person that, directly or indirectly, through
one or more intermediaries or by contractual agreement, controls or is
controlled by or is under common control with the specified Person;
(ii) any Person that is an officer of, partner in, or director
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<PAGE> 6
of, or trustee of, or serves in a similar capacity with respect to the
specified Person or of which the specified Person is an officer,
partner, director, or trustee, or with respect to which the specified
Person serves in a similar capacity; (iii) any Person that, directly or
indirectly, is the beneficial owner of ten percent (10%) or more of any
class of the outstanding voting securities of, or otherwise has a
substantial beneficial interest in, the specified Person, or of which
the specified Person is, directly or indirectly, the owner of 10% or
more of any class of voting securities of, or in which the specified
Person has a substantial beneficial interest; and (iv) any spouse,
brothers, sisters, ancestors and descendants of the specified Person.
As used in this definition of "Affiliate," the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise, and the
term "voting securities" includes, without limitation, partnership
interests and limited liability company interests.
1.1.2 Bankruptcy or Bankrupt shall mean, with respect to any
Person, the adjudication of bankruptcy, declaration of insolvency, or
the assignment for the benefit of creditors of or by such Person, the
subjection of part or all of the property of such Person to the control
and direction of a receiver, which receivership is not dismissed within
ninety (90) days of such receiver's appointment, or the filing by such
Person or the involuntary filing against such Person of a petition for
relief under any federal or other bankruptcy or insolvency law or for
an arrangement with creditors which is not dismissed within ninety (90)
days.
1.1.3 Business shall mean any lawful activity engaged in by
the Company related to, and in furtherance of, the ownership, operation
and management of the Hospital and related health care services
businesses. The Company's principal executive office shall be located
at 657 Town Center Drive, Las Vegas, Nevada 89134.
1.1.4 Capital Account shall mean, with respect to any
Member, the Capital Account maintained for such Member in accordance
with the following provisions:
1.1.4.1 To each Member's Capital Account there
shall be credited such Member's Capital Contributions, the
Member's distributive share of Profits and any items in the
nature of income or gain that are specifically allocated to
such Member pursuant to Section 3.3 or 3.4 hereof, and the
amount of any Company liabilities assumed by such Member or
which are secured by any Company Property distributed to
such Person.
1.1.4.2 To each Member's Capital Account there
shall be debited the amount of cash and the Gross Asset
Value of any Company Property
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<PAGE> 7
distributed to such Member pursuant to any provision of this
Agreement, the Member's distributive share of Losses and any
items in the nature of expenses or losses that are specially
allocated to such Member pursuant to Section 3.3 or 3.4
hereof, and the amount of any liabilities of such Member
assumed by the Company or which are secured by any property
contributed by such Member to the Company.
1.1.4.3 In the event any Interest is transferred
in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred
Interest; provided, however, that no transfer of an Interest
shall, in and of itself, relieve the transferor of any
obligation to the Company, including, but not limited to,
any such transferor's obligation to contribute to the
capital of the Company.
1.1.4.4 In determining the amount of any
liability for purposes of Subsections 1.1.4.1 and 1.1.4.2
hereof, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of the Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with these Regulations. In the event the Board of Directors determines that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property, or that are
assumed by the Company or the Members), are computed in order to comply with
such Regulations, the Board of Directors may make such modification if approved
in writing by SHMC and NC-DSH.
1.1.5 Capital Contribution shall mean, with respect to any
Member, the amount of money and the initial Gross Asset Value of any
property (other than money) contributed at any time to the Company with
respect to such Member's Interest in the Company.
1.1.6 Code shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.1.7 Company Property shall mean any and all interests and
rights of any type or nature in all real and personal property,
tangible and intangible, owned or acquired by the Company, including,
without limitation, the Hospital and all assets used in connection with
the Hospital that are owned, leased or operated by the Company.
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<PAGE> 8
1.1.8 Depreciation shall mean for each fiscal year or other
shorter period, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable with respect to an asset for
such year or other period, except that if the Gross Asset Value of an
asset differs from its adjusted basis for federal income tax purposes
at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value
as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal
income tax depreciation, amortization, or other cost recovery deduction
for such year is zero, Depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method
selected by the Board of Directors and approved in writing by SHMC and
NC-DSH.
1.1.9 Distributable Cash shall be defined for the applicable
period of time as (i) the sum of (a) all cash receipts from all sources
from the operations of the Company during such period, excluding the
proceeds of indebtedness of the Company or from the issuance of
additional Interests for cash, and (b) any reduction in Reserves
established by the Board of Directors in prior periods as set forth
below, less (ii) the sum of (aa) all cash disbursements of the Company
during such period of time, including without limitation, disbursements
by the Company on behalf of or amounts withheld with respect to,
Members of the Company in the capacity of Members but only if such
withheld amounts are pursuant to Subsection 3.9.3 hereof, if any, debt
service (including the payment of principal, premium and interest),
capital expenditures and redemptions of Interests in the Company
pursuant to Section 736 of the Code, and (bb) any Reserves. "RESERVES"
shall mean the sum of: (a) thirty (30) days operating cash computed by
multiplying thirty (30) times the average daily actual cash
disbursements for the previous three (3) months excluding cash
disbursements for capital expenditures and (b) one and one-quarter
percent (1.25%) of budgeted net revenues for the fiscal year.
Notwithstanding anything in this Agreement to the contrary, the Company
shall not make any distributions that would render it insolvent in
violation of Act. Nothing contained herein nor distributions hereunder
are intended nor shall be construed or applied to violate the fraud and
abuse prohibitions under the Medicare and Medicaid programs.
1.1.10 Gross Asset Value shall mean, with respect to any
asset, the asset's adjusted basis for federal income tax purposes,
except as follows:
1.1.10.1 The initial Gross Asset Value of any
asset (other than cash) contributed by a Member to the
Company shall be the gross fair market value of such asset
as determined by the Members and the Company, provided that
the initial Gross Asset Value of the assets contributed by
SHMC pursuant to Section 2.2 hereof shall be Eighty Eight
Million Three Hundred Seventy-Three Thousand Thirty-Eight
and No/100
4
<PAGE> 9
Dollars ($88,373,038.00) plus the working capital
contributed to the Company by SHMC pursuant to the
Contribution Agreement;
1.1.10.2 The Gross Asset Values of all Company
assets shall be adjusted to equal their respective gross
fair market values, as reasonably determined by the Board of
Directors, as of the following times: (a) the acquisition of
an additional Interest by any new or existing Member in
exchange for more than a de minimis Capital Contribution;
(b) the distribution by the Company to a Member of more than
a de minimis amount of Company Property as consideration for
an Interest; and (c) the liquidation of the Company within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
provided, however, that the adjustments pursuant to clauses
(a) and (b) above shall be made only if the Board of
Directors reasonably determines that such adjustments are
necessary or appropriate to reflect the relative economic
rights of the Members in the Company;
1.1.10.3 The Gross Asset Value of any Company
asset distributed to any Member shall be the gross fair
market value of such asset on the date of distribution as
determined by the distributee and the Board of Directors;
and
1.1.10.4 The Gross Asset Values of Company
assets shall be increased (or decreased) to reflect any
adjustments to the adjusted basis of such assets pursuant to
Code Section 734(b) or Code Section 743(b), but only to the
extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m) and Section 3.5 hereof; provided,
however, that Gross Asset Values shall not be adjusted
pursuant to this Subsection 1.1.10.4 to the extent the Board
of Directors determines that an adjustment pursuant to
Subsection 1.1.10.2 is necessary or appropriate in
connection with a transaction that would otherwise result in
an adjustment pursuant to this Subsection 1.1.10.4.
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Subsections 1.1.10.1, 1.1.10.2, or 1.1.10.4 such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
1.1.11 Hospital shall mean all the assets and properties the
Company acquired from SHMC and its Affiliates pursuant to the
Contribution Agreement, together with additions thereto and reduced by
dispositions since such acquisition.
1.1.12 Interest shall mean a Member's entire ownership
interest in the Company at any particular time, including its
Percentage Share and the rights and obligations of such Member provided
herein or in the Act.
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<PAGE> 10
1.1.13 Liquidating Event shall mean any of the events listed
in Section 9.1 requiring the dissolution, winding up and liquidation of
the Company and its assets.
1.1.14 Person shall mean any individual, corporation,
partnership, limited liability company, professional association,
company, trust, estate or other entity.
1.1.15 Profits and Losses shall mean, for each fiscal year
or other shorter period, an amount equal to the Company's taxable
income or loss for such year or period, determined in accordance with
Code Section 703(a) (for this purpose, all items of income, gain, loss
or deduction required to be stated separately pursuant to Code Section
703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
1.1.15.1 Any income of the Company that is
exempt from federal income tax and not otherwise taken into
account in computing Profits and Losses pursuant to this
Subsection 1.1.15 shall be added to such taxable income or
loss;
1.1.15.2 Any expenditures of the Company
described in Code Section 705(a)(2)(B) or treated as Code
Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to this
Subsection 1.1.16 shall be subtracted from such taxable
income or loss;
1.1.15.3 In the event the Gross Asset Value of
any Company asset is adjusted pursuant to Subsection
1.1.15.3 or 1.1.15.4 hereof, the amount of such adjustment
shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits
or Losses;
1.1.15.4 Gain or loss resulting from any
disposition of Company Property with respect to which gain
or loss is recognized for federal income tax purposes shall
be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
and
1.1.15.5 In lieu of the depreciation,
amortization, and other cost recovery deductions taken into
account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal
year or other shorter period, computed in accordance with
Subsection 1.1.15 hereof.
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<PAGE> 11
1.1.15.6 To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code
Section 734(b) or Code Section 743(b) is required pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of
a distribution other than in liquidation of a Member's
Interest, the amount of such adjustment shall be treated as
an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases the basis of
the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Profits or
Losses; and
1.1.15.7 Notwithstanding any other provisions of
this Subsection 1.1.15, any items which are specially
allocated pursuant to Section 3.3 or Section 3.4 hereof
shall not be taken into account in computing Profits or
Losses.
1.1.16 Contribution Agreement shall mean that Contribution
Agreement by and between SHMC and NC-DSH dated on or about January 30,
1998 pursuant to which the Company shall acquire the Hospital.
1.1.17 Regulations shall mean those regulations promulgated
by the United States Treasury Department under the Code, as such
regulations may be amended at any time and from time to time (including
corresponding provisions of succeeding regulations).
ARTICLE 2
INTERESTS IN AND CAPITAL OF THE COMPANY
2.1 Units; Percentage Shares. Each Member's Interest in the Company
shall be denominated in "UNITS", or fractions thereof. Each Unit represents a
Capital Contribution of cash or assets with an initial Gross Asset Value of One
Hundred Thousand Dollars ($100,000.00). A Member's "PERCENTAGE SHARE" in the
Company shall be obtained by converting to a percentage the fraction having as
its numerator the number of Units held by such Member and having as its
denominator the aggregate number of Units held by all Members at the time. The
initial Units and Percentage Share of each Member shall be set forth opposite
such Member's name on Exhibit 2.1 attached hereto. Thereafter, such Percentage
Share shall be adjusted from time to time in accordance with this Agreement. All
such adjustments shall be reflected on Exhibit 2.1 hereto, which shall be
revised as a result thereof through the execution of a revised Exhibit 2.1 by
the Company's Chief Executive Officer and each of SHMC and NC-DSH. In case of
any conflict between two Exhibits 2.1, the exhibit having the latest date shall
be conclusive and binding for all purposes, absent manifest error.
2.2 Initial Capital Contributions. The Initial Capital Contribution of
SHMC shall be the Hospital contributed pursuant to the Contribution Agreement.
Upon payment to
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<PAGE> 12
SHMC of Twenty-Three Million Seventy-Eight Thousand Six Hundred Nineteen and
No/100 Dollars ($23,078,619.00) pursuant to the Contribution Agreement, NC-DSH
shall succeed to 26.115% of the Capital Account of SHMC as of the Effective
Date. A Member shall be liable only to make the initial Capital Contribution
described herein. Except as provided in the Act or Section 2.3, after such
Member's initial Capital Contribution shall be fully paid, such Member shall not
be required to make any further Capital Contributions or to lend any funds to
the Company.
2.3 Assessments. The Board of Directors is empowered to request
additional Capital Contributions from the Members in such amounts and at such
times as determined in its reasonable judgment but only for purposes of capital
improvements to the Hospital and capital projects for expansion of the Business.
Such assessments shall be made pro rata based on each Member's Percentage Share
so as to maintain the Members' respective Percentage Shares. Each Member shall
have the right to determine if they wish to comply with an assessment. The
capital accounts of all Members who pay the assessment shall be adjusted
pursuant to Section 1.1.4 and, if not all Members comply with the assessment,
Members who pay the assessment shall receive a proportional increase in their
number of Units and Percentage Share based on the then current fair market value
of a Unit. In the event NC-DSH declines to comply with a capital assessment and
objects to the value at which additional Interests are issued or the adjustments
made to the Members' Capital Accounts, Units or Percentage Shares, NC-DSH and
SHMC shall comply with the dispute resolution provisions of Section 4.16,
provided however, that NC-DSH shall pay the cost of any arbitration engaged in
under Section 4.16 brought pursuant to this Section 2.3 and provided further
that, in the event the arbitrator determines that an appraisal is required and
selects the appraiser and controls the appraisal process, NC-DSH shall pay the
cost and expenses of such appraisal. If either NC-DSH or SHMC retain an
appraiser, the cost of such appaisal shall be borne by NC-DSH or SHMC
respectively.
2.4 Return of Capital. Except as provided in Articles 3 and 9, no
Member or assignee shall have the right to demand or receive a return of all or
any part of such Member's initial or additional contributions to the capital of
the Company, or to receive any specific property of the Company. No Member (or
assignee) shall be entitled to any interest on such Member's Capital Account.
2.5 Limited Liability of Members, Assignees and Directors. Except as
provided in this Section 2.5, no Member, assignee or Director shall be
personally liable for the acts, debts, liabilities, or other obligations of the
Company, whether arising in contract, tort or otherwise, or for the acts or
omissions of any other Member, assignee or Director, employee or agent of the
Company. Except as otherwise provided herein, each Member, Director and assignee
shall be liable only to make the Capital Contributions that it has agreed to
make and for such Person's own acts and conduct.
2.6 Options and Other Rights to Purchase Units. The Board of Directors
shall not have the right to grant, sell or issue additional Units, options or
other rights, including
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<PAGE> 13
convertible securities (collectively "UNIT EQUIVALENTS"), for the purchase of
Units to any Person without the written consent of each of SHMC and NC-DSH.
2.7 Restoration of Deficit Capital Account. In the event a Member,
following a Liquidating Event, has a deficit in its Capital Account as a result
of a distribution previously made pursuant to this Agreement, then such Member
shall be obligated to pay to the Company an amount equal to such deficit. Any
Member required to so contribute shall contribute the amount of such deficit
within 30 days of a request for such payment from the Board of Directors. No
Member shall have any liability for restoration of any other Member's negative
Capital Account balance.
2.8 Restrictions on Sale or Exchange. The Interests have not been
registered under the Securities Act of 1933, as amended, but were issued
pursuant to an exemption from such registration. Notwithstanding any provisions
to the contrary in this Agreement, except for transactions governed by Section
7.5, no reoffers, reoffers for sale, resale or transfer of the Interests may be
made except pursuant to an exemption from such registration under the Securities
Act of 1933 and applicable state law evidenced by an opinion of counsel in form
and by counsel reasonably satisfactory to the Board of Directors, SHMC and
NC-DSH.
ARTICLE 3
ALLOCATIONS AND DISTRIBUTIONS
3.1 Allocation of Profits. After giving effect to the special
allocations set forth in Sections 3.3 and 3.4 hereof, Profits for any fiscal
year or other shorter period shall be allocated among Members in accordance with
their respective Percentage Shares.
3.2 Allocation of Losses. After giving effect to the special
allocations set forth in Sections 3.3 and 3.4 hereof, Losses for any fiscal year
or other shorter period shall be allocated among Members in accordance with
their respective Percentage Shares.
3.2.1 The Losses allocated pursuant to Section 3.2 hereof
shall not exceed the maximum amount of Losses that can be so allocated
without causing any Member to have an Adjusted Capital Account Deficit
at the end of any fiscal year. In the event some but not all of the
Members would have Adjusted Capital Account Deficits as a consequence
of an allocation of Losses pursuant to Section 3.2, the limitation set
forth in this Subsection 3.2.1 shall be applied on a Member by Member
basis so as to allocate the maximum permissible Loss to each Member
under Section 1.704-1(b)(2)(ii)(d) of the Regulations. All Losses in
excess of the limitation set forth in this Subsection 3.2.1 shall be
allocated among the Members in accordance with their respective
Percentage Shares.
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<PAGE> 14
3.3 Special Allocations. The following special allocations shall be
made in the following order (the definition of capitalized terms used in this
Article 3, not previously defined herein, are set forth in Section 3.8):
3.3.1 Minimum Gain Chargeback. Except as otherwise provided
in Section 1.704-2(f) of the Regulations, notwithstanding any other
provision of this Article 3, if there is a net decrease in Company
Minimum Gain during any Company fiscal year or other shorter period,
each Member shall be specially allocated items of Company income and
gain for such year or other shorter period (and, if necessary,
subsequent years) in an amount equal to such Member's share of the net
decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required
to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(f)(6)
and 1.704-2(j)(2) of the Regulations. This Subsection 3.3.1 is intended
to comply with the minimum gain chargeback requirement in Section
1.704-2(f) of the Regulations and shall be interpreted consistently
therewith.
3.3.2 Member Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding
any other provision of this Article 3 except Subsection 3.3.1, if there
is a net decrease in Member Nonrecourse Debt Minimum Gain attributable
to a Member Nonrecourse Debt during any Company fiscal year or other
shorter period, each Member who has a share of the Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(5) of the Regulations,
shall be specially allocated items of Company income and gain for such
year or other shorter period (and, if necessary, subsequent years) in
an amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2)
of the Regulations. This Subsection 3.3.2 is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the
Regulations and shall be interpreted consistently therewith.
3.3.3 Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations, or distributions
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of income
and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as
quickly as possible, provided that an allocation pursuant to this
Subsection 3.3.3 shall be made if and only to the
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<PAGE> 15
extent that such Member would have an Adjusted Capital Account Deficit
after all other allocations provided for in this Article 3 have been
tentatively made as if this Subsection 3.3.3 were not in the Agreement.
3.3.4 Gross Income Allocation. In the event any Member has a
deficit Capital Account at the end of any Company fiscal year or other
shorter period that is in excess of the sum of (i) the amount such
Member is obligated to restore, and (ii) the amount such Member is
deemed to be obligated to restore pursuant to the penultimate sentences
of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
Member shall be specially allocated items of Company income and gain in
the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Subsection 3.3.4 shall be made if and only
to the extent that such Member would have a deficit Capital Account in
excess of such sum after all other allocations provided for in this
Article 3 have been tentatively made as if Subsection 3.3.3 hereof and
this Subsection 3.3.4 were not in the Agreement.
3.3.5 Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other shorter period shall be specially allocated among
the Members, in accordance with their respective Percentage Shares.
3.3.6 Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year or other shorter period shall be
specially allocated to the Member who bears the economic risk of loss
with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).
3.3.7 Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Company asset pursuant to
Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as the result of a distribution to a Member in
complete liquidation of his or her Interest, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss shall be
specially allocated to the Members in accordance with their interests
in the Company in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such
distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies. No Code Section 754 election shall be
made without the consent of each of SHMC and NC-DSH.
3.3.8 Allocations Relating to Taxable Issuance of Company
Units. Any income, gain, loss or deduction realized as a direct or
indirect result of the issuance of Units by the Company to a Member
(the "ISSUANCE ITEMS") shall be allocated among the Members so that, to
the extent possible, the net amount of such Issuance Items, together
with all other allocations under this Agreement to each
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<PAGE> 16
Member shall be equal to the net amount that would have been allocated
to each such Member if the Issuance Items had not been realized.
3.3.9 Imputed Interest. To the extent the Company has
taxable interest income with respect to any promissory note pursuant
to Section 483 or Sections 1271 through 1288 of the Code:
3.3.9.1 Such interest income shall be specially
allocated to the Member to whom such promissory note
relates; and
3.3.9.2 The amount of such interest income shall
be excluded from the Capital Contributions credited to such
Member's Capital Account in connection with payments of
principal with respect to such promissory note.
3.4 Curative Allocations. The allocations set forth in Subsections
3.2.1, 3.3.1, 3.3.2, 3.3.3, 3.3.4, 3.3.5, 3.3.6 and 3.3.7 hereof (the
"REGULATORY ALLOCATIONS") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss, or deduction pursuant to this Section 3.4. Therefore, notwithstanding any
other provision of this Article 3 (other than the Regulatory Allocations), the
Board of Directors shall make such offsetting special allocations of Company
income, gain, loss, or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of this
Agreement and all Company items were allocated pursuant to Sections 3.1, 3.2,
3.3.8, 3.3.9, and 3.5. In exercising its discretion under this Section 3.4, the
Board of Directors shall take into account future Regulatory Allocations under
Subsections 3.3.1 and 3.3.2 that, although not yet made, are likely to offset
other Regulatory Allocations previously made under Subsections 3.3.5 and 3.3.6.
3.5 Other Allocations Rules.
3.5.1 Basis for Determining Profits or Losses. For purposes
of determining the Profits, Losses, or any other items allocable to any
period, Profits, Losses, and any such other items shall be determined
on a daily, monthly, or other basis, as determined by the Board of
Directors on a consistent basis using any permissible method under Code
Section 706 and the Regulations thereunder.
3.5.2 Distributions of Cash treated as proceeds from
Nonrecourse Liability or Member Nonrecourse Debt. To the extent
permitted by Sections 1.704-2(h)(3) of the Regulations, the Board of
Directors shall endeavor to treat distributions of cash as having been
made from the proceeds of a Nonrecourse
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Liability or a Member Nonrecourse Debt only to the extent that such
distributions would cause or increase an Adjusted Capital Account
Deficit for any Member.
3.5.3 Allocations of Items Not Otherwise Allocated. Except
as otherwise provided in this Agreement, all items of Company income,
gain, credit, loss, deduction, and any other allocations not otherwise
provided for shall be divided among the Members in the same proportions
as they share Profits or Losses, as the case may be, for such fiscal
year or other shorter period.
3.5.4 Allocations Binding. The Members are aware of the
income tax consequences of the allocations made by this Article 3 and
hereby agree to be bound by the provisions of this Article 3 in
reporting their respective shares of Company income and loss for income
tax purposes. The Members further intend that pursuant to Regulations
Section 1.704-1(b)(3), the Members' respective interests in the Company
are equal to their respective Percentage Shares for purposes of
complying with Section 704(b) of the Code.
3.6 Tax Allocations: Code Section 704(c). In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Company shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value. In applying Code
Section 704(c) and the regulations thereunder, SHMC and NC-DSH will jointly
determine the allocation method or methods that will, to the extent allowable,
allocate items governed under Code Section 704(c) so as to provide the
contributing member with the tax depreciation and amortization it would have had
notwithstanding formation of the Company.
3.7 Allocations with Respect to Transferred Interests.
3.7.1 General Rule. If any Member's Interest is transferred,
or is increased or decreased by reason of the admission of a new
Member, or otherwise, during any fiscal year or other shorter period of
the Company, Profits or Losses and any other item of income, gain,
loss, deduction or credit of the Company for such fiscal year or other
shorter period shall be allocated among the Members in accordance with
their varying respective Percentage Shares which they had from time to
time during such fiscal year or other shorter period in accordance with
Code Section 706(d).
3.7.2 Accounting Convention. For convenience in accounting,
the Company may, to the extent permitted by law, treat a transfer of an
Interest, or an increase or decrease of a Member's Percentage Share,
that occurs at any time during a month (commencing with the month
including the date of this Agreement) as having been consummated on the
first day of that month, regardless of when
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during that month, the transfer, increase or decrease actually occurs,
or adopt such other convention as the Board of Directors may lawfully
select.
3.7.3 Sale or Other Disposition of All Assets.
Notwithstanding anything in Section 3.6 to the contrary, gain or loss
of the Company realized in connection with the sale or other
disposition of all or substantially all Company Property and/or the
liquidation of the Company shall be allocated only to Members who own
Interests as of the date such transaction occurs.
3.8 Allocation Definitions.
3.8.1 Adjusted Capital Account Deficit shall mean with
respect to any Member, the deficit balance, if any, in such Member's
Capital Account as of the end of the relevant fiscal year or other
shorter period, after giving effect to the following adjustments:
3.8.1.1 Credit to such Capital Account any
amounts which such Member is obligated to restore or is
deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1)
and 1.704-2(i)(5); and
3.8.1.2 Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6)
of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
3.8.2 Nonrecourse Deductions has the meaning set forth in
Section 1.704-2(b)(1) of the Regulations.
3.8.3 Nonrecourse Liability has the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
3.8.4 Member Nonrecourse Debt has the meaning set forth in
Section 1.704-2(b)(4) of the Regulations for "Partner Nonrecourse Debt"
after substituting therein the word "Member" in place of the word
"Partner".
3.8.5 Member Nonrecourse Debt Minimum Gain means an amount,
with respect to each Member Nonrecourse Debt, equal to the Company
Minimum Gain that would result if such Member Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance with
Section 1.704-2(i)(3) of the Regulations.
3.8.6 Member Nonrecourse Deductions has the meaning set
forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations
for "Partner Nonrecourse
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Deductions" after substituting therein the word "Member" in place of
the word "Partner".
3.8.7 Company Minimum Gain has the meaning set forth in
Regulations Sections 1.704-2(b)(2) and 1.704-2(d) for "Partnership
Minimum Gain" after substituting therein the word "Company" in place of
the word "Partnership".
3.9 Distributions.
3.9.1 Distributions of Distributable Cash. The Board of
Directors shall make distributions on a quarterly basis of
Distributable Cash or other property to the Members (or assignees) in
accordance with their respective Percentage Shares.
3.9.2 Restrictions on Use of Distributions. Nothing
contained herein is intended nor shall be construed or applied to
violate the fraud and abuse prohibitions under the Medicare and
Medicaid programs.
3.9.3 Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any
payment of taxes of Members or distribution to the Members shall be
treated as amounts distributed to the Members pursuant to this Section
3.9 for all purposes under this Agreement.
3.9.4 Distributions in Kind. No Member shall have the right
to demand or receive distributions of property other than cash.
Distributions in kind of Company property, in liquidation or otherwise,
shall be made only with the written consent of the Board of Directors,
SHMC and NC-DSH and only at a value agreed to in writing by the Board
of Directors, SHMC and NC-DSH. Prior to any such distribution in kind,
the difference between such agreed value and the book value of such
property shall be credited or charged, as the case may be, to the
Members' (and assignees') Capital Accounts in proportion to their
Percentage Shares, except as may otherwise be required under Code
Section 704(c). Upon the distribution of such property, such agreed
value shall be charged to the Capital Accounts of the Members (or
assignees) receiving such distribution.
ARTICLE 4
MANAGEMENT OF THE COMPANY'S AFFAIRS;
BOARD OF DIRECTORS
4.1 General Powers of the Board of Directors. The business and affairs
of the Company shall be managed by its "BOARD OF DIRECTORS" (herein so called)
and the persons serving on the Board of Directors (the "DIRECTORS"), who shall
serve in the capacity of "Managers" as defined in the Act. The Board of
Directors shall direct, manage and control the Company's business to the best of
its ability and shall have full and complete authority, power, and discretion to
make any and all decisions and do any and all things which the
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Board of Directors deems necessary or desirable for that purpose, subject to the
rights and responsibilities of the Members including provisions of this
Agreement requiring the approval of SHMC and/or NC-DSH prior to the taking of
certain actions . Unless expressly authorized by the Board of Directors, no
Member shall have any authority to bind or obligate the Company; provided that
the acts of SHMC and NC-DSH on behalf of the Company taken for purposes of
forming the Company prior to the adoption of this Agreement are hereby ratified
in full. Certain aspects of the Company's day to day operations shall be managed
by UHS of Delaware, Inc., a Delaware Corporation, pursuant to the Management
Agreement described in Section 4.16, subject at all times to the provisions of
this Agreement requiring the approval of SHMC and/or NC-DSH prior to the taking
of certain actions.
4.2 Composition of Board of Directors. The Board of Directors shall be
comprised of five (5) Directors, consisting of three (3) Directors appointed by
SHMC and two (2) Directors appointed by NC-DSH. No other Member shall have any
appointees. Each Director shall be an employee of a Member or an employee of a
person controlling, controlled by or under common control with such Member.
After initial appointments to the Board of Directors are made, the failure to
timely appoint or select Directors shall not affect the validity of actions
taken by those who are serving and such unfilled positions shall not be counted
in determining a quorum. The Board of Directors shall annually elect one (1) of
the Directors to serve as "CHAIRMAN." The Chairman shall preside over all
meetings of the Board of Directors (and any meetings of the Members) and shall
have such other duties and responsibilities as the Board of Directors may from
time to time designate. No Director shall receive any compensation from the
Company for service on the Board of Directors.
4.3 Regular Meetings. The Board of Directors may provide, by
resolution, the time and place for the holding of regular meetings without other
notice than such resolution. Notwithstanding the foregoing, the Board of
Directors shall meet no less than once per calendar quarter. Pursuant to Section
4.9, such meetings need not be held in person.
4.4 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board of Directors, who
shall fix any place as the place for holding such special meeting.
4.5 Notice of Special Meetings. Written notice of any special meeting
of the Board of Directors setting forth the matters to be discussed at the
special meeting shall be given by the Chairman of the Board of Directors as
follows:
4.5.1 By mail to each Director at his or her business
address at least five (5) business days prior to the meeting; or
4.5.2 By personal delivery, telegram or telecopy at least
seventy-two (72) hours prior to the meeting to the business address of
each Director, or in the
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event such notice is given on a Saturday, Sunday or holiday, to the
residence address of each Director. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram
is delivered to the telegraph company. If notice is delivered by
telecopy, such notice shall be deemed to be delivered when a
confirmation of receipt of the telecopy is printed by the sending
telecopier.
4.5.3 Any Director may waive notice of any meeting. The
attendance of a Director at any meeting shall constitute a waiver of
notice of such meeting, except where a Director attends a meeting for
the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
4.5.4 When any notice is required to be given to a Director,
a waiver thereof in writing signed by such Director, whether before, at
or after the time stated therein, shall constitute the giving of such
notice.
4.6 Quorum of Directors. A majority of the of Directors provided in
Section 4.2 hereof shall constitute a quorum for the transaction of business of
the Board of Directors so long as at least one Director appointed by each of
SHMC and NC-DSH is present, but if less than such majority is represented at a
meeting, a majority of the Board of Directors represented may adjourn the
meeting from time to time without further notice.
4.7 Manner of Acting; Super-Majority Vote. Each Director shall have one
(1) vote with respect to any matter put to a vote of the Board of Directors. Any
Director may act in person or by proxy. The act of all Directors voting at a
meeting at which a quorum is represented shall be deemed the act of a
"SUPER-MAJORITY" of the Board of Directors. The act of the majority of the
Directors represented at a meeting at which a quorum is represented shall be
deemed the act of the Board of Directors, except that each of the following
actions shall require the vote of a Super-Majority of the Board of Directors:
4.7.1 Changing the Business of the Company.
4.7.2 Amending this Agreement or the Certificate of
Formation.
4.7.3 Approving the selection of or any change in the
location of the Company's principal office if outside the city of Las
Vegas, Nevada.
4.7.4 Except as specifically provided in Section 7.5, and as
set forth in Article 8, the Transfer by a Member of the whole or any
portion of its Interest.
4.7.5 Except as specifically provided in Section 7.5, and as
set forth in Article 8, approving the admission of any Person as a new
Member.
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4.7.6 Issuing additional Units or Unit Equivalents other
than to SHMC and/or NC-DSH in exchange for additional Capital
Contributions pursuant to Section 2.3.
4.7.7 Approving the dissolution and liquidation of the
Company.
4.7.8 Incurring any debt or interest bearing obligations
other than: (i) trade payables and other short-term liabilities and
leases in the ordinary course of business; and (ii) debt incurred
pursuant to the Revolving Credit and Cash Management Agreement
described on Exhibit 4.16.
4.7.9 Electing not to make a quarterly distribution of
Distributable Cash pursuant to Section 3.9.
4.7.10 Selling, in any twelve (12) month period, in excess
of $5,000,000 of the Company's assets or engaging in any merger,
partnership, joint venture or other business combination or transaction
of a similar nature with a value in excess of $5,000,000 in any twelve
(12) month period.
4.8 Informal Action by Board of Directors. The Board of Directors may
act without meeting by written consents describing the action taken and signed,
via facsimile or otherwise, by all Directors. Action taken under this Section
4.8 is effective when all Directors have signed the consent, unless the consent
specifies a different effective date.
4.9 Participation by Electronic Means or Proxy. Any Director may
participate in a meeting of the Board of Directors by communications equipment
by which all persons participating in the meeting can hear each other at the
same time, or by written proxy. Such participation shall constitute presence in
person at the meeting.
4.10 Resignation. Any Director of the Company may resign at any time by
giving written notice to the Chairman of the Board of Directors. The resignation
of any Director shall take effect upon receipt of notice thereof or at such
later time as shall be specified in such notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. Vacancies created by the resignation of one or more Directors shall
be filled as provided in Section 4.2 hereof.
4.11 Removal. Each Member shall have the unilateral right to remove any
Director appointed by such Member. Vacancies created by the removal of one or
more Directors shall be filled as provided in Section 4.2 hereof.
4.12 No Committees. The Board of Directors shall have no committees.
4.13 Presumption of Assent. A Director of the Company who is present at
a meeting of the Board of Directors or committee thereof, at which action on any
matter is taken, shall be presumed to have assented to the action taken unless
such Director objects
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at the beginning of such meeting to the holding of the meeting or to the
transacting of business at the meeting, unless his or her dissent is entered in
the minutes of the meeting, or unless he shall file a written dissent to such
action with the presiding officer of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Company immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
4.14 Duty of Loyalty; Conflicts of Interest. The Board of Directors of
the Company shall perform its duties and each Director shall perform his or her
duties, in good faith, in a manner he or she reasonably believes to be in the
best interests of the Company.
4.15 Liability and Indemnity of the Directors and Officers. Directors
and Officers shall be indemnified by the Company with respect to their service
as Directors and Officers to the fullest extent permitted by Delaware law during
their term as such and, thereafter, with respect to the period during which they
served as such.
4.15.1 Notwithstanding any provisions of this Agreement or
applicable Delaware law to the contrary, neither a Director nor an
Officer shall be personally liable to the Company or to the Members for
monetary damages for breach of fiduciary duty, except with respect to
(1) any breach of the duty of loyalty; (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law; or (3) any transactions from which the Director or
Officer derived an improper personal benefit.
4.15.2 Notwithstanding any provisions of this Agreement or
applicable Delaware law to the contrary, neither a Director nor an
Officer shall be liable to the Company or to any Member for any action
taken or omitted to be taken by such Director or Officer, provided that
such Director or Officer acted in good faith and in a manner he
reasonably believed to be in the best interests of the Company and such
action or omission does not involve the gross negligence, willful
misconduct or fraud of such Director or Officer.
4.16 Related Party Transactions. The Company shall not enter into or
modify transactions with any Members, Affiliates, Affiliates of Members or other
Persons in which the Company or its Affiliates have an ownership or investment
interest or that have an Interest in the Company except for transactions
evidenced by written agreements that are at arm's-length and fair market value
and otherwise on terms and conditions that are intrinsically fair and reasonable
to the Company within its market area. If the Company enters into or makes a
material modification to a Material Interested Agreement (as defined below), the
Company shall provide written notice of the Material Interested Agreement
(including a brief summary of its key terms) and a true and complete copy of the
Material Interested Agreement to NC-DSH. A Material Interested Agreement is one
that involves expenditures of or revenue to the Company of greater than One
Hundred Thousand Dollars ($100,000.00) in any twelve (12) month period or an
agreement that, when
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combined with all other agreements to which the first sentence of this Section
4.16 applies, involve, in the aggregate, expenditures or revenue to the Company
of greater than Three Hundred Thousand Dollars ($300,000.00) in any twelve (12)
month period. In the event that NC-DSH objects to a Material Interested
Agreement on the grounds that such Material Interested Agreement fails to
satisfy the requirements of the first sentence of this Section 4.16 and there is
a dispute involving this Section 4.16, SHMC and NC-DSH shall initiate
arbitration proceedings with respect to the dispute. Such arbitration
proceedings shall be conducted in the state of Nevada in accordance with the
rules and procedures of the American Arbitration Association, provided that SHMC
shall bear the burden of demonstrating that the Material Interested Agreement
meets the requirements of the first sentence of this Section 4.16. Any such
arbitration shall be binding upon the parties to the fullest extent permitted by
law. SHMC and NC-DSH shall each pay one-half of the costs of such arbitration.
The Company is authorized to enter into those agreements set forth on Exhibit
4.16 attached hereto. Except for fees paid pursuant to the agreements described
on Exhibit 4.16 or agreements permitted pursuant to this Section 4.16, no Member
or Affiliate thereof shall be entitled to any salary or other compensation from
the Company and the compensation for each Member shall be limited to
Distributable Cash distributed to the Members pursuant to Section 3.9.
4.17 Related Party Agreements. In the event that the Company is party
to an agreement with a Member or an Affiliate of a Member, or a Member or an
Affiliate of a Member has an interest in such agreement (such Member being an
"INTERESTED MEMBER"), decisions with respect to the enforcement of the Company's
rights and obligations with respect to breaches, defaults and waivers under such
agreement shall be made by SHMC if NC-DSH is the Interested Member and by NC-DSH
if SHMC is the Interested Member. The Company and Interested Member shall
provide SHMC or NC-DSH, as appropriate, with written notice of each issue
requiring decision and the facts and information necessary and appropriate for
SHMC or NC-DSH, as appropriate, to exercise its rights under this Section 4.17.
ARTICLE 5
OFFICERS
5.1 Appointment and Term of Office. The "OFFICERS" of the Company shall
from time to time be appointed by the Board of Directors and shall have such
duties and responsibilities as are established by the Board of Directors. Such
Officers shall include, without limitation, a Chief Executive Officer ("CEO"),
Secretary, and such other Officers as may be appointed from time to time by the
Board of Directors. Each Officer shall hold office until his or her successor
shall have been duly appointed and shall have qualified or until his or her
death or until he or she shall resign or shall have been removed. A vacancy in
any office may be filled as if the person had never been occupied.
5.2 Removal. Any Officer may be removed at any time by the Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the
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Officer so removed. Election or appointment of an Officer shall not of itself
create contract rights.
ARTICLE 6
MEMBERS
6.1 Admission of New Members. A Person may be admitted as a new Member
only upon compliance with the following conditions: (i) except for Persons
acquiring an Interest pursuant to Section 7.5 or Article 8, SHMC and NC-DSH
shall each have consented in writing to the admission of such Person as a
Member, (ii) the Person shall have executed and delivered such documents as
requested by the Board of Directors as may be necessary or appropriate to
evidence the Person's consent to be bound by the terms and conditions of this
Agreement; (iv) the Person shall have contributed to the capital of the Company
as required by the Board of Directors, SHMC and NC-DSH; and (v) the Person shall
have paid or caused to be paid all costs related to such membership, including
legal fees and expenses incurred by the Company
6.2 Meetings. Meetings of the Members shall be held at such time, date
and place and upon such notice as is reasonably determined by the Board of
Directors but no less often than once per calendar year.
6.3 Quorum. Members holding more than fifty percent (50%) of the
Percentage Share of all Members entitled to vote shall constitute a quorum at
any meeting of Members provided that, regardless of the Percentage Share
represented, SHMC and NC-DSH must be present at such meeting for a quorum to be
constituted. In the absence of a quorum at any such meeting, a majority of the
Members so represented may adjourn the meeting from time to time for a period
not to exceed thirty (30) days without further notice. However, if the
adjournment is for more than thirty (30) days, a notice of the adjourned meeting
shall be given to each Member of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed.
6.4 Manner of Acting. If a quorum is present, the affirmative vote of
the Members owning a majority of all Percentage Shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
Members; provided, however, that if the Members are acting upon any of the items
that are the subject to Section 4.7 hereof or otherwise require the approval of
SHMC and NC-DSH, the affirmative vote of each of SHMC and NC-DSH shall be the
required to constitute the act of the Members.
6.5 Proxies. At all meetings of Members, a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Company before or at the
time of the meeting.
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6.6 Voting by Certain Members.
6.6.1 Units owned in the name of a corporation may be voted
by such officer, agent or proxy as the Bylaws of such corporation may
prescribe, or, in the absence of such provision, as the board of
directors of such corporation may determine.
6.6.2 Units owned in the name of a receiver may be voted by
such receiver and Units held by or under the control of a receiver may
be voted by such receiver either in person or by proxy, but no receiver
shall be entitled to vote Units without a transfer thereof into the
receiver's name.
6.6.3 A Member whose Units are pledged shall be entitled to
vote such Units until the Units have been transferred into the name of
the pledgee, and thereafter the pledgee shall be entitled to vote the
Units so transferred.
6.7 Action by Members Without a Meeting. The Members may act without
meeting by written consents describing the action taken and signed by all
Members. Action taken under this Section 6.7 is effective when all Members
entitled to vote have signed the consent, unless the consent specifies a
different effective date.
6.8 Voting by Ballot. Voting on any question or in any election may be
by voice vote unless the Board of Directors or at least one (1) Member shall
demand that voting be by ballot.
6.9 Waiver of Notice. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the person entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice. The attendance of a Member at any
meeting shall constitute a waiver of notice, waiver of objection to defective
notice of such meeting, and a waiver of objection to the consideration of a
particular matter at the meeting unless the Member, at the beginning of the
meeting, objects to the holding of the meeting, the transaction of business at
the meeting, or the consideration of a particular matter at the time it is
presented at the meeting.
6.10 Resignation or Withdrawal. No Member shall have the right to
resign or withdraw from the Company, or to assign its Interest prior to the
dissolution and winding up of the Company, except as expressly contemplated by
this Agreement.
ARTICLE 7
TRANSFERS OF MEMBERSHIP INTERESTS BY MEMBERS
7.1 Transfers. Except as specifically provided in Section 7.5 or
Article 8, each Member covenants and agrees that it will not directly or
indirectly, by operation of law or otherwise, sell, assign, transfer, alienate,
mortgage, pledge or otherwise dispose of or
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encumber (each a "TRANSFER") all or any part of such Member's Units in the
Company to any Person, including the Company. A Transfer shall be deemed to
include any merger, share exchange, stock transfer, transfer of partnership
interest or other transfer of the ownership, equity or control of any Member or
any Person owning or holding, directly or indirectly through its Affiliates, an
interest in a Member.
7.2 Effect of Permitted Transfer. In the event a Member Transfers all
or any part of its Units in the Company pursuant to this Agreement, the Company
shall continue and the transferee of such Units shall be admitted to the Company
as a Member subject to the same obligations, with the same Units and Percentage
Share in the Company, and with the same rights in and to the capital, profits,
losses and distributions of the Company as the transferring Member had with
respect to the Units so Transferred; provided, however, that the transferee
shall be subject to all of the terms and conditions of this Agreement and shall
promptly execute and deliver such documents as requested by the Board of
Directors and as may be necessary or appropriate, in the opinion of counsel for
the Company, to evidence the transferee's consent to be bound by such terms and
conditions; and provided, further, that if such Transfer is a pledge or other
encumbrance of Units in the Company, then such transferee shall not become a
substituted Member and shall only be an assignee.
7.3 Prohibited Transfers. Any attempted Transfer by a Member of all or
any part of its Units in the Company in violation of the terms of this Agreement
shall be null and void and of no force or effect and: (i) if a third party offer
has been made, then it shall be treated as an offer to sell the Interest of such
Member as provided in Section 8.1 and 8.3, or (ii) otherwise, it shall be
treated as an Involuntary Withdrawal as provided in Section 7.4.
7.4 Involuntary Withdrawal. Upon the Involuntary Withdrawal of any
Member, the Company shall be dissolved unless within 90 days thereof SHMC and
NC-DSH (or Members holding a majority of all Interests in the Company if SHMC
and NC-DSH do not collectively hold a majority in Interests (as such phrase is
defined in Revenue Procedure 94-46) in the Company) elect to continue the
business of the Company. The Involuntary Withdrawal of the Member shall be
treated as an offer to sell the Interest of such Member as provided in Section
8.2. In the event the remaining Members do not purchase the Interest of the
withdrawing Member and continue the business of the Company upon the Involuntary
Withdrawal of a Member, the successor in interest may, upon the written consent
of the other Members, become a transferee with respect to the Interest of the
Member with the rights set forth in Section 7.2. The "INVOLUNTARY WITHDRAWAL" of
a Member shall be deemed to have occurred with respect to a Member in the event
such Member:
7.4.1 suffers a "bankruptcy event" as defined in Act
ss.18-304;
7.4.2 attempts to resign or withdraw from the Company in
breach of this Agreement;
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7.4.3 is dissolved, liquidated, terminated or otherwise
ceases to exist;
7.4.4 makes a Transfer or attempts to Transfer any part of
such Member's Units in violation of Section 7.1 and such Transfer is
not treated as an offer to sell the Interest of such Member pursuant to
Section 8.1 or 8.3; or
7.4.5 is responsible for any occurrence, event or state of
facts that would otherwise cause the dissolution and liquidation of the
Company.
7.5 Exceptions to Restrictions. Neither: (i) any conveyance by SHMC or
NC-DSH of its Interest to a Person that controls or is controlled by or is under
common control with SHMC or NC-DSH, respectively; nor (ii) the sale of all or
substantially all of the assets of or the Transfer of the stock, merger or
change of control of Universal Health Services, Inc., a Delaware corporation, or
of Quorum Health Group, Inc., a Delaware Corporation, shall be deemed a Transfer
or Involuntary Withdrawal pursuant to this Agreement (and shall not be subject
to Article 8).
7.6 Loss of Voting Rights. Upon the occurrence of an Involuntary
Withdrawal, no voting rights shall be exercisable with respect to the Interest
of the Member until such Units are disposed of in accordance with Article 8.
7.7 Tax Treatment of Acquisitions of Interests by Company. The parties
hereto expressly agree that any withdrawal of all of a Member's Capital Account
whereby the Company acquires the Interest of one or more Members pursuant to
Article 7 shall be treated as a complete liquidation of such Member's Interest
pursuant to Section 736 of the Code. The Members hereby expressly agree and
acknowledge that the amount of money (or the fair market value of property)
distributed to a Member withdrawing all of his or her Capital Account shall be
treated as a payment in liquidation under Section 736(b) of the Code to the
extent of the fair market value of the withdrawing Member's "interest in
partnership property" within the meaning of Section 736 of the Code and the
excess, if any, of the withdrawal payments shall be treated as a Section 707(c)
"guaranteed payment" under Section 736(a) of the Code. Further, if in connection
with such transaction, interest is paid to a Member, the Members hereby agree
and acknowledge that the payment of such interest shall be treated as a
"guaranteed payment" which in turn shall be treated as a Code Section 736(a)
payment. Each Member agrees that the price at which the Company may reacquire
the Interests of a Member shall be agreed upon at arm's length as described in
the second paragraph of Regulation Section 1.704-1(b)(2)(ii)(b)(3).
ARTICLE 8
PURCHASE RIGHTS AND OPTIONS
8.1 Purchase Right. Subject to the exceptions contained in Section 7.5
and as set forth in Section 8.1.4, prior to any Transfer by a Member ("SELLING
MEMBER"), the other Members ("PURCHASING MEMBERS") shall have a right of first
refusal to purchase
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("PURCHASE RIGHT") the Interest of the Selling Member as provided in this
Section 8.1. The terms of the Purchase Right are as follows:
8.1.1 Offer By Selling Member. In the event a Selling Member
desires to make a Transfer pursuant to a bona fide written offer
presented to the Selling Member by any prospective third party
transferee(s) (the "THIRD PARTY OFFER"), it shall make an offer in
writing to the Purchasing Members (the "OFFER"), and the Offer shall
include: (i) a statement of the Selling Member's intention to make a
Transfer, (ii) the name(s) and address(es) of the prospective third
party transferee(s), (iii) the number of Units involved in the proposed
third party transaction, and (iv) the full terms and conditions of the
transaction (which shall include, but not be limited to, a detailed
description of the transaction, the price, time, method and other
conditions of payment), including a true copy of the Third Party Offer.
8.1.2 Acceptance of Offer. The Purchasing Members may, at
each of their option, provide a written notice to the Selling Member of
their acceptance of the Offer within 60 days of the date the Purchasing
Members received the Offer. If there is more than one Purchasing
Member, the Purchasing Members shall be entitled to purchase pursuant
to the Offer in proportion to their respective Percentage Share of
Units at the time of the Offer. If the Offer is not accepted by all
Purchasing Members, the Selling Member shall give notice thereof to the
accepting Purchasing Members and then any accepting Purchasing Member
shall have the right to purchase all of the remaining Units involved in
the Offer within the succeeding 15 day period. If not all of the Units
described in the Offer have been accepted in the fashion described
above, the Offer shall be deemed not accepted by any Purchasing
Members. If the Offer is not accepted, the Selling Member may make a
bona fide Transfer to the third party transferee named in the statement
attached to the Offer but only in strict accordance with the Third
Party Offer.
8.1.3 Purchase Price Determination. The purchase price and
the terms and conditions subject to the Offer shall be the same as set
forth in the Third Party Offer. The closing of the purchase shall take
place at the principal office of the Company and shall occur within 30
days of acceptance of the Offer. At closing, the purchase price shall
be paid in the manner set forth in the Third Party Offer, provided that
if the Third Party Offer includes any consideration other than cash,
the accepting Purchasing Member(s), at their option, may pay in cash
the fair market value of such non-cash consideration.
8.1.4 Exception. Notwithstanding the foregoing provisions of
Section 8.1, SHMC shall be entitled to Transfer up to twenty percent
(20%) of its Interest without compliance with Section 8.1 provided that
NC-DSH has approved the transferee in advance in writing and such
transferee shall be subject to the terms and conditions of this
Agreement and otherwise comply with Section 7.2.
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8.1.5 Additional Assets. In the event any Third Party Offer
received by a Selling Member is part of an acquisition which extends to
or includes assets in addition to the Interest of the Selling Member
("ADDITIONAL ASSETS"), the Offer shall be deemed to extend to and
include the Additional Assets and the Offer shall contain the
information set forth in Section 8.1.1 with respect to the Additional
Assets. In such case, if the Offer is not accepted in its entirety,
including, without limitation, the purchase of Additional Assets by the
Purchasing Members, the Selling Member may consummate the transactions
contemplated by the Third Party Offer but only in strict accordance
with such Third Party Offer. This Section 8.1.5 shall not be
interpreted or construed to apply to Third Party Offers that are the
subject of clause (ii) of Section 7.5.
8.2 Purchase Option. Upon the Involuntary Withdrawal of a Member (the
"SELLING MEMBER") the other Members ("PURCHASING MEMBERS") shall have the right
(the "INVOLUNTARY WITHDRAWAL OPTION") to purchase the Interest of the Selling
Member for a price and upon the terms set forth in this Section 8.2.
8.2.1 Exercise. To exercise the Involuntary Withdrawal
Option, the Purchasing Members may, at each of their options, provide
written notice to the Selling Member suffering an Involuntary
Withdrawal of their intention to exercise their Involuntary Withdrawal
Option as provided in this Section 8.2 within 15 days of the date the
Purchasing Members receive notice of the event of Involuntary
Withdrawal. If there is more than one Purchasing Member, the Purchasing
Members shall be entitled to purchase in accordance with their
respective Percentage Share of Units at the time of the written notice
to the Selling Member.
8.2.2 Purchase Price Determination. Within 20 days of the
date of the exercise of an Involuntary Withdrawal Option, the affected
Members shall mutually agree upon a purchase price for the Interest
being sold. If the affected Members are unable to mutually agree upon a
purchase price, the affected Members shall mutually select a
disinterested appraiser nationally recognized as experienced in valuing
healthcare businesses including hospitals to evaluate the Business and
determine the fair market value of the Company. If the affected Members
cannot select an appraiser, then the American Arbitration Association
shall be petitioned to designate an appraiser. The cost of the
appraisal and any necessary arbitration shall be paid one-half by the
Selling Member and one-half by the Purchasing Members. The appraiser
promptly shall provide a written notice ("FAIR MARKET VALUE NOTICE") to
each affected Member of its determination of the fair market value,
which determination shall be binding upon the affected Members. The
purchase price for the Interest being acquired pursuant to this Section
8.2 shall then be the product of (i) the fair market value of the
Company pursuant to the Fair Market Value Notice multiplied by (ii) the
Percentage Share of the Selling Member.
8.2.3 Closing. The closing of the purchase pursuant to this
Section 8.2 shall take place at the principal office of the Company as
such time during
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reasonable business hours on such day as designated by the Purchasers
or Purchasing Members, provided that such closing shall not be later
than 10 days after the purchase price has been determined in accordance
with Section 8.2.2. Unless otherwise agreed by the Members, the
purchase price shall be payable in immediately available funds.
8.3 Tag Along/Co-Sale Rights on Transfers by a Member. Should a Member
(the "SELLING MEMBER") receive a bona fide offer from an unrelated Person to
purchase all, but not less than all, of its Interest, the Selling Member shall
not consummate a Transfer to the proposed purchaser until the proposed purchaser
shall have offered to buy all Interests of all remaining Members (the "REMAINING
MEMBERS") at the same price and on the same terms and conditions. In the event
the Selling Member is unable to cause the proposed purchaser to offer to buy all
Interests of Remaining Members as set forth in this Section 8.3 and any
Remaining Member declines to exercise its Purchase Right pursuant to Section
8.1, the Selling Member shall not consummate the Transfer to the proposed
purchaser.
8.4 Put Right.
8.4.1 NC-DSH shall have the right to require SHMC to
purchase NC-DSH's Interest (the "PUT RIGHT") at any time following the
occurrence of any one of the following events (each a "TRIGGERING
EVENT"): (i) the Consolidated EBITDA Margin (as defined below) of
Valley Health System LLC and Summerlin Hospital Medical Center LLC
(collectively the "LLCS") for any trailing twelve (12) month period
beginning twenty-five (25) months following consummation of the
transactions contemplated under the Contribution Agreement is less than
seventeen percent (17%) provided that the Put Notice (as defined below)
is given within sixty (60) days following receipt by NC-DSH of the
LLCs' financial statements that indicate the existence of a Triggering
Event; (ii) the total cash distributions to NC-DSH for any trailing
twelve (12) month period beginning twenty-five (25) months following
consummation of the transactions contemplated under the Contribution
Agreement are less than NC-DSH's Percentage Share of twelve percent
(12%) of Consolidated Net Revenues (as defined below) of the LLCs
provided that the Put Notice is given within sixty (60) days following
receipt by NC-DSH of the LLCs' financial statements that indicate the
existence of a Triggering Event; (iii) any material violation of
Section 2.2.7 or 6.2 or 8.2 of the Management Agreement (or comparable
provisions of any renewal or successor or replacement thereof) entered
into by the Company pursuant to Section 4.16 of this Agreement; (iv)
the Percentage Share of NC-DSH is reduced to less than twenty percent
(20%) provided that the Put Notice is given within sixty (60) days
following such reduction; (v) the Percentage Share of NC-DSH is reduced
to less than seventeen and one-half percent (17.5%) provided that the
Put Notice is given within sixty (60) days following such reduction;
(vi) the Percentage Share of NC-DSH is reduced to less than fifteen
percent (15%) provided that the Put Notice is given within sixty (60)
days following such reduction; (vii) the Percentage Share of NC-DSH is
reduced to
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less than twelve and one-half percent (12.5%) provided that the Put
Notice is given within sixty (60) days following such reduction; or
(viii) the Percentage Share of NC-DSH is reduced to less than ten
percent (10%) and the Put Notice is given any time thereafter. Upon a
Triggering Event, the Put Right shall be exercisable by NC-DSH, at
NC-DSH's sole option, by written notice (the "PUT NOTICE") to the
Company. Notwithstanding the foregoing, in the event the Triggering
Event is (ii) above and was caused by a capital project that was
approved by NC-DSH in writing and which approval refers specifically to
clause (ii) of this Section 8.4.1 and but for such capital project no
Triggering Event would have occurred, then such Triggering Event shall
be deemed not to have occurred.
8.4.2 Upon receipt of the Put Notice, NC-DSH and the Company
shall negotiate in good faith for sixty (60) days to determine the
purchase price payable pursuant to the Put Right. If agreement has not
been reached on the purchase price within sixty (60) days, each of
NC-DSH and the Company shall promptly appoint a disinterested appraiser
of national reputation who is a member of the American Society of
Appraisers and holds MAI designation with the Appraisal Institute to
provide a written appraisal of the fair market value of the Company as
of the date of the Put Notice. If a party does not select an appraiser
as provided in the preceding sentence within fifteen (15) days after
the other party has given written notice of the name of its appraiser,
such party shall lose its right to appoint an appraiser and the
appraiser already selected shall determine the fair market value of the
Company. In the event that both appraisers are timely selected and the
lower of the two appraisals is not less than ninety percent (90%) of
the higher of the two appraisals, the product of the average of the two
appraisals multiplied by the Percentage Share of NC-DSH shall be the
purchase price payable by the Company for NC-DSH's Interest.
8.4.3 In the event that the lower of the two appraisals is
more than seventy-five percent (75%) but less than ninety percent (90%)
of the higher of the two appraisals, the two appraisers shall promptly
appoint a third appraiser (of the same qualifications described in
Section 8.4.2) to provide a written appraisal of the fair market value
of the Company as of the date of the Put Notice. The product of the
third appraisal (subject to the other two appraisals as lower and upper
limits) multiplied by the Percentage Share of NC-DSH shall be the
purchase price payable by the Company for NC-DSH's Interest.
8.4.4 In the event that the lower of the two appraisals is
less than seventy-five percent (75%) of the higher of the two
appraisals, NC-DSH and the Company shall promptly cause the American
Arbitration Association to appoint an arbitrator who will select two
appraisers (of the same qualifications described in Section 8.4.2) and
each appraiser shall provide a written appraisal of the fair market
value of the Company as of the date of the Put Notice. The product of
the average of the two appraisals (subject to the two original
appraisals as the lower
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and upper limits) multiplied by the Percentage Share of NC-DSH shall be
the purchase price payable by the Company for NC-DSH's Interest.
8.4.5 The rights of NC-DSH as a Member shall cease upon the
Put Notice. The Company shall pay one dollar ($1.00) of the purchase
price upon receipt of the Put Notice and shall pay the remainder of the
purchase price in immediately available funds on the date of the
closing described below plus interest at the following rates: (i) for
the first six (6) months following the date of the Put Notice the rate
of interest per annum shall be the rate of interest paid on one month
certificates of deposit published in the Money Rates section of the
Wall Street Journal plus one percent (1%), and (ii) for the remainder
of the period the rate of interest per annum shall be equal to the
prime rate published by the Wall Street Journal plus two percent (2%)
as such rate changes from time-to-time. Interest shall accrue from the
date of the Put Notice through the date of receipt of payment by
NC-DSH. Closing of the purchase pursuant to this Section 8.4 shall take
place at the principal office of the Company or at such other location
and at such time during normal business hours as the Company and NC-DSH
shall agree. The Company shall use its reasonable best efforts to close
the transaction contemplated by this Section 8.4 as quickly as possible
following the date of the Put Notice. In the event the parties are
unable to agree on a Closing Date, the closing shall occur
three-hundred and sixty seven (367) days following the date of the Put
Notice.
8.4.6 For purposes of this Section 8.4 the following
definitions shall apply: (i) "CONSOLIDATED EBITDA MARGIN" shall mean
that fraction, expressed as a percentage, obtained by dividing the
combined total EBITDA of the LLCs by Consolidated Net Revenues; (ii)
"EBITDA" shall mean Consolidated Net Revenues less Consolidated
Operating Expenses; (iii) "CONSOLIDATED NET REVENUES" shall mean the
combined totals of the LLCs' patient revenues and other operating
revenues (but not non-operating revenues) less contractual allowances,
adjustments, discounts and charity (but not bad debts); and (iv)
"CONSOLIDATED OPERATING EXPENSES" shall mean the combined totals of the
LLCs' expenses including management fees payable pursuant to the
Management Agreement identified on Exhibit 4.16 but excluding interest
expense, depreciation and amortization, income taxes and non-operating
and extraordinary expenses. For purposes of this Section 8.4, all items
of revenue and expense will be determined and classified in accordance
with generally accepted accounting principles consistently applied.
8.4.7 Each party shall bear and promptly pay the expenses
and fees of their appraiser selected in accordance with Section 8.4.2
and shall bear and promptly pay one-half of the expenses and fees of
any appraiser and/or arbitrator selected in accordance with Sections
8.4.3 and 8.4.4. Copies of all appraisals shall be addressed to and
provided to both the Company and NC-DSH.
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8.4.8 Universal Health Services, Inc. hereby guarantees the
payment and performance of the obligations of the Company under this
Section 8.4.
ARTICLE 9
DISSOLUTION AND LIQUIDATION OF THE COMPANY
9.1 Liquidating Events. The existence of the Company shall be
perpetual provided, however, that the Company shall be dissolved and liquidated
upon the occurrence of any of the following events:
9.1.1 The unanimous written agreement of SHMC and NC-DSH to
terminate the Company;
9.1.2 The entry of a final judgment, order or decree of a
court of competent jurisdiction adjudicating the Company to be a
Bankrupt and the expiration of the period, if any, allowed by
applicable law in which to appeal therefrom;
9.1.3 The entry of a final judgment, order or decree of
judicial dissolution of the Company issued by a court of competent
jurisdiction under the authority of Act Section 18-802, and the
expiration of the period, if any, allowed by applicable law in which to
appeal therefrom; or
9.1.4 The administrative dissolution of the Company by
action of the Secretary of State of the State of Delaware and the
expiration of the period, if any, allowed by applicable law in which to
appeal therefrom or to become reinstated.
Notwithstanding any other provision of this Agreement, in no event shall the
redemption or purchase of the Units of a Member by the Company be a dissolving
event and any such redemption or purchase by the Company shall constitute and
evidence the consent of the Members to the continued existence and business of
the Company as provided in Act Section 18-801(4).
9.2 Method of Liquidation. Upon the happening of any of the events
specified in Section 9.1, the Company shall continue solely for the purpose of
winding up its affairs, liquidating its assets, and satisfying the claims of its
creditors and Members. The Board of Directors shall be responsible for
overseeing the winding up and liquidation of the Company. In the course of
winding up its affairs, any of the Company's assets may be sold upon the consent
of the Board of Directors, and any proceeds derived from any such sale, together
with all assets that are not sold, shall be applied and distributed in the
following manner and in the following order of priority:
9.2.1 To the payment of the debts and liabilities of the
Company and to the expenses of liquidation in the order of priority as
provided by law, and to the
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establishment of any reserves that the Board of Directors, SHMC and
NC-DSH deem necessary for any contingent liabilities or obligations of
the Company. Such reserves shall be paid over to a bank to be held in
escrow for the purpose of paying any such contingent liabilities or
obligations, and at the expiration of such period as the Board of
Directors, SHMC and NC-DSH deem advisable, distributing the balance of
such reserves in the manner hereinafter provided; then
9.2.2 To the payment of any liabilities or debts, other than
Capital Accounts, of the Company to any of the Members; then
9.2.3 To the Members (and assignees) in accordance with the
relative positive balances of their Capital Accounts, after giving
effect to all contributions, distributions and allocations under this
Agreement for all periods as required by Section 704(b) of the Code and
the Regulations promulgated thereunder.
In the course of any liquidation, the difference between the fair market value
and book value of any assets that are distributed in kind shall be credited or
charged, as the case may be, to the Members' (or assignees') Capital Accounts in
the manner provided in Subsection 3.9.5.
9.3 Reasonable Time for Liquidation. A reasonable time (not to exceed
twelve (12) months) shall be allowed for the orderly liquidation and winding up
of the Company in order to minimize any losses that may be attendant upon such
liquidation.
9.4 Distribution to Liquidating Trust. In the discretion of the Board
of Directors, SHMC and NC-DSH, assets otherwise distributable to the Members (or
assignees) pursuant to Section 9.2 may be distributed to a liquidating trust
established for the benefit, and upon the agreement, of all Members (and
assignees) for purposes of liquidating Company assets, collecting amounts owed
to the Company, and paying any contingent or potential liabilities or
obligations of the Company.
9.5 Date of Termination. The Company shall be completely terminated
when all property of the Company shall have been disposed of by the Company in
accordance with Section 9.2. The establishment of any reserves in accordance
with the provisions of Section 9.2 or the creation of a liquidating trust in
accordance with Section 9.4 shall not have the effect of extending the existence
of the Company, but any remaining balance in any such reserve or liquidating
trust shall be distributed in the manner provided in Section 9.2 upon expiration
of the period of such reserve or liquidating trust, as the case may be.
9.6 Certificate of Cancellation. Upon completing the winding up and
liquidation of the Company, the Company shall cause to be filed a Certificate of
Cancellation of the Company as provided by Act Section 18-203. The Members agree
to join in executing such document if such joinder is required by the Act or
deemed necessary or appropriate by the Company. Upon the filing of the
Certificate of Cancellation, the Members shall cease to be such and the Company
and this Agreement shall be terminated.
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ARTICLE 10
COMPANY FUNDS AND ACCOUNTING
10.1 Books of Account; Records and Information. The books of account of
the Company shall be maintained at the Company's principal executive office and
at all reasonable times each Member (and its auditors, attorneys and
representatives) shall have access thereto, as well as to information received
by the Company pursuant to any management or similar agreement. The Company
shall also maintain such records and information required by Act Section 18-305
and shall permit the inspection and copying of such records and information by
the Members. In addition to the foregoing, the Company shall promptly provide
each Member, on a monthly basis, financial statements (including balance sheet,
income statement and statement of cash flows) of the Company. Such financial
statements shall be internally prepared in accordance with generally accepted
accounting principles consistently applied. The Company shall cause an
unqualified audit of its books and records to be performed no less than annually
by an independent certified public accountant of recognized national standing
and shall promptly provide each Member a complete copy of the audit report. No
manager of the Company shall keep confidential from the Members any information
regarding the Company pursuant to Act Section 10-305 or otherwise except to the
extent such information is the proprietary information of such manager.
10.2 Period and Method of Accounting. The Company's books of account
shall be maintained on such fiscal year basis as may be required by Code Section
706, and such books shall be kept in accordance with such method of accounting
as may be required by the Code.
10.3 Reports. As soon as reasonably practicable after the end of each
fiscal year, the Company shall furnish each Member (and assignee) with a copy of
a statement of income or loss of the Company for such year, and a statement
showing the amounts allocated to such Member (or assignee) pursuant to this
Agreement during or in respect of such year, and any items of income, expense or
credit allocated to it for purposes of federal income taxation pursuant to this
Agreement, all prepared in accordance with the accounting method adopted by the
Company, all of which information will be reflected in the Company's federal
income tax return. Delivery of a copy of such tax return to each Member (and
assignee) shall be sufficient to fulfill the obligation of the Company with
respect to providing such information. The Company shall use its reasonable best
efforts to provide each Member such income tax information (including Schedule
K-1) within ninety (90) days after the end of each fiscal year (for tax
purposes) of the Company.
10.4 Tax Elections. Except as specified in Section 3.3.7, 3.6 or
elsewhere in this Agreement, the Board of Directors shall have the
responsibility for making (and revoking) all tax elections on behalf of the
Company (and which are to be made by the Company as opposed to the Members)
under the Code. Upon the transfer of an Interest in the Company or a
distribution of property to a Member (or assignee), the Company may, but
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is not required to, elect, pursuant to Section 754 of the Code, to adjust the
basis of Company Property as allowed by Section 734(b) and 743(b) thereof.
10.5 Tax Matters Manager. SHMC shall be Tax Matters Manager and shall
act as the Tax Matters Partner as defined in the Code Section 6231(a)(7). As
such, shall keep all the Members informed of all administrative and judicial
proceedings, as required by Code Section 6223(g) and shall furnish all Members a
copy of each notice or communication received by SHMC (as the Tax Matters
Manager) from the Internal Revenue Service regarding any such administrative or
judicial proceeding. The Tax Matters Manager shall execute, on behalf of the
Company, any and all documents and returns necessary to comply with the
Regulations promulgated under Code Sections 6221 through 6232.
ARTICLE 11
NONCOMPETE
11.1 Business Activities of Members. Except as set forth in this
Article 11, each Member and its Affiliates may engage in other business
activities, including but not limited to preferred provider organizations,
health maintenance organizations or other health care provider businesses,
without liability or accounting to the Company. It shall not be deemed a breach
of any Member's duty of loyalty to the Company for that Member to pursue, for
that Member's own benefit, any opportunity outside of the Noncompete Area
described in Section 11.2 after compliance with the provisions of this Article
11.
11.2 Covenant Not to Compete. Each of the Members, Universal Health
Services, Inc. and Quorum Health Group, Inc., for itself and on behalf of their
respective Affiliates, hereby covenant and agree that during the Noncompete
Period within the Noncompete Area they shall not directly or indirectly, (a)
build, develop, invest in, acquire, lease, manage, be a member of, consult for,
finance or own any part of (as member, shareholder, partner or otherwise) any
Person or health care facility which provides any services similar to the
services provided by the Business or Hospital, or (b) disrupt or attempt to
disrupt any past, present or reasonably foreseeable future relationship,
contractual or otherwise between the Company, on the one hand, and any
physician, physician group, or other healthcare provider with whom the Company
contracts in connection with Business or Hospital, on the other hand. The
"NONCOMPETE PERIOD" shall commence as to each Member upon such Member's
admission as a Member and terminate at such time as such Person is no longer a
Member. The "NONCOMPETE AREA" shall mean the entire area included within the
city of Las Vegas, Nevada and within a fifty (50) mile radius of the boundaries
of the city of Las Vegas, Nevada. Notwithstanding the foregoing, none of the
following shall be deemed a breach of this Section 11.2: (i) ownership of less
than five percent (5%) of the stock of a publicly held company; (ii) the
activities described in the second sentence of Section 11.1; (iii) SHMC or its
Affiliates' continued operation of Goldring Surgery Center ("GOLDRING") and
Nevada Radiation Oncology Center ("NEVADA") together with any expansion thereof
provided such expansion
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is consistent with and limited to the operations and services of such businesses
as of the date hereof and is located at the current sites of such businesses;
and (iv) the continued operation by a Person who is an indirect transferee of an
Interest in the Company pursuant to clause (ii) of Section 7.5 of the business
of such Person conducted within the Noncompete Area on the date the transaction
undertaken pursuant to clause (ii) of Section 7.5 is first contemplated.
Further, in the event a Member or one of its Affiliates acquires, directly or
indirectly, a healthcare business with operations in the Noncompete Area from an
unrelated third Person ("UTP") as part of an acquisition from such UTP of
multiple healthcare facilities then such Member or its Affiliate shall sell the
business operated within the Noncompete Area to the Company on commercially
reasonable terms acceptable to SHMC and NC-DSH. The parties hereto acknowledge
and agree that capital projects engaged in by the Company pursuant to Section
2.3 shall not be subject to this Article 11. SHMC and its Affiliates covenant
and agree that they shall not initiate an increase in or otherwise seek to
increase, directly or indirectly, their ownership interests (beneficial or
otherwise) (collectively, the "OWNERSHIP") in Goldring and Nevada or in any
entity or organization owning or operating Goldring or Nevada or any successor
to Goldring and Nevada or the organizations owning or operating Goldring and
Nevada. SHMC and its Affiliates further covenant and agree that in the event
they are required, despite their compliance with the immediately preceding
sentence, to increase their Ownership they shall use their reasonable best
efforts to promptly convey such increased Ownership to the Company on terms and
conditions reasonably acceptable to the Company, SHMC and NC-DSH.
11.3 Enforcement. In the event of a breach of Section 11.2 hereof, the
breaching party recognizes that monetary damages shall be inadequate to
compensate the nonbreaching party(ies) and the nonbreaching party(ies) shall be
entitled, without the posting of a bond, to an injunction restraining such
breach, with the costs (including attorneys fees) of securing such injunction to
be borne by the breaching party and its Affiliates, jointly and severally.
Nothing herein contained shall be construed as prohibiting the nonbreaching
party(ies) from pursuing any other remedy available for such breach or
threatened breach.
11.4 Reasonableness. All parties hereto hereby acknowledge the
necessity of protection against the competition of the Members and their
respective Affiliates and that the nature and scope of such protection has been
carefully considered by the parties. The period provided and the area covered
are expressly represented and agreed to be fair, reasonable and necessary. The
consideration provided for herein is deemed to be sufficient and adequate to
compensate the parties for agreeing to the restrictions contained in Section
11.2 hereof. If, however, any court determines that the forgoing restrictions
are not reasonable, such restrictions shall be modified, rewritten or
interpreted to include as much of their nature and scope as will render them
enforceable.
34
<PAGE> 39
ARTICLE 12
GENERAL
12.1 Filings. The Company shall execute and cause to be filed such
certificates and documents required by any jurisdiction in which the Company
engages in business. The Company shall take all other actions reasonably
necessary to perfect and maintain the status of the Company as a limited
liability company under the laws of Delaware and any other jurisdiction in which
the Company engages in business.
12.2 Status of Company for Tax Purposes. The Members intend that the
Company be classified as a partnership for federal income tax purposes. The
Members shall be under a continuing obligation to perform their duties and
responsibilities under this Agreement in light of such intention, and the
Company shall do any and all things and acts necessary or appropriate to
maintain such classification including filing Form 8832 with the Internal
Revenue Service.
12.3 Waiver of Action for Partition. Each Member (and assignee)
irrevocably waives, during the term of the Company, any right that it may have
to maintain any action for partition with respect to the Company and its
property.
12.4 Nonrecourse Loans. If the Company borrows money on a nonrecourse
basis, then the creditor who makes such a loan to the Company will not have or
acquire at any time as a result of making the loan, any direct or indirect
interest in the profits, capital or property of the Company other than as a
secured creditor.
12.5 Notice. Any notice or request required or desired to be given
pursuant to this Agreement shall be deemed to have been properly given if the
same shall be in writing and shall be either personally delivered, or deposited
in the United States certified or registered mail, with postage prepaid, or
deposited with any other generally recognized delivery service with charges
prepaid or billed to the sender, and addressed to the Company at its principal
executive office or addressed to such other person to whom such notice or
request is intended to be given at such address as such person may have
previously furnished in writing to the Company or to such person's last known
address.
12.6 Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the Members and their respective heirs, representatives,
transferees, successors and assigns. This Agreement may be executed in
counterparts and by facsimile, which together shall deemed one and the same
instrument.
12.7 Construction. As herein used, the singular number shall include
the plural, the plural the singular, and the use of any gender shall be
applicable to all genders, unless the context would otherwise fairly require.
The titles of the Articles and Sections herein have been inserted for
convenience of reference only and shall not control or affect the meaning or
construction of any of the terms or provisions hereof. All references herein to
Articles and Sections shall mean the appropriate numbered Article or Section
hereof
35
<PAGE> 40
except where reference is made to the Act, the Code, the Regulations or to some
other specified law, regulation or instrument. The parties to this Agreement
shall be under a duty to act in good faith when exercising or declining to
exercise any right or obligation hereunder, provided that, with respect to items
that are the subject of Super-Majority approval or SHMC or NC-DSH consent, no
reasonableness standard will be imposed and such decisions shall be in each of
SHMC and NC-DSH's complete and unfettered discretion; each such party having a
veto power with respect to the action proposed to be taken by the Company. It is
acknowledged by the parties that this Agreement has undergone several drafts
with the negotiated suggestions of each and, therefore, no presumptions will
arise favoring any party by virtue of the authorship of any of its provisions or
the changes made through revisions.
12.8 Survival of Provisions. Whenever possible, each provision and term
of this Agreement shall be interpreted in such manner as to be valid and
enforceable; provided that in the event any provision or term of this Agreement
should be determined to be invalid or unenforceable, all other provisions and
terms of this Agreement and the application thereof to all persons and
circumstances subject thereto shall remain unaffected to the extent permitted by
law.
12.9 Integrated Agreement. This Agreement constitutes the entire
understanding and agreement among the Members with respect to the subject matter
hereof and shall control over any inconsistent understanding, restriction,
representation, or warranty among the Members.
12.10 Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State of Delaware except where reference is
herein made to sections or provisions of the Code or Regulations. All references
to sections or provisions of the Act, Code and Regulations shall mean such
sections or provisions as now or hereafter amended and shall include any
successor sections or provisions.
36
<PAGE> 41
The undersigned Members have executed this Agreement as of the date
first above written.
"SHMC"
Summerlin Hospital Medical Center, L.P.
By: UHS Holding Company, Inc.
Title: General Partner
By:
---------------------------
Title:
------------------------
"NC-DSH"
NC-DSH, Inc.
By:
------------------------------------
Roland P. Richardson, Vice President
37
<PAGE> 42
The undersigned have executed this Agreement as of the date first above
written for purposes of acknowledging their agreement to the provisions of
Article 11. Universal Health Services, Inc. has executed this Agreement as of
the date first above written for the further purpose of acknowledging its
agreement to the provisions of Section 8.4.
Universal Health Services, Inc.
By:
---------------------------------
Title:
------------------------------
Quorum Health Group, Inc.
By:
---------------------------------
Title:
------------------------------
38
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