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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-10454
UNIVERSAL HEALTH SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2077891
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
P.O. BOX 61558
KING OF PRUSSIA, PENNSYLVANIA 19406-0958
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 768-3300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
CLASS B COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS D COMMON STOCK, $.01 PAR VALUE
(TITLE OF EACH CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The number of shares of the registrant's Class A Common Stock, $.01 par value,
Class B Common Stock, $.01 par value, Class C Common Stock, $.01 par value, and
Class D Common Stock, $.01 par value, outstanding as of February 1, 1996, was
1,090,527, 12,671,261, 109,622, and 20,356, respectively.
The aggregate market value of voting stock held by non-affiliates at February 1,
1996 was $644,919,328.88. (For purpose of this calculation, it was assumed that
Class A, Class C, and Class D Common Stock, which are not traded but are
convertible share-for-share into Class B Common Stock, have the same market
value as Class B Common Stock.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for its 1996 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1995 (incorporated by reference
under Part III).
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PART I
ITEM 1. BUSINESS
The principal business of Universal Health Services, Inc. (together with
its subsidiaries, the "Company") is owning and operating acute care hospitals,
behavioral health centers, ambulatory surgery centers and radiation oncology
centers. Presently, the Company operates 29 hospitals, consisting of 14 acute
care hospitals and 15 behavioral health centers, in Arkansas, California,
Florida, Georgia, Illinois, Louisiana, Massachusetts, Michigan, Missouri,
Nevada, Pennsylvania, South Carolina, Texas and Washington. The Company, as part
of its Ambulatory Treatment Centers Division, owns outright, or in partnership
with physicians, and operates or manages 26 surgery and radiation oncology
centers located in 15 states.
Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, diagnostic care,
coronary care, pediatric services and psychiatric services. The Company provides
capital resources as well as a variety of management services to its facilities,
including central purchasing, data processing, finance and control systems,
facilities planning, physician recruitment services, administrative personnel
management, marketing and public relations.
The Company selectively seeks opportunities to expand its base of
operations by acquiring, constructing or leasing additional hospital facilities.
Such expansion may provide the Company with access to new markets and new health
care delivery capabilities. The Company also seeks to increase the operating
revenues and profitability of owned hospitals by the introduction of new
services, improvement of existing services, physician recruitment and the
application of financial and operational controls. Pressures to contain health
care costs and technological developments allowing more procedures to be
performed on an outpatient basis have led payors to demand a shift to ambulatory
or outpatient care wherever possible. The Company is responding to this trend by
emphasizing the expansion of outpatient services. In addition, in response to
cost containment pressures, the Company intends to implement programs designed
to improve financial performance and efficiency while continuing to provide
quality care, including more efficient use of professional and paraprofessional
staff, monitoring and adjusting staffing levels and equipment usage, improving
patient management and reporting procedures and implementing more efficient
billing and collection procedures. The Company also continues to examine its
facilities and to dispose of those facilities which it believes do not have the
potential to contribute to the Company's growth or operating strategy.
The Company is involved in continual development activities. Applications
to state health planning agencies to add new services in existing hospitals are
currently on file in several states which require certificates of need (e.g.,
Georgia and Illinois). Although the Company expects that some of these
applications will result in the addition of new facilities or services to the
Company's operations, no assurances can be made for ultimate success by the
Company in these efforts.
RECENT AND PROPOSED ACQUISITIONS AND DEVELOPMENT ACTIVITIES
The Company has an agreement for or has recently consummated a number of
acquisitions. In November 1994, the Company acquired Edinburg Hospital, a
112-bed acute care hospital located in Edinburg, Texas, which is in close
proximity to McAllen, Texas, for $11.3 million and the assumption of liabilities
totalling $2.2 million. In addition, the Company has agreed to construct and has
acquired the land for a 100-bed hospital in Edinburg. This acquisition and
development of the new hospital will enable the Company to enhance its presence
in McAllen, where it currently operates the 475-bed McAllen Medical Center.
In May 1995, the Company acquired Fuller Memorial Psychiatric Hospital, an
82-bed behavioral health center, for approximately $3 million. Fuller, located
in southeastern Massachusetts and in close proximity to two of the Company's
other behavioral health centers and its eleven day-treatment clinics, will
augment the Company's ability to serve additional patients in southeastern
Massachusetts.
In July 1995, the Company exchanged the operations and fixed assets of
Westlake Medical Center, a 126-bed acute care hospital located in Westlake,
California, and Dallas Family Hospital, a 104-bed acute care hospital in Dallas,
Texas, and approximately $44 million in cash, for Aiken Regional Medical
Centers, a
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225-bed medical center complex in Aiken, South Carolina, formerly owned by a
subsidiary of Columbia/HCA Healthcare Corporation. In September 1995, the
Company purchased substantially all the assets of Manatee Memorial Hospital, a
512-bed acute care hospital, located in Bradenton, Florida, for $139 million in
cash.
The Company is developing, with the participation of Howard Hughes
Corporation, a medical complex including a 129-bed acute care hospital, an
ambulatory surgery center, a medical office building and a diagnostic center in
the community of Summerlin, Nevada, in western Las Vegas. These facilities are
expected to open in various stages during 1996 and 1997.
In February 1996, the Company entered into an agreement with the Amarillo
Hospital District to purchase Northwest Texas Health Systems, a 360-bed medical
complex located in Amarillo, Texas. The closing of the transaction, which is
expected to be completed during the second quarter of 1996, is subject to the
receipt of various regulatory approvals and other conditions. This acquisition
will provide the Company with a modern facility in a new market. Northwest Texas
Health is a market leader and is one of two hospitals located in Amarillo.
In 1995, the Company continued to add to its Ambulatory Treatment Centers
Division and acquired, in partnership with physicians, additional free-standing
ambulatory surgery centers located in Fayetteville, Arkansas; Somersworth, New
Hampshire; and Waltham, Massachusetts. Also, as part of this Division, the
Company agreed to manage the operations of, and purchase a majority interest in,
a partnership which leases fixed assets to a radiation therapy center in
Louisville, Kentucky.
The Company also selectively expanded its operations at certain of its
existing facilities; McAllen Medical Center in McAllen, Texas, completed
construction of a new cardiac care unit, adding 21 beds and nearly doubling the
unit's present capacity; River Parishes Hospital in LaPlace, Louisiana,
completed construction of a 40,000 square foot medical office building; and
Wellington Regional Medical Center in West Palm Beach, Florida, completed
expansion of their emergency department, more than doubling its size and adding
pediatric and rapid care rooms.
In keeping with its strategy to exit crowded markets, the Company sold
Universal Medical Center in Plantation, Florida, to OrNda HealthCorp. on October
31, 1995, for $20 million cash.
BED UTILIZATION AND OCCUPANCY RATES
The following table shows the bed utilization and occupancy rates for the
hospitals operated by the Company for the years indicated, excluding information
relating to hospitals no longer owned by the Company as of December 31, 1995 and
including the information for the following acquisitions made during 1994 and
1995: (i) a 112-bed acute care hospital located in Edinburg, Texas; (ii) an
82-bed psychiatric hospital located in South Attleboro, Massachusetts; (iii) a
225-bed acute care hospital located in Aiken, South Carolina, and; (iv) a
512-bed acute care hospital located in Bradenton, Florida. Accordingly, the
information is presented on a basis different from that used in preparing the
historical financial information included in this Report.
1995 1994 1993 1992 1991
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Average Licensed Beds........................ 4,073 4,015 3,946 3,851 3,765
Average Available Beds(1).................... 3,866 3,784 3,709 3,561 3,526
Hospital Admissions.......................... 117,892 109,715 102,734 97,331 96,170
Average Length of Patient Stay (Days)........ 6.0 6.3 6.7 7.2 7.5
Patient Days(2).............................. 712,344 691,466 688,338 696,405 721,036
Occupancy Rate(3):
Licensed Beds.............................. 48% 47% 48% 49% 52%
Available Beds............................. 50% 50% 51% 53% 56%
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(1) "Average Available Beds" is the number of beds which are actually in service
at any given time for immediate patient use with the necessary equipment and
staff available for patient care. A hospital may have appropriate licenses
for more beds than are in service for a number of reasons, including lack of
demand, incomplete construction, and anticipation of future needs.
(2) "Patient Days" is the aggregate sum for all patients of the number of days
that hospital care is provided to each patient.
(3) "Occupancy Rate" is calculated by dividing average patient days (total
patient days divided by the total number of days in the period) by the
number of average beds, either available or licensed.
The number of patient days of a hospital is affected by a number of
factors, including the number of physicians using the hospital, changes in the
number of beds, the composition and size of the population of the community in
which the hospital is located, general and local economic conditions, variations
in local medical and surgical practices and the degree of outpatient use of the
hospital services. Current industry trends in utilization and occupancy have
been significantly affected by changes in reimbursement policies of third party
payors. A continuation of such industry trends could have a material adverse
impact upon the Company's future operating performance. The Company has
experienced growth in outpatient utilization over the past several years. The
Company is unable to predict the rate of growth and resulting impact on the
Company's future revenues because it is dependent upon developments in medical
technologies and physician practice patterns, both of which are outside of the
Company's control. The Company is also unable to predict the extent which other
industry trends will continue or accelerate.
SOURCES OF REVENUE
The Company receives payment for services rendered from private insurers,
including managed care plans, the Federal government under the Medicare program,
state governments under their respective Medicaid programs and directly from
patients. Most of the company's hospitals are certified as providers of Medicare
and Medicaid services by the appropriate governmental authorities. The
requirements for certification are subject to change, and, in order to remain
qualified for such programs, it may be necessary for the Company to make changes
from time to time in its facilities, equipment, personnel and services. Although
the Company intends to continue in such programs, there is no assurance that it
will continue to qualify for participation.
The sources of the Company's hospital revenues are charges related to the
services provided by the hospitals and their staffs, such as radiology,
operating rooms, pharmacy, physiotherapy and laboratory procedures, and basic
charges for the hospital room and related services such as general nursing care,
meals, maintenance and housekeeping. Hospital revenues depend upon the occupancy
for inpatient routine services, the extent to which ancillary services and
therapy programs are ordered by physicians and provided to patients, the volume
of outpatient procedures and the charges or negotiated payment rates for such
services. Charges and reimbursement rates for inpatient routine services vary
depending on the type of bed occupied (e.g., medical/surgical, intensive care or
psychiatric) and the geographic location of the hospital.
Valley Hospital Medical Center in Las Vegas, Nevada contributed 18%, 19%
and 16% of the Company's net revenues and 30%, 35% and 32% of the Company's
earnings before interest, income taxes, depreciation, amortization, lease and
rental expense and nonrecurring transactions (EBITDAR), for the three years
ended December 31, 1995, 1994 and 1993, respectively, excluding the effect of
the special Medicaid reimbursements received at two of the Company's Texas acute
care hospitals of $12.6 million, $12.7 million and $13.5 million for the years
ended December 31, 1995, 1994 and 1993, respectively. McAllen Medical Center in
McAllen, Texas contributed 20%, 21% and 18% of the Company's net revenues and
36%, 35% and 32% of the Company's EBITDAR, for the years ended December 31,
1995, 1994 and 1993, respectively, excluding the special Medicaid reimbursements
mentioned above.
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The following table shows approximate percentages of net patient revenue
derived by the Company's hospitals owned as of December 31, 1995 since their
respective dates of acquisition by the Company from third party sources,
excluding the effect of special Medicaid reimbursements received at the
Company's Texas acute care hospitals of $12.6 million in 1995, $12.7 million in
1994, $13.5 million in 1993 and $29.8 million in 1992, and from all other
sources during the five years ended December 31, 1995.
PERCENTAGE OF NET PATIENT REVENUES
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1995 1994 1993 1992 1991
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Third Party Payors:
Medicare......................................... 35.0% 32.7% 32.1% 32.2% 29.7%
Medicaid......................................... 12.5% 11.8% 10.4% 7.1% 4.9%
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TOTAL............................................ 47.5% 44.5% 42.5% 39.3% 34.6%
Other Sources (including patients and private
insurance carriers).............................. 52.5% 55.5% 57.5% 60.7% 65.4%
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100% 100% 100% 100% 100%
REGULATION AND OTHER FACTORS
Within the statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings, interpretations and
discretion which may affect payments made under either or both of such programs
and reimbursement is subject to audit and review by third party payors.
Management believes that adequate provision has been made for any adjustments
that might result therefrom.
The Federal government makes payments to participating hospitals under its
Medicare program based on various formulae. The Company's general acute care
hospitals are subject to a prospective payment system ("PPS"). PPS pays
hospitals a predetermined amount per diagnostic related group ("DRG") based upon
a hospital's location and the patient's diagnosis.
The deficit-reduction legislation passed by Congress in 1987 limits the
increases in PPS reimbursement based on the rate of inflation and the location
of hospitals. Psychiatric hospitals, which are exempt from PPS, are cost
reimbursed by the Medicare program, but are subject to a per discharge
limitation, calculated based on the hospital's first full year in the Medicare
program. Capital related costs are exempt from this limitation.
On August 30, 1991, the Health Care Financing Administration issued final
Medicare regulations establishing a prospective payment methodology for
inpatient hospital capital-related costs. These regulations apply to hospitals
which are reimbursed based upon the prospective payment system and took effect
for cost years beginning on or after October 1, 1991. For each of the Company's
hospitals, the new methodology began on January 1, 1992.
The regulations provide for the use of a 10-year transition period in which
a blend of the old and new capital payment provisions will be utilized. One of
two methodologies will apply during the 10-year transition period: if the
hospital's hospital-specific capital rate exceeds the federal capital rate, the
hospital will be paid on the basis of a "hold harmless" methodology, which is a
blend of actual cost reimbursement and a prospectively determined national
federal capital rate; or, with limited exceptions, if the hospital-specific rate
is below the federal capital rate, the hospital will receive payments based upon
a "fully prospective" methodology, which is a blend of the hospital's actual
base year capital rate and a prospectively determined national federal capital
rate. Each hospital's hospital-specific rate was determined based upon allowable
capital costs incurred during the "base year", which, for all of the Company's
hospitals, is the year ended December 31, 1990. All of the Company's hospitals
are paid under the "hold harmless" methodology except for one hospital, which is
paid under the "fully prospective" methodology.
Within certain limits, a hospital can manage its costs, and, to the extent
this is done effectively, a hospital may benefit from the DRG system. However,
many hospital operating costs are incurred in order to satisfy licensing laws,
standards of the Joint Commission on the Accreditation of Healthcare
Organizations and quality of care concerns. In addition, hospital costs are
affected by the level of patient acuity, occupancy rates and local physician
practice patterns, including length of stay judgments and number and type of
tests and
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procedures ordered. A hospital's ability to control or influence these factors
which affect costs is, in many cases, limited.
Both the House of Representatives and the Senate have passed legislation
providing for substantial Medicare savings over a seven year period, including
reductions in payments to hospitals, which would limit the rate of growth of the
program. The House of Representatives and the Senate bills have not yet been
reconciled and the ultimate legislation will be subject to Presidential
approval. The Company cannot predict what new legislation may ultimately be
enacted, and if enacted, no assurance can be given that the implementation of
such reforms will not have a material adverse effect on the Company's business.
In addition to Federal health reform efforts, several states have adopted
or are considering healthcare reform legislation. Several states are planning to
consider wider use of managed care for their Medicaid populations and providing
coverage for some people who presently are uninsured. The enactment of Medicaid
managed care initiatives is designed to provide low-cost coverage. The Company
currently operates three behavioral health centers with a total of 268 beds in
Massachusetts, which has mandated hospital rate-setting. The Company also
operates three hospitals containing an aggregate of 688 beds in Florida that are
subject to a mandated form of rate-setting if increases in hospital revenues per
admission exceed certain target percentages. In Texas, a law has been passed
which mandates that the state senate apply for a waiver from current Medicaid
regulations to allow the state to require that certain Medicaid participants be
serviced through managed care providers. The Company is unable to predict
whether Texas will be granted such a waiver or the effect on the Company's
business of such waiver.
Pursuant to Federal legislation, in general, the Federal government is
required to match state funds applied to state Medicaid programs. Several states
had programs under which certain hospital providers were taxed to generate
Medicaid funds which must be matched by the Federal government. New legislation
passed by Congress on November 27, 1991, limited each state's use of provider
taxes after 1994. State programs involving provider taxes in which UHS'
hospitals are participants were in place in Texas, Louisiana, Missouri, and
Nevada. The Louisiana, Missouri and Nevada programs expired during 1994 and
1995, and the Texas program is scheduled to expire in August 1996.
Under the Omnibus Budget Reconciliation Act of 1993 ("OBRA"), enacted by
Congress in late 1993, and effective January 1, 1995, physicians are precluded
from referring Medicare and Medicaid patients for a wide range of services where
the physician has an ownership interest or investment interest in, or
compensation arrangement with, an entity that provides such services. The
legislation includes certain exceptions including, for example, where the
referring physician has an ownership interest in a hospital as a whole or an
ambulatory surgery center if the physician performs services at the center. In
addition, all Medicare providers and suppliers are subject to certain reporting
and disclosure requirements.
In 1991, 1992 and 1993, the Inspector General of the Department of Health
and Human Services ("HHS") issued regulations which provide for "safe harbors";
if an arrangement or transaction meets each of the stipulations established for
a particular safe harbor, the arrangement will not be subject to challenge by
the Inspector General. If an arrangement does not meet the safe harbor criteria,
it will be analyzed under its particular facts and circumstances to determine
whether it violates the Medicare anti-kickback statute which prohibits, in
general, fraudulent and abusive practices, and enforcement action may be taken
by the Inspector General. In addition to the investment interests safe harbor,
other safe harbors include space rental, equipment rental, personal
service/management contracts, sales of a physician practice, referral services,
warranties, employees, discounts and group purchasing arrangements, among
others.
The Company does not anticipate that either the OBRA provisions or the safe
harbor regulations will have material adverse effects upon its operations.
Several states, including Florida and Nevada, have passed legislation which
limits physician ownership in medical facilities providing imaging services,
rehabilitation services, laboratory testing, physical therapy and other
services. This legislation is not expected to significantly affect the Company's
operations.
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All hospitals are subject to compliance with various federal, state and
local statutes and regulations and receive periodic inspection by state
licensing agencies to review standards of medical care, equipment and
cleanliness. The Company's hospitals must comply with the licensing requirements
of federal, state and local health agencies, as well as the requirements of
municipal building codes, health codes and local fire departments. In granting
and renewing licenses, a department of health considers, among other things, the
physical buildings and equipment, the qualifications of the administrative
personnel and nursing staff, the quality of care and continuing compliance with
the laws and regulations relating to the operation of the facilities. State
licensing of facilities is a prerequisite to certification under the Medicare
and Medicaid programs. Various other licenses and permits are also required in
order to dispense narcotics, operate pharmacies, handle radioactive materials
and operate certain equipment. All the Company's eligible hospitals have been
accredited by the Joint Commission on the Accreditation of Healthcare
Organizations.
The Social Security Act and regulations thereunder contain numerous
provisions which affect the scope of Medicare coverage and the basis for
reimbursement of Medicare providers. Among other things, this law provides that
in states which have executed an agreement with the Secretary of the Department
of Health and Human Services (the "Secretary"), Medicare reimbursement may be
denied with respect to depreciation, interest on borrowed funds and other
expenses in connection with capital expenditures which have not received prior
approval by a designated state health planning agency. Additionally, many of the
states in which the Company's hospitals are located have enacted legislation
requiring certificates of need ("CON") as a condition prior to hospital capital
expenditures, construction, expansion, modernization or initiation of major new
services. Failure to obtain necessary state approval can result in the inability
to complete an acquisition or change of ownership, the imposition of civil or,
in some cases, criminal sanctions, the inability to receive Medicare or Medicaid
reimbursement or the revocation of a facility's license. The Company has not
experienced and does not expect to experience any material adverse effects from
those requirements.
Health planning statutes and regulatory mechanisms are in place in many
states in which the Company operates. These provisions govern the distribution
of healthcare services, the number of new and replacement hospital beds,
administer required state CON laws, contain healthcare costs, and meet the
priorities established therein. Significant CON reforms have been proposed in a
number of states, including increases in the capital spending thresholds and
exemptions of various services from review requirements. The Company is unable
to predict the impact of these changes upon its operations.
Federal regulations provide that admissions and utilization of facilities
by Medicare and Medicaid patients must be reviewed in order to insure efficient
utilization of facilities and services. The law and regulations require Peer
Review Organizations ("PROs") to review the appropriateness of Medicare and
Medicaid patient admissions and discharges, the quality of care provided, the
validity of DRG classifications and the appropriateness of cases of
extraordinary length of stay. PROs may deny payment for services provided,
assess fines and also have the authority to recommend to HHS that a provider
that is in substantial non-compliance with the standards of the PRO be excluded
from participating in the Medicare program. The Company has contracted with PROs
in each state where it does business as to the scope of such functions.
The Company's healthcare operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. In 1988, Congress passed the Medical Waste Tracking Act.
Infectious waste generators, including hospitals, now face substantial penalties
for improper arrangements regarding disposal of medical waste, including civil
penalties of up to $25,000 per day of noncompliance, criminal penalties of
$150,000 per day, imprisonment, and remedial costs. The comprehensive
legislation establishes programs for medical waste treatment and disposal in
designated states. The legislation also provides for sweeping inspection
authority in the Environmental Protection Agency, including monitoring and
testing. The Company believes that its disposal of such wastes is in compliance
with all state and federal laws.
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MEDICAL STAFF AND EMPLOYEES
The Company's hospitals are staffed by licensed physicians who have been
admitted to the medical staff of individual hospitals. With a few exceptions,
physicians are not employees of the Company's hospitals and members of the
medical staffs of the Company's hospitals also serve on the medical staffs of
hospitals not owned by the Company and may terminate their affiliation with the
Company's hospitals at any time. Each of the Company's hospitals is managed on a
day-to-day basis by a managing director employed by the Company. In addition, a
Board of Governors, including members of the hospital's medical staff, governs
the medical, professional and ethical practices at each hospital. The Company's
facilities had approximately 12,000 employees at December 31, 1995, of whom
9,000 were employed full-time.
614 of the Company's employees at four of its hospitals are unionized. At
Valley Hospital, unionized employees belong to the Culinary Workers and
Bartenders Union and the International Union of Operating Engineers. Registered
nurses at Auburn Regional Medical Center located in Washington State, are
represented by the Washington State Nurses Association, the practical nurses at
Auburn are represented by the United Food and Commercial Workers and licensed
practical nurses at Auburn are represented by the Service Employees
International Union, Local 6. In addition, at Auburn, the technical employees
are represented by the United Food and Commercial Workers, and the service
employees are represented by the Service Employees International Union. The
registered nurses, licensed practical nurses, certain technicians and
therapists, and housekeeping employees at HRI Hospital in Boston are represented
by the Service Employees International Union. All full-time and regular
part-time professional employees of La Amistad Residential Treatment Center in
Maitland, Florida are represented by the United Nurses of Florida/United Health
Care Employees Union. The Company believes that its relations with its employees
are satisfactory.
COMPETITION
In all geographical areas in which the Company operates, there are other
hospitals which provide services comparable to those offered by the Company's
hospitals, some of which are owned by governmental agencies and supported by tax
revenues, and others of which are owned by nonprofit corporations and may be
supported to a large extent by endowments and charitable contributions. Such
support is not available to the Company's hospitals. Certain of the Company's
competitors have greater financial resources, are better equipped and offer a
broader range of services than the Company. Outpatient treatment and diagnostic
facilities, outpatient surgical centers and freestanding ambulatory surgical
centers also impact the healthcare marketplace. In recent years, competition
among healthcare providers for patients has intensified as hospital occupancy
rates in the United States have declined due to, among other things, regulatory
and technological changes, increasing use of managed care payment systems, cost
containment pressures, a shift toward outpatient treatment and an increasing
supply of physicians. The Company's strategies are designed, and management
believes that its facilities are positioned, to be competitive under these
changing circumstances.
LIABILITY INSURANCE
Most of the Company's subsidiaries are self-insured for general liability
risks for claims limited to $5 million per occurrence and for professional
liability risks for claims limited to $25 million per occurrence. Coverage in
excess of these limits up to $100 million is maintained with major insurance
carriers. Since 1993, certain of the Company's subsidiaries, including one of
its larger acute care facilities, have purchased general and professional
liability occurrence policies with commercial insurers. These policies include
coverage up to $25 million per occurrence for general and professional liability
risks.
Effective January 1, 1996, the Company's self-insured subsidiaries
purchased general and professional liability insurance coverage for a three year
term with a commercial insurer. These policies include coverage for claims in
excess of $5 million and limited to $25 million per occurrence and have an
unlimited aggregate. Although the Company feels that it currently has adequate
insurance coverage, the commercial policies are limited to one-year terms and
require annual renegotiation or replacement. The Company has no assurance that
it will be able to maintain such insurance in the future on terms acceptable to
the Company.
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RELATIONS WITH UNIVERSAL HEALTH REALTY INCOME TRUST
The Company serves as advisor to Universal Health Realty Income Trust
("UHT"), which leases to the Company the real property of 7 facilities operated
by the Company. In addition, UHT holds interests in properties owned by
unrelated companies. The Company receives a fee for its advisory services based
on the value of UHT's assets. In addition, certain of the directors and officers
of the Company serve as trustees and officers of UHT. As of February 1, 1996,
the Company owned 8% of UHT's outstanding shares and the Company currently has
an option to purchase UHT shares in the future at fair market value to enable it
to maintain a 5% interest.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, whose terms will expire at such time
as their successors are elected, are as follows:
NAME AND AGE PRESENT POSITION WITH THE COMPANY
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Alan B. Miller (58)................................... Director, Chairman of the Board,
President and Chief Executive Officer
Kirk E. Gorman (45)................................... Senior Vice President and Chief
Financial Officer
Richard C. Wright (48)................................ Vice President
Thomas J. Bender (43)................................. Vice President
Michael G. Servais (49)............................... Senior Vice President
Steve G. Filton (38).................................. Vice President and Controller
Sidney Miller (69).................................... Director and Secretary
Mr. Alan B. Miller has been Chairman of the Board, President and Chief
Executive Officer of the Company since its inception. Prior thereto, he was
President, Chairman of the Board and Chief Executive Officer of American
Medicorp, Inc.
Mr. Gorman was elected Senior Vice President and Chief Financial Officer in
December 1992, and has served as Vice President and Treasurer of the Company
since April 1987. From 1984 until then, he served as Senior Vice President of
Mellon Bank, N.A. Prior thereto, he served as Vice President of Mellon Bank,
N.A.
Mr. Wright was elected Vice President of the Company in May 1986. He has
served in various capacities with the Company since 1978, including Senior Vice
President of its Acute Care Division since 1985.
Mr. Bender was elected Vice President of the Company in March 1988. He has
served in various capacities with the Company since 1982, including
responsibility for the Psychiatric Care Division since November 1985.
Mr. Filton was elected Vice President and Controller of the Company in
November 1991, and had served as Director of Accounting and Control since July
1985.
Mr. Servais was elected Senior Vice President of the Company in January
1996, and has served as Vice President of the Company since January 1994,
Assistant Vice President of the Company since January 1993, and Group Director
since December 1990. Prior thereto, he served as President of Jupiter Hospital
Corporation, and Vice President of Operations of American Health Group
International.
Mr. Sidney Miller has served as Secretary of the Company since 1990 and
Director of the Company since 1978. He has served in various capacities with the
Company, including Executive Vice President since 1983, Vice President since
1978, and Assistant to the President during 1993 and 1994. Prior thereto, he was
Vice President-Financial Services and Control of American Medicorp, Inc.
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ITEM 2. PROPERTIES
EXECUTIVE OFFICES
The Company owns an office building with 68,000 square feet available for
use located on 11 acres of land in King of Prussia, Pennsylvania. The Company
currently uses approximately 40,000 square feet of office space in the building
and the balance is leased to unrelated entities.
FACILITIES
The following tables set forth the name, location, type of facility and,
for acute care hospitals and behavioral health centers, the number of beds, for
each of the Company's facilities:
ACUTE CARE HOSPITALS
NUMBER OWNERSHIP
NAME OF FACILITY LOCATION OF BEDS INTEREST
Aiken Regional Medical Centers.......... Aiken, South Carolina 225 Owned
Auburn Regional Medical Center.......... Auburn, Washington 149 Owned
Chalmette Medical Center(1)............. Chalmette, Louisiana 118 Leased
Doctors' Hospital of Shreveport(2)...... Shreveport, Louisiana 136 Leased
Edinburg Hospital....................... Edinburg, Texas 112 Owned
Inland Valley Regional Medical
Center(1)............................. Wildomar, California 80 Leased
Manatee Memorial Hospital............... Bradenton, Florida 512 Owned
McAllen Medical Center(1)............... McAllen, Texas 475 Leased
Northern Nevada Medical Center(3)....... Sparks, Nevada 150 Owned
Northwest Texas Health Systems.......... Amarillo, Texas 360 Acquisition
Pending
River Parishes Hospitals(4)............. LaPlace and Chalmette, 216 Leased/Owned
Louisiana
Valley Hospital Medical Center.......... Las Vegas, Nevada 398 Owned
Victoria Regional Medical Center........ Victoria, Texas 147 Owned
Wellington Regional Medical Center(1)... West Palm Beach, Florida 120 Leased
BEHAVIORAL HEALTH CENTERS
NUMBER OWNERSHIP
NAME OF FACILITY LOCATION OF BEDS INTEREST
The Arbour Hospital..................... Boston, Massachusetts 118 Owned
The BridgeWay(1)........................ North Little Rock, Arkansas 70 Leased
Del Amo Hospital........................ Torrance, California 166 Owned
Forest View Hospital.................... Grand Rapids, Michigan 62 Owned
Fuller Memorial Psychiatric Hospital.... South Attleboro, 82 Owned
Massachusetts
Glen Oaks Hospital...................... Greenville, Texas 54 Owned
HRI Hospital............................ Brookline, Massachusetts 68 Owned
KeyStone Center(5)...................... Wallingford, Pennsylvania 84 Owned
La Amistad Residential Treatment
Center................................ Maitland, Florida 58 Owned
Meridell Achievement Center(1).......... Austin, Texas 114 Leased
The Pavilion............................ Champaign, Illinois 46 Owned
River Crest Hospital.................... San Angelo, Texas 80 Owned
River Oaks Hospital..................... New Orleans, Louisiana 126 Owned
Turning Point Hospital(5)............... Moultrie, Georgia 59 Owned
Two Rivers Psychiatric Hospital......... Kansas City, Missouri 80 Owned
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AMBULATORY SURGERY CENTERS
NAME OF FACILITY(7) LOCATION
Arkansas Surgery Center of Fayetteville................ Fayetteville, Arkansas
Corona Outpatient Surgery Center....................... Corona, California
Goldring Surgical and Diagnostic Center................ Las Vegas, Nevada
M.D. Physicians Surgicenter of Midwest City............ Midwest City, Oklahoma
Outpatient Surgical Center of Ponca City............... Ponca City, Oklahoma
St. George Surgical Center............................. St. George, Utah
Seacoast Outpatient Surgical Center.................... Somersworth, New Hampshire
Surgery Centers of the Desert.......................... Rancho Mirage, California Palm
Springs, California
The Surgery Center of Chalmette........................ Chalmette, Louisiana
Surgery Center of Littleton............................ Littleton, Colorado
Surgery Center of Springfield.......................... Springfield, Missouri
Surgery Center of Texas................................ Odessa, Texas
Surgical Center of New Albany.......................... New Albany, Indiana
Surgery Center of Waltham.............................. Waltham, Massachusetts
RADIATION ONCOLOGY CENTERS
NAME OF FACILITY LOCATION
Auburn Regional Center for Cancer Care................. Auburn, Washington
Bluegrass Cancer Center(6)............................. Frankfort, Kentucky
Bowling Green Radiation Therapy(6)..................... Bowling Green, Kentucky
Carolina Cancer Center................................. Aiken, South Carolina
Columbia Radiation Oncology Center..................... Washington, D.C.
Danville Radiation Therapy Center(6)................... Danville, Kentucky
Glasgow Radiation Therapy(6)........................... Glasgow, Kentucky
Louisville Radiation Oncology Center(6)................ Louisville, Kentucky
Madison Radiation Therapy(8)........................... Madison, Indiana
McAllen Medical Center Cancer Institute................ McAllen, Texas
Regional Cancer Center at Wellington................... West Palm Beach, Florida
Southern Indiana Radiation Therapy(8).................. Jeffersonville, Indiana
SPECIALIZED WOMEN'S HEALTH CENTERS
NAME OF FACILITY LOCATION
Renaissance Women's Center of Edmond................... Edmond, Oklahoma
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(1) Real property leased from UHT.
(2) Real property leased with an option to purchase.
(3) General partnership interest in limited partnership.
(4) Includes Chalmette Hospital, a 114-bed rehabilitation facility. The
Company owns the LaPlace real property and leases the Chalmette real property
from UHT.
(5) Addictive disease facility.
(6) Managed Facility. A partnership, in which the Company is the general
partner, owns the real property.
(7) Each facility other than Goldring Surgical and Diagnostic Center and
The Surgery Center of Chalmette are owned in partnership form with the Company
owning general and limited partnership interests in a limited partnership. The
real property is leased from third parties.
(8) A partnership, in which the Company is the general partner, owns the
real property.
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Some of these facilities are subject to mortgages, and substantially all
the equipment located at these facilities is pledged as collateral to secure
long-term debt. The Company owns or leases medical office buildings adjoining
certain of its hospitals.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business, including those arising from care and treatment afforded at the
Company's hospitals and is party to various other litigation. However,
management believes the ultimate resolution of these pending proceedings will
not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable. No matter was submitted during the fourth quarter of the
fiscal year ended December 31, 1995 to a vote of security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See Item 6, Selected Financial Data
ITEM 6. SELECTED FINANCIAL DATA
- - -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
- - -------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net revenues............. $931,126,000 $782,199,000 $761,544,000 $731,227,000 $691,619,000
Net income............... $ 35,484,000 $ 28,720,000 $ 24,011,000 $ 20,020,000 $ 20,319,000
Net margin............... 3.8% 3.7% 3.2% 2.7% 2.9%
Return on average
equity................ 12.4% 11.8% 11.2% 10.3% 11.6%
FINANCIAL DATA
Cash provided by
operating
activities............ $ 91,749,000 $ 60,624,000 $ 84,640,000 $ 81,731,000 $ 47,190,000
Capital
expenditures(1)....... $ 65,695,000 $ 48,652,000 $ 52,690,000 $ 40,554,000 $ 29,926,000
Total assets............. $748,051,000 $521,492,000 $460,422,000 $472,427,000 $500,706,000
Long-term borrowings..... $237,086,000 $ 85,125,000 $ 75,081,000 $114,959,000 $127,235,000
Common stockholders'
equity................ $297,700,000 $260,629,000 $224,488,000 $202,903,000 $184,353,000
Percentage of total debt
to total
capitalization........ 45% 26% 26% 37% 49%
OPERATING DATA
Average licensed beds.... 3,876 3,543 3,682 3,562 3,656
Average available beds... 3,563 3,241 3,345 3,229 3,320
Hospital admissions...... 107,094 88,956 85,005 83,324 84,857
Average length of patient
stay.................. 6.1 6.5 6.8 7.2 7.6
Patient days............. 658,066 574,311 580,398 603,893 641,607
Occupancy rate for
licensed beds......... 47% 44% 43% 46% 48%
Occupancy rate for
available beds........ 51% 49% 48% 51% 53%
PER SHARE DATA
Net income............... $ 2.52 $ 2.02 $ 1.71 $ 1.43 $ 1.45
COMMON STOCK PERFORMANCE
Market price of common
stock
High Low, by quarter(2)
1st................... 26 -22 3/4 26 5/8-19 1/4 16 -12 5/8 15 1/2-12 3/8 14 1/4- 8 1/4
2nd................... 29 5/8-24 7/8 26 7/8-22 1/2 16 1/4-13 13 7/8-11 1/8 15 7/8-13 1/8
3rd................... 35 3/8-28 29 1/2-25 7/8 17 -14 1/2 13 3/8-11 1/4 17 5/8-14 5/8
4th................... 44 3/8-32 1/4 28 1/8-21 3/8 20 5/8-16 5/8 15 1/8-11 3/4 16 -10 7/8
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(1) Amount includes non-cash capital lease obligations.
(2) These prices are the high and low closing sales prices of the Company's
Class B Common Stock as reported by the New York Stock Exchange since June
7, 1991 and NASDAQ for all periods prior to June 7, 1991. Class A, C and D
Common Stock are convertible on a share-for-share basis into Class B Common
Stock.
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OTHER INFORMATION
Average number of shares
and share equivalents
outstanding........... 14,079,000 14,389,000 14,819,000 14,970,000 14,992,000
The 1994, 1993 and 1992 earnings per share and average number of shares
outstanding have been adjusted to reflect the assumed conversion of the
Company's convertible debentures. In April 1994, the Company redeemed the
debentures which reduced the fully diluted number of shares outstanding by
451,233. The common equivalent shares and the corresponding interest savings on
the assumed conversion of the convertible debentures were not included in the
1991 earnings per share computations because the effect was anti-dilutive.
NUMBER OF SHAREHOLDERS OF RECORD AS OF JANUARY 31, 1996, WERE AS FOLLOWS:
- - -----------------------------
Class A Common 7
Class B Common 563
Class C Common 7
Class D Common 316
- - -----------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net revenues increased 19% ($149 million) to $931 million in 1995 over 1994
and 3% ($21 million) to $782 million in 1994 as compared to 1993. The increase
during 1995 was primarily attributable to revenues generated at two acute care
facilities acquired by the Company during 1995 net of the revenue effects of the
three acute care facilities divested during the year ($58 million), revenue
growth at acute care facilities owned during both years ($44 million) and a full
year of revenue generated at an acute care facility acquired by the Company in
November, 1994 ($29 million). The increase in net revenues in 1994 as compared
to 1993 resulted primarily from revenue growth at facilities owned during both
years and the acquisition and development of ambulatory treatment centers.
Net revenues at hospital facilities owned during all three periods
increased by 7% ($47 million) in 1995 over 1994 and 7% ($42 million) in 1994
over 1993, excluding the additional revenues received by two of the Company's
acute care facilities which participate in the Texas Medical Assistance Program.
Upon meeting certain conditions of participation and serving a
disproportionately high share of the state's low income patients, these two
hospitals became eligible and received additional reimbursements totaling $12.6
million in 1995, $12.7 million in 1994 and $13.5 million in 1993. These programs
are scheduled to terminate in August, 1996 and the Company cannot predict
whether these programs will continue beyond the scheduled termination date. The
Company acquired a 225-bed acute care hospital in July, 1995 and a 512-bed acute
care hospital in August, 1995 which contributed combined net revenues of $89
million during 1995. The Company divested three acute care hospitals during 1995
and two acute care hospitals during 1993 which contributed combined net revenues
of $50 million, $81 million and $115 million during 1995, 1994 and 1993,
respectively. Net revenues at the Company's ambulatory treatment centers
increased to $23 million in 1995 from $17 million in 1994 and $11 million in
1993.
Excluding the revenue effects of the special Medicaid reimbursement
programs, earnings before interest, income taxes, depreciation, amortization,
lease and rental expense and nonrecurring transactions (EBITDAR) increased to
$151 million in 1995 from $127 million in 1994 and $113 million in 1993. The
Company's consolidated operating margins were 16.4% in 1995, 16.5% in 1994 and
15.1% in 1993. While operating margins at the Company's acute care and
behavioral health services facilities owned during both 1995 and 1994 increased,
the Company's consolidated margin was lower in 1995 as compared to 1994 due to
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losses sustained at the three acute care facilities divested during 1995. The
improvement in the Company's consolidated operating margins in 1994 compared to
1993 was due primarily to the divestiture of two low margin acute care
facilities in 1993 and lower insurance expense in 1994 as compared to 1993.
ACUTE CARE SERVICES
Net revenues from the Company's acute care hospitals and ambulatory
treatment centers accounted for 86%, 85% and 84% of consolidated net revenues in
1995, 1994 and 1993, respectively.
Net revenues at the Company's acute care hospitals owned during each of the
last three years increased 9% in 1995 over 1994 and 10% in 1994 over 1993, after
excluding the revenues received from the special Medicaid reimbursements
described above. Despite the continued shift in the delivery of healthcare
services to outpatient care, the Company's acute care hospitals experienced a 9%
increase in inpatient admissions and a 5% increase in patient days in 1995 as
compared to 1994 due primarily to increased inpatient volume at two of the
Company's larger facilities. Admissions and patient days at acute care
facilities owned during each of the last three years increased 10% and 8%,
respectively, in 1994 as compared to 1993 due primarily to additional capacity
and expansion of service lines at two of the Company's larger facilities.
Outpatient activity at the Company's acute care hospitals continues to increase
as gross outpatient revenues at these hospitals increased 17% in 1995 over 1994
and 15% in 1994 over 1993 and comprised 22% of the Company's gross patient
revenues in each of the last three years. The increase is primarily the result
of advances in medical technologies, which allow more services to be provided on
an outpatient basis, and increased pressure from Medicare, Medicaid, health
maintenance organizations (HMOs), preferred provider organizations (PPOs) and
insurers to reduce hospital stays and provide services, where possible, on a
less expensive outpatient basis. To accommodate the increased utilization of
outpatient services, the Company has expanded or redesigned several of its
outpatient facilities and services.
To take advantage of the trend toward increased outpatient services, the
Company has continued to invest in the acquisition and development of outpatient
surgery and radiation therapy centers. As of December 31, 1995, the Company
operated or managed twenty-five outpatient treatment centers, including three
added during 1995, which have contributed to the increase in the Company's
outpatient revenues. The Company expects the growth in outpatient services to
continue, although the rate of growth may be moderated in the future.
Excluding the revenues received from the special Medicaid reimbursements
described above, operating margins (EBITDAR) at the Company's acute care
hospitals owned during all three years were 22.6%, 22.1% and 21.3% in 1995, 1994
and 1993, respectively. The improvement in 1995 over 1994 was primarily the
result of increased operating margins at certain of the Company's acute care
facilities. The margin improvement in 1994 over 1993 was resulted primarily from
lower insurance expense. Although the Company's acute care operating margins
have increased during the last three years, pressure on operating margins is
expected to continue due to the industry-wide trend away from charge-based
payors which limits the Company's ability to increase its prices.
BEHAVIORAL HEALTH SERVICES
Net revenues from the Company's behavioral health services hospitals
accounted for 13%, 14% and 15% of consolidated net revenues in 1995, 1994 and
1993, respectively. Net revenues at the Company's behavioral health hospitals
owned during each of the last three years increased 1% in 1995 over 1994 and
decreased 7% in 1994 as compared to 1993. The increase in 1995 over 1994
resulted primarily from a 4% increase in admissions and a 2% increase in patient
days while the average length of stay decreased 2% to 13.5 days in 1995 from
13.8 days in 1994. During 1994 admissions increased 12% over 1993 while patient
days decreased 3% due to a 13% decrease in the average length of stay to 13.8
days in 1994 from 15.8 days in 1993. The reduction in the average length of stay
during the last three years is a result of changing practices in the delivery of
psychiatric services and continued cost containment pressures from payors which
includes a greater emphasis on the utilization of outpatient services.
Management of the Company has responded to these trends by developing and
marketing new outpatient treatment programs. The shift to outpatient care is
reflected in higher revenues
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from outpatient services, as gross outpatient revenues at the Company's
behavioral health services hospitals increased 10% in 1995 over 1994 and 17% in
1994 over 1993 and now comprises 16% of the Company's behavioral health services
gross patient revenues as compared to 15% in 1994 and 13% in 1993.
Operating margins (EBITDAR) at the facilities owned during all three years
were 19.7% in 1995, 15.8% in 1994 and 21.5% in 1993. The increase in the profit
margin in 1995 as compared to 1994 was caused by an increase in admissions,
stabilization in length of stay and cost reductions implemented in response to
the managed care environment. The decrease in the profit margin in 1994 as
compared to 1993 was primarily caused by the decrease in net revenues at certain
facilities which declined due to an increase in Medicaid denials, a decrease in
days of care delivered and a decline in the net revenue per day.
OTHER OPERATING RESULTS
During 1995, the Company recorded $11.6 million of net nonrecurring charges
which consists of: (i) a $14.2 million pre-tax charge due to impairment of
long-lived assets; (ii) a $2.7 million loss on disposal of two acute care
facilities which were exchanged along with $44 million of cash for a 225-bed
acute care hospital, and; (iii) a $5.3 million pre-tax gain realized on the sale
of a 202-bed acute care hospital which was divested during the fourth quarter of
1995 for cash proceeds of $19.5 million.
As discussed elsewhere, changes in third party payment methods, advances in
medical technologies, legislative and regulatory initiatives at the Federal and
state levels along with increased competition from other providers have impacted
operating margins at the Company's facilities in recent years. These industry
conditions have adversely impacted certain of the Company's specialized
facilities and certain of the Company's smaller facilities in more competitive
markets.
In conjunction with the development of the Company's operating plan and
1996 budget, management assessed the current competitive position of these
facilities and estimated future cash flows expected from these facilities. As a
result, the Company recorded a $14.2 million pre-tax charge during 1995 to
write-down the carrying value of certain intangible and tangible assets at these
facilities. In measuring the impairment loss, the Company estimated fair value
by discounting expected future cash flows from each facility using the Company's
internal hurdle rate. The impairment loss primarily related to four facilities
in the Company's behavioral health services division and three facilities in its
ambulatory treatment center division.
During 1995, the impact of managed care was most dramatically felt at the
Company's free standing chemical dependency and residential treatment centers.
The Company operates two chemical dependency facilities with combined 1995 net
revenues of $8.6 million. Substantially all of the non-Medicare business at
these facilities is now managed to a large degree by third-party payors. The
increased penetration of managed care into this segment has resulted in a
continued shift from inpatient care as the primary treatment model to a
detoxification / partial hospitalization program resulting in fewer admissions
and patient days. Combined with increasing emphasis by payors on price as the
most important variable among providers and the increased competition resulting
from acute care providers expanding to offer dual diagnosis and ambulatory
detoxification services, the Company has determined that both profit margins and
volumes at these facilities have been permanently impaired. In addition, CHAMPUS
patients account for a significant portion of the Company's net revenue at its
two residential treatment centers which had combined net revenues of $10.9
million in 1995. Changes in CHAMPUS regulations and managed care penetration
into this segment of the business have driven down lengths of stay dramatically.
At these facilities, whose profitability is largely dependent on very long
lengths of stay, the decline in the average length of stay has resulted in a
permanent impairment.
Within the Company's ambulatory treatment center division, three centers
with combined 1995 net revenues of $3.7 million, are located in highly
competitive markets which have become heavily penetrated with managed care. As a
result, net revenues per case and case volumes at these centers have decreased
11% and 7%, respectively, in 1995 as compared to 1994 due primarily to increased
influence of payors, increased monitoring of outpatient services and willingness
of hospitals to compete with ambulatory treatment centers on price. The Company
expects these unfavorable trends to continue within these two geographical
markets resulting in a permanent impairment.
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During 1994, nonrecurring charges of $9.8 million were recorded consisting
of the following: (i) a $4.3 million estimated loss on the disposal of two acute
care facilities mentioned above; (ii) a $2.8 write-down of the carrying value of
a psychiatric hospital owned by the Company and leased to an unaffiliated third
party which is currently in default under the terms of the lease agreement;
(iii) a $1.4 million write-down recorded against the book value of the real
property of a behavioral health services hospital, and; (iv) $1.3 million of
expenses related to the disposition of a non-strategic business. Included in the
$8.8 million of nonrecurring charges recorded in 1993 is a $4.4 million loss on
disposal of two acute care facilities divested during the fourth quarter of 1993
and $4.4 million related to the winding down or disposition of non-strategic
businesses.
Depreciation and amortization expense increased $9.0 million in 1995 over
1994 due primarily to the Company's acquisition of two acute care hospitals in
July and August of 1995, net of effects of three acute care facilities divested
during the year ($5.6 million), a full year of depreciation expense of an acute
care hospital acquired in November of 1994 ($1.1 million) and the increased
depreciation expense related to capital expenditures and acquisition of
outpatient treatment centers ($2.3 million). Depreciation and amortization
expense increased $2.8 million in 1994 over 1993 due primarily to $1.9 million
of such expenses related to the Company's acquisition of outpatient treatment
centers and the increased depreciation expense related to capital expenditures
made in the Company's acute care division.
Interest expense increased $4.9 million or 78% during 1995 over 1994 due
primarily to borrowings used to finance the purchase of two acute care hospitals
during 1995. The Company issued $135 million of Senior Notes during 1995 which
have a coupon rate of 8.75% (9.2% effective rate including amortization of
interest rate swap termination fees and amortization of bond discount). The $131
million of net proceeds generated from the issuance of these notes were used to
finance the cash purchase price of the two acute care hospitals acquired during
1995 while the excess of the purchase price over the net proceeds ($52 million)
was financed from operating cash flows and borrowings under the Company's
commercial paper and revolving credit facilities. Interest expense decreased
$2.4 million or 27% in 1994 as compared to 1993 due to lower average outstanding
borrowings.
The effective tax rate was 33%, 39% and 32% in 1995, 1994 and 1993,
respectively. The decrease in the effective tax rate in 1995 as compared to 1994
was due to: (i) the deductibility of previously non-deductible goodwill
amortization resulting from the sale of three acute care hospitals, and; (ii)
the financing of employee benefit programs. The increase in the effective tax
rate for 1994 as compared to 1993 was due to the 1993 tax provision containing a
reduction in the state tax provision.
GENERAL TRENDS
An increased proportion of the Company's revenue is derived from fixed
payment services, including Medicare and Medicaid which accounted for 48%, 44%
and 43% of the Company's net patient revenues during 1995, 1994 and 1993,
respectively, excluding the additional revenues from special Medicaid
reimbursement programs. The Company expects the Medicare and Medicaid revenues
to continue to increase as a larger portion of the general population qualifies
for coverage as a result of the aging of the population and expansion of state
Medicaid programs. The Medicare program reimburses the Company's hospitals
primarily based on established rates by a diagnosis related group for acute care
hospitals and by cost based formula for psychiatric hospitals.
In addition to the Medicare and Medicaid programs, other payors continue to
actively negotiate the amounts they will pay for services performed. In general,
the Company expects the percentage of its business from managed care programs,
including HMOs and PPOs to grow. The consequent growth in managed care networks
and the resulting impact of these networks on the operating results of the
Company's facilities vary among the markets in which the Company operates.
HEALTHCARE REFORM
In addition to the trends described above that continue to have an impact
on operating results, there are a number of other more general factors affecting
the Company's business. Both the House of Representatives and the Senate have
passed legislation providing for substantial Medicare savings over a seven year
period,
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including reductions in payments to hospitals, which would limit the rate of
growth of the program. The House of Representatives and the Senate bills have
not yet been reconciled and the ultimate legislation will be subject to
Presidential approval. The Company cannot predict what new legislation may
ultimately be enacted, and if enacted, no assurance can be given that the
implementation of such reforms will not have a material adverse effect on the
Company's business. In Texas, a law has been passed which mandates that the
state senate apply for a waiver from current Medicaid regulations to allow the
state to require that certain Medicaid participants be serviced through managed
care providers. The Company is unable to predict whether Texas will be granted
such a waiver or the effect on the Company's business of such waiver.
INFLATION
The healthcare industry is very labor intensive and salaries and benefits
are subject to inflationary pressures as are supply costs which tend to escalate
as vendors pass on the rising costs through price increases. Although the
Company cannot predict its ability to continue to cover future costs increases,
management believes that through the adherence to cost containment policies,
labor management and reasonable price increases, the effects of inflation, which
has not had a material impact on the results of operations during the last three
years, on future operating margins should be manageable. However, the Company's
ability to pass on these increased costs associated with providing healthcare to
Medicare and Medicaid patients may be limited since although these fixed
payments rates are indexed for inflation annually, the increases have
historically lagged behind actual inflation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $91.7 million, $60.6 million
and $84.6 million for 1995, 1994 and 1993, respectively. The $31.1 million
increase in 1995 as compared to 1994 was primarily attributable to: (i) a $21.1
million increase in net income plus the addback of the non-cash charges
(depreciation, amortization, provision for selfinsurance reserves and other
non-cash charges); (ii) a $12.7 million increase in accrued liabilities as of
December 31, 1995 as compared to the 1994 year-end balance, and; (iii) a $6.0
million decrease in the payments made in settlement of self-insurance claims.
Partially offsetting these favorable increases in net cash provided by operating
activities was a $10.2 million increase in income tax payments made during 1995
as compared to 1994. The $24.0 million decrease in 1994 as compared to 1993 was
primarily attributable to an increase in the number of days of revenues in
accounts receivable, acceleration in the payment of income taxes and an increase
in the payments made in the settlement of the Company's self-insurance reserves.
The unfavorable change in the outstanding accounts receivable balances as of
year-end 1994 as compared to year-end 1993 was caused by a temporary decline in
cash collections due to information system conversions at the Company's
hospitals. During each of the last three years, the net cash provided by
operating activities substantially exceeded the scheduled maturities of
long-term debt.
During 1995 the Company acquired the following facilities for two acute
care facilities and total cash consideration of $188 million and the assumption
of net liabilities of approximately $4 million: (i) a 512-bed acute care
hospital located in Bradenton, Florida for approximately $139 million in cash
and the assumption of net liabilities of $4 million; (ii) a 225-bed acute care
facility located in Aiken, South Carolina for approximately $44 million in cash
and a 104-bed acute care hospital and a 126-bed acute hospital, and; (iii) an
82-bed psychiatric hospital located in South Attleboro, Massachusetts and a
majority interest in two separate partnerships which own and operate outpatient
surgery centers located in Fayetteville, Arkansas and Somersworth, New Hampshire
for total cash consideration of approximately $5 million. Also during 1995, the
Company agreed to construct a medical complex located in Summerlin, Nevada
consisting of a 129-bed acute care facility, a medical office building, an
outpatient surgery center and a radiation therapy center. The total construction
cost for these facilities, which are scheduled to open at various dates in 1996
and 1997, will be approximately $60 million. During the first quarter of 1996,
the Company executed an agreement to purchase a 360-bed acute care facility
located in Amarillo, Texas for $120 million. The closing of this transaction,
which is subject to regulatory approval, is expected to occur during the second
quarter of 1996.
During 1995, the Company sold the operations and substantially all the
assets of a 202-bed acute care hospital located in Plantation, Florida for cash
proceeds of approximately $20 million. The sale resulted in a
17
19
$5.3 million pre-tax gain which has been included in nonrecurring charges in the
1995 consolidated statement of income.
During 1994, the Company paid $25.8 million for acquisitions of businesses
and assets held for lease and $11.5 million for acquisitions of businesses in
1993. During 1994, the Company invested in additional outpatient treatment
centers and purchased a 112-bed acute care hospital located in Edinburg, Texas.
In connection with the acquisition of the Edinburg facility, the Company is
committed to invest at least an additional $30 million over a ten year period.
Pursuant to this commitment, the Company intends to renovate the existing
facility and construct a new acute care facility by late 1998. Approximately
$2.2 million was spent on this project during 1995.
Capital expenditures, excluding capital leases, were $60.7 million in 1995,
$44.0 million in 1994 and $47.3 million in 1993. Capital expenditures in 1996
are expected to be approximately $30.0 million for capital equipment and
renovations of existing facilities. Additionally, capital expenditures are
expected for new projects at existing hospitals and medical office buildings to
total approximately $38.5 million in 1996. The estimated cost to complete major
construction projects in progress at December 31, 1995 is approximately $45.8
million. The Company believes that its capital expenditure program is adequate
to expand, improve and equip its existing hospitals.
Total debt as a percentage of total capitalization was 45% at December 31,
1995 and 26% at December 31, 1994 and 1993. The increase during 1995 as compared
to 1994 and 1993 was due primarily to the additional debt incurred to finance
the purchase of the 512-bed acute care facility in Bradenton, Florida and the
225-bed acute care facility in Aiken, South Carolina.
During 1995, the Company issued $135 million of Senior Notes. The Senior
Notes have an 8.75% coupon rate (9.2% effective rate including amortization of
interest rate swap termination fees and amortization of bond discount) and will
mature on August 15, 2005. The Notes can be redeemed in whole or in part, at any
time on or after August 15, 2000, initially at a price of 102.265%, declining
ratably to par on or after August 15, 2002. The interest on the bonds will be
paid semiannually in arrears on February 15 and August 15 of each year. The net
proceeds generated from the issuance were approximately $131 million and were
used to finance the acquisitions described above. In anticipation of the Senior
Note issuance, the Company entered into interest rate swaps having a total
notional principal amount of $100 million to hedge the interest rate on the
Senior Notes. These interest rate swap agreements were terminated simultaneously
with the issuance of the Senior Notes at which time the Company paid a net
termination fee of $5.4 million which is being amortized ratably over the ten
year term of the Senior Notes.
Also during 1995, the Company amended its unsecured non-amortizing
revolving credit agreement. The amended agreement, which expires on March 31,
2000, provides for $225 million of borrowing capacity, subject to certain
conditions, until March 31, 1998, $210 million until March 31, 1999 and $185
million until March 31, 2000. The agreement provides for interest, at the
Company's option, at various rates. At December 31, 1995, the Company had $207
million of unused borrowing capacity available under the revolving credit
agreement.
Substantially all of the Company's accounts receivable are pledged as
collateral to secure its $50 million, daily valued, commercial paper program.
The Company has sufficient patient receivables to support a larger program, and
upon the mutual consent of the Company and the participating lending
institutions, the commitment can be increased. At December 31, 1995 there were
$48 million of borrowings outstanding under this facility.
At December 31, 1995 the Company had one interest rate swap agreement with
a notional principal amount of $10 million. This agreement calls for the payment
of interest at a fixed rate by the Company in return for payment of a variable
rate interest by a commercial bank. This swap effectively fixes the Company's
interest rate on $10 million of its floating rate debt at 9.015%. The interest
rate swap expires in March, 1996. The effective interest rate on the Company's
revolving credit, demand notes and commercial paper program including the
interest rate swap expense was 8.4%, 16.1% and 13.9% during 1995, 1994 and 1993,
respectively. Additional interest expense recorded as a result of the Company's
hedging activity was $209,000, $1,981,000
18
20
and $3,160,000 in 1995, 1994 and 1993, respectively. The Company is exposed to
credit loss in the event of non-performance by the counterparty to the interest
rate swap agreement. This counterparty is a major financial institution which is
rated AA by Moody's Investors Service and the Company does not anticipate
nonperformance. The cost to terminate the swap obligation at December 31, 1995
and 1994 was approximately $113,000 and $151,000, respectively.
The Company expects to finance all capital expenditures and acquisitions
with internally generated funds and debt or equity financing. Additional
borrowed funds may be obtained either through refinancing the existing revolving
credit agreement, the commercial paper facility or the issuance of long-term
securities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Balance Sheets, Consolidated Statements of
Income, Consolidated Statements of Common Stockholders' Equity, and Consolidated
Statements of Cash Flows, together with the report of Arthur Andersen LLP,
independent public accountants, are included elsewhere herein. Reference is made
to the "Index to Financial Statements and Financial Statement Schedule."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear under
the caption "Election of Directors" in the Company's Proxy Statement, to be
filed with the Securities and Exchange Commission within 120 days after December
31, 1995. See also "Executive Officers of the Registrant" appearing in Part I
hereof.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear under
the caption "Executive Compensation" in the Company's Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after December
31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear under
the caption "Security Ownership of Certain Beneficial Owners and Management" in
the Company's Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear under
the caption "Certain Relationships and Related Transactions" in the Company's
Proxy Statement, to be filed with the Securities and Exchange Commission within
120 days after December 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.
See Index to Financial Statements and Financial Statement Schedule on page
24.
19
21
(B) REPORTS ON FORM 8-K
Report on Form 8-K dated and filed on September 15, 1995, and amended on
Form 8-K/A dated and filed on October 5, 1995, reporting the acquisition of
substantially all of the assets and operations of Manatee Memorial Hospital,
previously filed with Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, is incorporated herein by reference.
(C) EXHIBITS
3.1 Restated Certificate of Incorporation, as amended, previously filed as
Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1983, Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1985, and Exhibit 3.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1987, are incorporated herein by
reference.
3.2 Bylaws of Registrant as amended, previously filed as Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1987, is
incorporated herein by reference.
9. Stockholders Agreement, dated September 26, 1985, among Alan B. Miller,
Thomas L. Kempner, Sidney Miller, Anthony Pantaleoni and George H. Strong,
previously filed as Exhibit 9 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1985, is incorporated herein by reference.
9.1 Amendment No. 1, dated as of November 1, 1989, to Stockholders
Agreement, dated September 26, 1985, among Alan B. Miller, Thomas L. Kempner,
Sidney Miller, Anthony Pantaleoni and George H. Strong, previously filed as
Exhibit 9.1 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989, is incorporated herein by reference.
10.1 Restated Purchase Agreement, dated June 22, 1981, among Registrant,
its preferred stockholders and certain of its officers, previously filed as
Exhibit 10.10 to Registration Statement No. 2-72393 on Form S-1, is incorporated
herein by reference.
10.2 Restated Employment Agreement, dated as of July 14, 1992, by and
between Registrant and Alan B. Miller, previously filed as Exhibit 10.3 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
10.3 Form of Employee Stock Purchase Agreement for Restricted Stock Grants,
previously filed as Exhibit 10.12 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1985, is incorporated herein by reference.
10.4 Advisory Agreement, dated as of December 24, 1986, between Universal
Health Realty Income Trust and UHS of Delaware, Inc., previously filed as
Exhibit 10.2 to Registrant's Current Report on Form 8-K dated December 24, 1986,
is incorporated herein by reference.
10.5 Agreement, effective January 1, 1996, to renew Advisory Agreement,
dated as of December 24, 1986, between Universal Health Realty Income Trust and
UHS of Delaware, Inc.
10.6 Form of Leases, including Form of Master Lease Document for Leases,
between certain subsidiaries of the Registrant and Universal Health Realty
Income Trust, filed as Exhibit 10.3 to Amendment No. 3 of the Registration
Statement on Form S-11 and Form S-2 of Registrant and Universal Health Realty
Income Trust (Registration No. 33-7872), is incorporated herein by reference.
10.7 Share Option Agreement, dated as of December 24, 1986, between
Universal Health Realty Income Trust and Registrant, previously filed as Exhibit
10.4 to Registrant's Current Report on Form 8-K dated December 24, 1986, is
incorporated herein by reference.
10.8 Corporate Guaranty of Obligations of Subsidiaries Pursuant to Leases
and Contract of Acquisition, dated December 24, 1986, issued by Registrant in
favor of Universal Health Realty Income Trust, previously filed as Exhibit 10.5
to Registrant's Current Report on Form 8-K dated December 24, 1986, is
incorporated herein by reference.
20
22
10.9 1990 Employees' Restricted Stock Purchase Plan, previously filed as
Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, is incorporated herein by reference.
10.10 1992 Corporate Ownership Program, previously filed as Exhibit 10.24
to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by reference.
10.11 1992 Stock Bonus Plan, previously filed as Exhibit 10.25 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, is
incorporated herein by reference.
10.12 Sale and Servicing Agreement dated as of November 16, 1993, between
Certain Hospitals and UHS Receivables Corp., previously filed as Exhibit 10.16
to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
10.13 Servicing Agreement dated as of November 16, 1993, among UHS
Receivables Corp., UHS of Delaware, Inc. and Continental Bank, National
Association, previously filed as Exhibit 10.17 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993, is incorporated herein by
reference.
10.14 Pooling Agreement dated as of November 16, 1993, among UHS
Receivables Corp., Sheffield Receivables Corporation and Continental Bank,
National Association, previously filed as Exhibit 10.18 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, is incorporated herein
by reference.
10.15 Guarantee dated as of November 16, 1993, by Universal Health
Services, Inc. in favor of UHS Receivables Corp., previously filed as Exhibit
10.19 to Registrant's Annual Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by reference.
10.16 Amendment No. 1 to the 1992 Stock Bonus Plan, previously filed as
Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
10.17 1994 Executive Incentive Plan, previously filed as Exhibit 10.22 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
10.18 Credit Agreement, dated as of August 2, 1994, among Universal Health
Services, Inc., Certain Participating Banks, and Morgan Guaranty Trust Company
of New York, as Agent, previously filed as Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, is
incorporated herein by reference.
10.19 Amendment No. 1 to Credit Agreement, dated as of April 24, 1995,
among Universal Health Services, Inc., Certain Participating Banks and Morgan
Guaranty Trust Company of New York, as Agent, previously filed as Exhibit 10.1
to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, is incorporated herein by reference.
10.20 Authorizing Resolution adopted by the Pricing Committee of Universal
Health Services, Inc. on August 1, 1995, related to $135 million principal
amount of 8 3/4% Senior Notes due 2005, previously filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995,
is incorporated herein by reference.
10.21 Indenture dated as of July 15, 1995, between Universal Health
Services, Inc. and PNC Bank, National Association, Trustee, previously filed as
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, is incorporated herein by reference.
10.22 Amendment No. 1 to the Pooling Agreement dated as of September 30,
1994, among UHS Receivables Corp., Sheffield Receivables Corporation and Bank of
America Illinois (as successor to Continental Bank N.A.) as Trustee, previously
filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, is incorporated herein by reference.
10.23 Amended and Restated 1989 Non-Employee Director Stock Option Plan,
previously filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated herein by reference.
21
23
10.24 Asset Exchange Agreement among C/HCA Development, Inc., Universal
Health Services, Inc., Aiken Regional Medical Centers, Inc., Dallas Family
Hospital, Inc., Westlake Medical Center, Inc. and UHS of Delaware, Inc., as
amended, previously filed as Exhibit 99.1 to Registrant's Form S-3 Registration
Statement dated June 15, 1995, is incorporated herein by reference.
10.25 Asset Purchase Agreement among Baptist Hospitals and Health Systems,
Inc. and Affiliated Florida Companies and Manatee Memorial Hospital, L.P., and
Universal Health Services, Inc., dated as of June 30, 1995, previously filed as
Exhibit 99.2 to Registrant's Amendment No. 1 to Form S-3 Registration Statement
dated July 18, 1995, is incorporated herein by reference.
10.26 1992 Stock Option Plan, as Amended.
10.27 Stock Purchase Plan.
10.28 Asset Purchase Agreement dated as of February 6, 1996, among Amarillo
Hospital District, UHS of Amarillo, Inc. and Universal Health Services, Inc.
11. Statement re: computation of per share earnings.
22. Subsidiaries of Registrant.
24. Consent of Independent Public Accountants.
27. Financial Data Schedule.
Exhibits, other than those incorporated by reference, have been included in
copies of this Report filed with the Securities and Exchange Commission.
Stockholders of the Company will be provided with copies of those exhibits upon
written request to the Company.
22
24
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
UNIVERSAL HEALTH SERVICES, INC.
By: /s/ ALAN B. MILLER
------------------------------------
ALAN B. MILLER
PRESIDENT
March 22, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
- - --------------------------------------------- ---------------------------- -----------------
/s/ ALAN B. MILLER Chairman of the Board, March 22, 1996
- - --------------------------------------------- President and Director
ALAN B. MILLER (Principal Executive
Officer)
/s/ SIDNEY MILLER Secretary and Director March 22, 1996
- - ---------------------------------------------
SIDNEY MILLER
/s/ ANTHONY PANTALEONI Director March 22, 1996
- - ---------------------------------------------
ANTHONY PANTALEONI
/s/ MARTIN MEYERSON Director March 22, 1996
- - ---------------------------------------------
MARTIN MEYERSON
/s/ ROBERT H. HOTZ Director March 22, 1996
- - ---------------------------------------------
ROBERT H. HOTZ
/s/ JOHN H. HERRELL Director March 22, 1996
- - ---------------------------------------------
JOHN H. HERRELL
/s/ PAUL R. VERKUIL Director March 22, 1996
- - ---------------------------------------------
PAUL R. VERKUIL
/s/ KIRK E. GORMAN Senior Vice President and March 20, 1996
- - --------------------------------------------- Chief Financial Officer
KIRK E. GORMAN
/s/ STEVE FILTON Vice President, Controller March 20, 1996
- - --------------------------------------------- and Principal Accounting
STEVE FILTON Officer
23
25
UNIVERSAL HEALTH SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(ITEM 14(a))
Consolidated Financial Statements:
Report of Independent Public Accountants on Consolidated Financial Statements and
Schedule............................................................................ 25
Consolidated Statements of Income for the three years ended December 31, 1995......... 26
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................... 27
Consolidated Statements of Common Stockholders' Equity for the three years ended
December 31, 1995................................................................... 28
Consolidated Statements of Cash Flows for the three years ended December 31, 1995..... 29
Notes to Consolidated Financial Statements............................................ 30
Supplemental Financial Statement Schedule II: Valuation and Qualifying Accounts....... 42
24
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Universal Health Services, Inc.:
We have audited the accompanying consolidated balance sheets of Universal
Health Services, Inc. (Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Universal
Health Services, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements and Financial Statement Schedule is presented for the
purpose of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 10, 1996
25
27
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ------------ ------------
Net revenues....................................... $931,126,000 $782,199,000 $761,544,000
Operating charges
Operating expenses............................... 361,049,000 298,108,000 299,645,000
Salaries and wages............................... 329,939,000 286,297,000 280,041,000
Provision for doubtful accounts.................. 76,905,000 58,347,000 55,409,000
Depreciation & amortization...................... 51,371,000 42,383,000 39,599,000
Lease and rental expense......................... 36,068,000 34,097,000 34,281,000
Interest expense, net............................ 11,195,000 6,275,000 8,645,000
Nonrecurring charges............................. 11,610,000 9,763,000 8,828,000
------------ ------------ ------------
Total operating charges.......................... 878,137,000 735,270,000 726,448,000
------------ ------------ ------------
Income before income taxes....................... 52,989,000 46,929,000 35,096,000
Provision for income taxes....................... 17,505,000 18,209,000 11,085,000
------------ ------------ ------------
Net income....................................... $ 35,484,000 $ 28,720,000 $ 24,011,000
============ ============ ============
Earnings per common & common share equivalent
(fully diluted)............................... $ 2.52 $ 2.02 $ 1.71
============ ============ ============
Weighted average number of common shares and
equivalents...................................... 14,079,000 14,389,000 14,819,000
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
26
28
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
----------------------------
ASSETS 1995 1994
- - --------------------------------------------------------------------------- ------------ ------------
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 34,000 $ 780,000
Accounts receivable, net of allowance of $49,016,000 in 1995 and $34,957,000
in 1994 for doubtful accounts............................................ 114,163,000 84,818,000
Supplies................................................................... 18,207,000 15,723,000
Deferred income taxes...................................................... 18,989,000 12,942,000
Other current assets....................................................... 5,529,000 4,126,000
------------ ------------
Total current assets....................................................... 156,922,000 118,389,000
PROPERTY AND EQUIPMENT
Land....................................................................... 36,055,000 34,159,000
Buildings and improvements................................................. 348,182,000 314,545,000
Equipment.................................................................. 206,193,000 218,844,000
Property under capital lease............................................... 27,415,000 24,782,000
------------ ------------
617,845,000 592,330,000
Less accumulated depreciation.............................................. 248,540,000 265,059,000
------------ ------------
369,305,000 327,271,000
Construction in progress................................................... 23,683,000 4,372,000
------------ ------------
392,988,000 331,643,000
OTHER ASSETS
Excess of cost over fair value of net assets acquired...................... 136,206,000 38,762,000
Deferred income taxes...................................................... 17,283,000 2,742,000
Deferred charges........................................................... 11,466,000 1,527,000
Other...................................................................... 33,186,000 28,429,000
------------ ------------
198,141,000 71,460,000
------------ ------------
$748,051,000 $521,492,000
============ ============
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
- - ---------------------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt....................................... $ 7,125,000 $ 7,236,000
Accounts payable........................................................... 52,855,000 37,185,000
Accrued liabilities
Compensation and related benefits........................................ 20,470,000 20,208,000
Interest................................................................. 5,513,000 2,442,000
Other.................................................................... 47,180,000 32,294,000
Federal and state taxes.................................................. 1,874,000 4,417,000
------------ ------------
Total current liabilities.................................................. 135,017,000 103,782,000
OTHER NONCURRENT LIABILITIES............................................... 78,248,000 71,956,000
LONG-TERM DEBT............................................................. 237,086,000 85,125,000
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY
Class A Common Stock, voting, $.01 par value; authorized 12,000,000 shares;
issued and outstanding 1,090,527 shares in 1995 and 1,090,527 in 1994.... 11,000 11,000
Class B Common Stock, limited voting, $.01 par value; authorized 50,000,000
shares; issued and outstanding 12,658,818 shares in 1995 and 12,591,854 in
1994..................................................................... 127,000 126,000
Class C Common Stock, voting, $.01 par value; authorized 1,200,000 shares;
issued and outstanding 109,622 shares in 1995 and 109,622 in 1994........ 1,000 1,000
Class D Common Stock, limited voting, $.01 par value; authorized 5,000,000
shares; issued and outstanding 20,503 shares in 1995 and 22,769 in
1994..................................................................... -- --
Capital in excess of par value, net of deferred compensation of $941,000 in
1995 and $414,000 in 1994................................................ 89,881,000 88,295,000
Retained earnings.......................................................... 207,680,000 172,196,000
------------ ------------
297,700,000 260,629,000
------------ ------------
$748,051,000 $521,492,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
27
29
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CLASS CLASS CAPITAL IN
CLASS A CLASS B C D EXCESS OF RETAINED
COMMON COMMON COMMON COMMON PAR VALUE EARNINGS TOTAL
------- -------- ------ ------ ------------ ------------ ------------
Balance January 1, 1993...... $12,000 $123,000 $1,000 -- $ 83,302,000 $119,465,000 $202,903,000
Common Stock
Issued..................... -- 1,000 -- -- 518,000 -- 519,000
Converted.................. (1,000) 1,000 -- -- -- -- --
Repurchased................ -- (3,000) -- -- (3,233,000) -- (3,236,000)
Amortization of deferred
compensation............... -- -- -- -- 333,000 -- 333,000
Cancellation of stock
grant...................... -- -- -- -- (42,000) -- (42,000)
Net income................... -- -- -- -- -- 24,011,000 24,011,000
------- -------- ------ ------ ----------- ------------ ------------
Balance January 1, 1994...... 11,000 122,000 1,000 -- 80,878,000 143,476,000 224,488,000
Common Stock
Issued..................... -- 9,000 -- -- 20,308,000 -- 20,317,000
Repurchased................ -- (5,000) -- -- (13,144,000) -- (13,149,000)
Amortization of deferred
compensation............... -- -- -- -- 277,000 -- 277,000
Cancellation of stock
grant...................... -- -- -- -- (24,000) -- (24,000)
Net income................... -- -- -- -- -- 28,720,000 28,720,000
------- -------- ------ ------ ----------- ------------ ------------
Balance January 1, 1995...... 11,000 126,000 1,000 -- 88,295,000 172,196,000 260,629,000
Common Stock
Issued..................... -- 1,000 -- -- 1,117,000 -- 1,118,000
Amortization of deferred
compensation............... -- -- -- -- 469,000 -- 469,000
Net income................... -- -- -- -- -- 35,484,000 35,484,000
------- -------- ------ ------ ----------- ------------ ------------
Balance
December 31, 1995.......... $11,000 $127,000 $1,000 -- $ 89,881,000 $207,680,000 $297,700,000
======= ======== ====== ====== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
28
30
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1994 1993
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 35,484,000 $ 28,720,000 $ 24,011,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 51,371,000 42,383,000 39,599,000
Provision for self-insurance reserves.......... 14,291,000 10,810,000 20,755,000
Other non-cash charges......................... 11,610,000 9,763,000 8,828,000
Changes in assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable............................... (5,125,000) (4,380,000) 12,928,000
Accrued interest.................................. 3,071,000 (805,000) (412,000)
Accrued and deferred income taxes................. (20,826,000) (9,944,000) (8,990,000)
Other working capital accounts.................... 10,944,000 1,710,000 4,858,000
Other assets and deferred charges................. (3,982,000) (3,064,000) (5,804,000)
Other............................................. 3,390,000 (42,000) 1,002,000
Payments made in settlement of self-insurance
claims......................................... (8,479,000) (14,527,000) (12,135,000)
------------- ------------ ------------
Net cash provided by operating activities........... 91,749,000 60,624,000 84,640,000
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions.................. (60,734,000) (43,998,000) (47,319,000)
Disposition of assets............................. 2,321,000 1,132,000 227,000
Acquisition of properties previously leased....... -- (5,771,000) (3,218,000)
Acquisition of businesses......................... (187,865,000) (16,794,000) (11,526,000)
Acquisition of assets held for lease.............. (3,561,000) (9,059,000) --
Disposition of businesses......................... 19,495,000 3,791,000 18,492,000
Other investments................................. -- (1,079,000) --
------------- ------------ ------------
Net cash used in investing activities............. (230,344,000) (71,778,000) (43,344,000)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings, net of financing costs..... 149,323,000 45,469,000 1,800,000
Reduction of long-term debt....................... (12,009,000) (21,981,000) (46,496,000)
Issuance of common stock.......................... 535,000 1,026,000 519,000
Repurchase of common shares....................... -- (13,149,000) (3,236,000)
------------- ------------ ------------
Net cash provided by (used in) financing
activities..................................... 137,849,000 11,365,000 (47,413,000)
------------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (746,000) 211,000 (6,117,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 780,000 569,000 6,686,000
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 34,000 $ 780,000 $ 569,000
============= ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid..................................... $ 8,124,000 $ 7,080,000 $ 9,057,000
Income taxes paid, net of refunds................. $ 38,331,000 $ 28,153,000 $ 19,901,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Notes 2 and 6
The accompanying notes are an integral part of these consolidated financial
statements.
29
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Universal
Health Services, Inc. (the "Company") and its majority-owned subsidiaries and
partnerships controlled by the Company as the managing general partner. All
significant intercompany accounts and transactions have been eliminated. The
more significant accounting policies follow:
NATURE OF OPERATIONS: The principal business of the Company is owning and
operating acute care hospitals, behavioral health centers, ambulatory surgery
centers and radiation oncology centers. At December 31, 1995, the Company
operated 29 hospitals, consisting of 14 acute care hospitals and 15 behavioral
health centers, in Arkansas, California, Florida, Georgia, Illinois, Louisiana,
Massachusetts, Michigan, Missouri, Nevada, Pennsylvania, South Carolina, Texas
and Washington. The Company, as part of its Ambulatory Treatment Centers
Division owns outright, or in partnership with physicians, and operates or
manages 25 surgery and radiation oncology centers located in 14 states.
Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, diagnostic care,
coronary care, pediatric services and psychiatric services. The Company provides
capital resources as well as a variety of management services to its facilities,
including central purchasing, data processing, finance and control systems,
facilities planning, physician recruitment services, administrative personnel
management, marketing and public relations.
Net revenues from the Company's acute care hospitals, and ambulatory
treatment centers accounted for 86%, 85% and 84% of consolidated net revenues in
1995, 1994 and 1993, respectively.
NET REVENUES: Net revenues are reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. These net revenues are accrued on an estimated basis in the
period the related services are rendered and adjusted in future periods as final
settlements are determined. Medicare and Medicaid net revenues represented 48%,
44% and 43% of net patient revenues for the years 1995, 1994 and 1993,
respectively, excluding the additional revenues from special Medicaid
reimbursement programs described in Note 11.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Expenditures for renewals and improvements are charged to the property accounts.
Replacements, maintenance and repairs which do not improve or extend the life of
the respective asset are expensed as incurred. The Company removes the cost and
the related accumulated depreciation from the accounts for assets sold or
retired and the resulting gains or losses are included in the results of
operations.
Depreciation is provided on the straightline method over the estimated
useful lives of buildings and improvements (twenty to forty years) and equipment
(five to fifteen years).
OTHER ASSETS: The excess of cost over fair value of net assets acquired in
purchase transactions, net of accumulated amortization of $59,957,000 in 1995
and $52,261,000 in 1994 is amortized using the straight-line method over periods
ranging from five to forty years.
During 1994, the Company established an employee life insurance program
covering approximately 2,200 employees. At December 31, 1995 and 1994, the cash
surrender value of the policies ($34.3 million and $41.3 million) were recorded
net of related loans ($34.4 million and $41.0 million) and is included in other
assets.
LONG-LIVED ASSETS: It is the Company's policy to review the carrying value
of long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable.
In 1995, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The Statement requires the
recognition of an impairment loss for an asset held for use when the estimate of
undiscounted future cash flows expected to be generated by the asset is less
than its carrying amount.
30
32
Measurement of the impairment loss is based on fair value of the asset.
Generally, fair value will be determined using valuation techniques such as the
present value of expected future cash flows. See Note 9.
INCOME TAXES: The Company and its subsidiaries file consolidated Federal
tax returns. Deferred taxes are recognized for the amount of taxes payable or
deductible in future years as a result of differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
OTHER NONCURRENT LIABILITIES: Other noncurrent liabilities include the
long-term portion of the Company's professional and general liability and
workers' compensation reserves and minority interests in majority owned
subsidiaries and partnerships.
EARNINGS PER COMMON AND COMMON SHARE EQUIVALENTS: Earnings per share are
based on the weighted average number of common shares outstanding during the
year adjusted to give effect to common stock equivalents. The 1994 and 1993
earnings per share have been adjusted to reflect the assumed conversion of the
Company's convertible debentures. In April 1994, the Company redeemed the
debentures which reduced the fully diluted number of shares outstanding by
451,233.
STATEMENT OF CASH FLOWS: For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents. Interest expense in
the consolidated statements of income is net of interest income of $567,000,
$266,000 and $498,000 in 1995, 1994 and 1993, respectively.
INTEREST RATE SWAP AGREEMENTS: In managing interest rate exposure, the
Company at times enters into interest rate swap agreements. When interest rates
change, the differential to be paid or received is accrued as interest expense
and is recognized over the life of the agreements. Gains and losses on
terminated interest rate swap agreements are amortized into income over the
remaining life of the underlying debt obligation or the remaining life of the
original swap, if shorter.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of the Company's
registered debt, interest rate swap agreements and investments is based on
quoted market prices. The carrying amounts reported in the balance sheet for
cash, accrued liabilities, and short-term borrowings approximates fair value due
to the short-term nature of these instruments. Accordingly, these items have
been excluded from the fair value disclosures included elsewhere in these notes
to consolidated financial statements.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2) ACQUISITIONS AND DIVESTITURES
1995 -- During the second quarter, the Company acquired an 82-bed
psychiatric hospital located in South Attleboro, Massachusetts for approximately
$3 million. The Company also purchased for approximately $2 million, a majority
interest in two separate partnerships which own and operate outpatient surgery
centers located in Fayetteville, Arkansas and Somersworth, New Hampshire.
During the third quarter, the Company completed the acquisition of Aiken
Regional Medical Centers, ("Aiken") a 225-bed acute care facility located in
Aiken, South Carolina for approximately $44 million in cash, a 104-bed acute
care hospital and a 126-bed acute care hospital. The majority of the real estate
assets of the 126-bed facility were being leased from Universal Health Realty
Income Trust (the "Trust") pursuant to the terms of an operating lease which was
scheduled to expire in 2000. In exchange for the real estate assets of the
126-bed acute care hospital, the Company exchanged substitute properties
consisting of additional real estate assets owned by the Company but related to
three acute care facilities owned by the Trust and operated by the Company. As a
result of the divestiture of the two acute care hospitals in connection with the
acquisition of Aiken Regional Medical Centers, the Company recorded a $2.7
million and a $4.3 million pre-tax charge in the 1995 and 1994 consolidated
statements of income, respectively.
31
33
During the third quarter, the Company completed the acquisition of Manatee
Memorial Hospital, ("Manatee") a 512-bed acute care hospital located in
Bradenton, Florida for approximately $139 million in cash and assumption of net
liabilities of approximately $4 million.
During the fourth quarter, the Company sold the operations and
substantially all the assets of Universal Medical Center ("UMC"), a 202-bed
acute care hospital located in Plantation, Florida for cash proceeds of
approximately $20 million. The sale resulted in a pre-tax gain of approximately
$5 million which has been included in nonrecurring charges in the 1995
consolidated statement of income.
In September, 1995, the Company signed a letter of intent to acquire
Northwest Texas Hospital, a 360-bed acute care facility located in Amarillo,
Texas. The closing of this transaction, which is expected to be completed during
the second quarter of 1996, is subject to a number of conditions. Cash
consideration is expected to approximate $120 million in addition to payments by
the Company to the Amarillo Hospital District of 15% of any amount of earnings
before depreciation, interest and taxes in excess of $24 million in each year of
the seven year period commencing April 1, 1996 and ending March 31, 2003. In
addition under terms of the agreement, the Amarillo Hospital District will pay
the Company $8 million per year for the first four years and $6 million per year
(subject to certain adjustments for inflation) for up to an additional 36 years
to help support the cost of medical service to indigent patients.
Operating results of Aiken and Manatee have been included in the financial
statements from their respective dates of acquisition. Assuming the Aiken and
Manatee acquisitions had been completed as of January 1, 1995 the unaudited pro
forma net revenues and net income would have been approximately $1 billion and
$37.9 million, respectively. In addition, the unaudited pro forma earnings per
share would have been $2.69. The unaudited pro forma financial information may
not be indicative of results that would have been reported if the acquisitions
had occurred at the beginning of 1995 and may not be indicative of future
operating results.
The excess of cost over fair value of net assets acquired in the 1995
purchase transactions is amortized using the straight-line method over fifteen
years.
1994 -- During 1994 the Company purchased majority interests in two
separate partnerships which own and operate outpatient surgery facilities. One
of these partnerships was merged with an existing partnership in which the
Company held a majority ownership. The Company also agreed to manage the
operations of, and purchased a majority interest in, these separate partnerships
which lease fixed assets to four radiation therapy centers located in Kentucky.
In addition, the Company purchased one radiation center and majority interests
in two separate partnerships which own and operate radiation therapy centers.
Total consideration for these acquisitions was $14.5 million in cash, and the
assumption of liabilities totaling $3.0 million.
In November 1994, the Company acquired a 112-bed acute care hospital
located in Edinburg, Texas for net cash of approximately $11.3 million and the
assumption of liabilities totaling $2.2 million. In connection with this
acquisition, the Company committed to invest at least an additional $30 million,
over a ten year period, to renovate the existing facility and construct an
additional facility. Approximately $2.2 million was spent on this project during
1995.
Operating results of the hospital located in Edinburg have been included in
the financial statements from the date of acquisition. Assuming the above
Edinburg, Aiken and Manatee acquisitions had been completed as of January 1,
1994 the unaudited pro forma net revenues and net income would have been $952
million and $32 million, respectively. In addition, the unaudited pro forma
earnings per share would have been $2.25. The unaudited pro forma financial
information may not be indicative of results that would have been reported if
the acquisitions have occurred at the beginning of 1994 and may not be
indicative of future operating results.
1993 -- During 1993 the Company purchased a radiation therapy center and
majority interests in four separate partnerships which own and operate
ambulatory surgery facilities for $11.5 million in cash and the assumption of
liabilities totaling $300,000.
During the fourth quarter, the Company sold the operations and fixed assets
of a 124-bed acute care hospital for approximately $7.8 million in cash. The
Company also sold the operations and certain fixed assets
32
34
of a 134-bed acute care hospital for cash of $1.5 million. Concurrently, the
Company sold certain related real property to Universal Health Realty Income
Trust (the "Trust"), an affiliate and the lessor of this 134-bed acute care
hospital, for $1 million in cash and a note receivable of $900,000 (see Note 8).
In connection with this transaction, the Company's lease with the Trust for this
property was terminated. The disposition of these two facilities resulted in a
pre-tax loss of $4.4 million ($2.2 million after tax), which is included in
nonrecurring charges in the 1993 consolidated statement of income.
Also during 1993, the Company recorded a pre-tax charge of $4.4 million
related to the winding down or disposition of other non-strategic businesses
which is included in nonrecurring charges in the 1993 consolidated statement of
income.
3) LONG-TERM DEBT
A summary of long-term debt follows:
DECEMBER 31
----------------------------
1995 1994
------------ -----------
LONG-TERM DEBT:
Notes payable (including obligations under capitalized leases
of $14,220,000 in 1995 and $14,004,000 in 1994) with varying
maturities through 2001; weighted average interest at 6.9%
in 1995 and 1994 (see Note 6 regarding capitalized
leases)..................................................... $ 20,443,000 $19,442,000
Mortgages payable, interest at 6.0% to 9.0% with varying
maturities through 2000..................................... 2,184,000 3,745,000
Revolving credit and demand notes.............................. 21,450,000 8,950,000
Commercial paper............................................... 48,000,000 38,500,000
Revenue bonds:
interest at floating rates ranging from 5.0% to 5.2% at
December 31, 1995 with varying maturities through 2015...... 18,200,000 21,724,000
8.75% Senior Notes due 2005, net of the unamortized discount of
$1,066,000.................................................. 133,934,000 --
------------ -----------
244,211,000 92,361,000
Less-Amounts due within one year............................ 7,125,000 7,236,000
------------ -----------
$237,086,000 $85,125,000
============ ===========
During the third quarter of 1995, the Company completed the issuance of
$135 million of Senior Notes which have an 8.75% coupon rate and which mature on
August 15, 2005. The Notes can be redeemed in whole or in part, at any time on
or after August 15, 2000, initially at a price of 102.265%, declining ratably to
par on or after August 15, 2002. The interest on the bonds will be paid
semiannually in arrears on February 15 and August 15 of each year. The net
proceeds generated from the issuance were approximately $131 million and were
used to finance the acquisitions described in Note 2. In anticipation of the
Senior Note issuance, the Company entered into interest rate swaps having a
total notional principal amount of $100 million to hedge the interest rate on
the Notes. These interest rate swaps were terminated simultaneously with the
issuance of the Notes at which time the Company paid a net termination fee of
$5.4 million. The effective rate on the Notes including the amortization of swap
termination fees and bond discount is 9.2%.
The Company amended its unsecured non-amortizing revolving credit agreement
in 1995. The amended agreement, which expires on March 31, 2000, provides for
$225 million of borrowing capacity, subject to certain conditions, until March
31, 1998, $210 million until March 31, 1999 and $185 million until March 31,
2000. The agreement provides for interest, at the Company's option at the prime
rate, certificate of deposit rate plus 5/8% to 1 1/8% or Euro-dollar plus 1/2%
to 1%. A fee ranging from 1/8% to 3/8% is required on the unused portion of
this commitment. The margins over the certificate of deposit, the Euro-dollar
rates and the commitment fee are based upon specified leverage and coverage
ratios. At December 31, 1995 the applicable margins over the certificate of
deposit and the Euro-dollar rate were 7/8% and 3/4%, respectively, and the
33
35
commitment fee was 1/4 %. There are no compensating balance requirements. The
agreement contains a provision whereby 50% of the net consideration, in excess
of $25 million, from the disposition of assets will be applied to reduce
commitments unless such net consideration is reinvested in newly acquired
capital over a twelve month period. At December 31, 1995, the Company had $207
million of unused borrowing capacity available under the revolving credit
agreement.
The average amounts outstanding during 1995, 1994 and 1993 under the
revolving credit and demand notes and commercial paper program were $46,984,000,
$16,324,000 and $25,069,000, respectively with corresponding effective interest
rates of 8.0%, 7.9% and 4.6% including commitment fees. The maximum amounts
outstanding at any month-end were $79,450,000, $47,450,000 and $46,800,000
during 1995, 1994 and 1993, respectively.
Substantially all of the Company's accounts receivable are pledged as
collateral to secure its $50 million, daily valued commercial paper program. The
Company has sufficient patient receivables to support a larger program, and upon
the mutual consent of the Company and the participating lending institutions,
the commitment can be increased. A fee of .76% is required on this $50 million
commitment. Outstanding amounts of commercial paper that can be refinanced
through available borrowings under the Company's revolving credit agreement are
classified as long-term.
At December 31, 1995, the Company had one interest rate swap agreement with
a notional principal amount of $10 million. This agreement calls for the payment
of interest at a fixed rate by the Company in return for payment of a variable
rate interest by a commercial bank. This swap effectively fixes the Company's
interest rate on $10 million of its floating rate debt at 9.015%. The interest
rate swap expires in March, 1996. The effective interest rate on the Company's
revolving credit, demand notes and commercial paper program including the
interest rate swap expense was 8.4%, 16.1% and 13.9% during 1995, 1994 and 1993,
respectively. Additional interest expense recorded as a result of the Company's
hedging activity was $209,000, $1,981,000 and $3,160,000 in 1995, 1994 and 1993,
respectively. The Company is exposed to credit loss in the event of
non-performance by the counterparty to the interest rate swap agreement. This
counterparty is a major financial institution which is rated AA by Moody's
Investors Service and the Company does not anticipate nonperformance. The cost
to terminate the swap obligation at December 31, 1995 and 1994, was
approximately $113,000 and $151,000, respectively.
Covenants relating to long-term debt require maintenance of a minimum net
worth, specified debt to total capital, debt to EBITDA and fixed charge coverage
ratios. Covenants also limit the Company's ability to incur additional senior
debt and to pay cash dividends and repurchase its shares and limit capital
expenditures, among other restrictions. Management believes the Company is in
compliance with all required covenants as of December 31, 1995.
The fair value of the Company's long-term debt at December 31, 1995 was
approximately $247,302,000.
Aggregate maturities follow:
-------------------------------------------------------------
1996 $ 7,125,000
1997 6,300,000
1998 3,838,000
1999 2,644,000
2000 72,143,000
Later 152,161,000
-------------------------------------------------------------
Total $244,211,000
-------------------------------------------------------------
4) COMMON STOCK
During 1994 and 1993, the Company repurchased 509,800 and 224,800 shares of
Class B Common Stock, respectively, at an average purchase price of $25.79 and
$14.39 per share, respectively, or an aggregate of approximately $13.2 million
and $3.2 million, respectively. All repurchases during 1994 were made subsequent
to March 1, 1994. The Company's ability to repurchase its shares is limited by
long-term debt
34
36
covenants to $50 million plus 50% of cumulative net income since March, 1994.
Under the terms of these covenants, the Company had the ability to repurchase an
additional $79.4 million of its Common Stock as of December 31, 1995. The
repurchased shares are treated as retired.
At December 31, 1995 3,044,843 shares of Class B Common Stock were reserved
for issuance upon conversion of shares of Class A, C and D Common Stock
outstanding, for issuance upon exercise of options to purchase Class B Common
Stock, and for issuance of stock under other incentive plans. Class A, C and D
Common Stock are convertible on a share for share basis into Class B Common
Stock.
In 1994, the Company adopted a Stock Compensation Plan under which up to
50,000 Class B Common Shares may be granted to key employees, consultants and
independent contractors, but not to officers or directors. The Plan will
terminate on November 16, 2004, unless terminated sooner by the Board. In 1994,
1,800 shares were granted under this plan.
Under the terms of the Stock Bonus Plan adopted in 1992, eligible employees
may elect to receive all or part of their annual bonuses in shares of restricted
stock (the "Bonus Shares"). Those electing to receive Bonus Shares also receive
additional restricted shares in an amount equal to 20% of their Bonus Shares
(the "Premium Shares"). Restrictions on one-half of the Bonus Shares and
one-half of the Premium Shares lapse after one year and the restrictions on the
remaining shares lapse after two years. The Company has reserved 150,000 shares
of Class B Common Stock for this plan and has issued 72,658 shares at December
31, 1995.
Under the terms of the Stock Ownership Plan, eligible employees may
purchase shares of Class B Common Stock directly from the Company at the market
price. The Company will loan each eligible employee an amount equal to 90% of
the purchase price for the shares. The loans, which are partially recourse to
the employee, bear interest at the applicable Federal rate and are due five
years from the purchase date. Shares purchased under this plan are restricted
from sale or transfer. Restrictions on one-half of the shares lapse after one
year and restrictions on the remaining shares lapse after two years. The Company
has reserved 100,000 shares of Class B Common Stock for this plan. As of
December 31, 1995, 34,750 shares were sold under the terms of this plan.
The Company also has a Restricted Stock Purchase Plan which allows eligible
participants to purchase shares of Class B Common Stock at par value, subject to
certain restrictions. Under the terms of this plan, 300,000 shares of Class B
Common Stock have been reserved for purchase by officers, key employees and
consultants. The restrictions lapse at various dates, as determined by the Board
of Directors, ranging from six months to five years from the date of purchase.
The Company has issued 184,513 shares under this plan, of which 46,674, 41,336
and 45,000 became fully vested during 1995, 1994, and 1993, respectively.
Compensation expense, based on the difference between the market price on the
date of purchase and par value, is being amortized over the restriction period
and was $415,089 in 1995, $148,000 in 1994 and $240,000 in 1993.
Effective January 1, 1996, the Company adopted a Stock Purchase Plan,
subject to shareholder approval, which allows eligible employees to purchase
shares of Class B Common Stock at a ten percent discount. The maximum number of
shares of stock that can be issued under the plan is 400,000.
Stock options to purchase Class B Common Stock have been granted to
officers, key employees and directors of the Company under various plans. During
1994 and 1995 the Board of Directors and shareholders, respectively, approved a
600,000 share increase in the reserve for Class B Common Stock available for
grant, pursuant to the terms of the 1992 Stock Option Plan. Also during 1995,
subject to shareholder approval, the Board of Directors approved a 500,000 share
increase in the reserve for Class B Common Stock available for grant pursuant to
the terms of the 1992 Stock Option Plan. All stock options were granted with an
exercise price equal to the fair market value on the date of the grant. Options
are exercisable ratably over a four year period beginning one year after the
date of the grant. The options expire five years after the date of the grant.
35
37
Information with respect to these options is summarized as follows:
AVERAGE
NUMBER OPTION
OUTSTANDING OPTIONS OF SHARES PRICE
- - -------------------------------------------------------------------------- --------- -------
Balance, January 1, 1993.................................................. 200,175 $ 11.40
Granted................................................................. 7,400 $ 14.88
Exercised............................................................... (40,238) $ 7.23
Cancelled............................................................... (3,000) $ 12.50
------- ------
Balance, January 1, 1994.................................................. 164,337 $ 12.53
Granted................................................................. 560,750 $ 22.05
Exercised............................................................... (15,988) $ 10.98
Cancelled............................................................... (5,500) $ 16.64
------- ------
Balance, January 1, 1995.................................................. 703,599 $ 20.12
Granted................................................................. 310,500 $ 32.95
Exercised............................................................... (24,463) $ 16.11
Cancelled............................................................... (4,875) $ 18.49
------- ------
Balance, December 31, 1995................................................ 984,761 $ 24.27
======= ======
At December 31, 1995, 497,225 shares were available for grant. At December
31, 1995, options for 222,125 shares of Class B Common Stock with an aggregate
purchase price of $4,023,852 (average of $18.12 per share) were exercisable.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." The Statement encourages a
fair value based method of accounting for employee stock options and similar
equity instruments, which generally would result in the recording of additional
compensation expense in an entity's financial statements. The Statement also
allows an entity to continue to account for stock-based employee using the
intrinsic value based method in APB Opinion No. 25. The Company intends to
continue its accounting for equity instruments using APB No. 25. As a result,
beginning in 1996, the Company will be required to make pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting had been applied.
5) INCOME TAXES
Components of income tax expense are as follows:
YEAR ENDED DECEMBER 31
-------------------------------------------
1995 1994 1993
------------ ------------ -----------
Currently payable
Federal........................................... $ 33,659,000 $ 27,014,000 $17,315,000
State............................................. 4,434,000 3,009,000 1,136,000
------------ ------------ -----------
38,093,000 30,023,000 18,451,000
------------ ------------ -----------
Deferred
Federal........................................... (17,912,000) (10,412,000) (6,482,000)
State............................................. (2,676,000) (1,402,000) (884,000)
------------ ------------ -----------
(20,588,000) (11,814,000) (7,366,000)
------------ ------------ -----------
Total............................................. $ 17,505,000 $ 18,209,000 $11,085,000
============ ============ ===========
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS
109). Under SFAS 109, deferred taxes are required to be classified based on the
financial statement classification of the related assets and liabilities which
give rise to temporary differences. The net effect of the impact of the 1993 tax
law changes on the current and deferred tax provisions was immaterial.
36
38
Deferred taxes result from temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. The
components of deferred taxes are as follows:
YEAR ENDED DECEMBER 31
----------------------------
1995 1994
----------- ------------
Self-insurance reserves.......................................... $30,401,000 $ 28,944,000
Doubtful accounts and other reserves............................. 14,185,000 9,921,000
State income taxes............................................... 73,000 (126,000)
Other deferred tax assets........................................ -- 382,000
Depreciable and amortizable assets............................... (4,466,000) (17,319,000)
Conversion from cash basis to accrual basis of accounting........ (2,509,000) (5,017,000)
Other deferred tax liabilities................................... (1,412,000) (1,101,000)
----------- ------------
Total deferred taxes........................................... $36,272,000 $ 15,684,000
=========== ============
A reconciliation between the Federal statutory rate and the effective tax
rate is a follows:
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
Federal statutory rate................................................. 35.0% 35.0% 35.0%
Nondeductible (deductible) depreciation, amortization and other........ (4.1) 1.6 (3.9)
State taxes, net of Federal income tax benefit......................... 2.1 2.2 0.5
---- ---- ----
Effective tax rate..................................................... 33.0% 38.8% 31.6%
==== ==== ====
In 1995 and 1994, the Company reviewed its deferred state tax balances and
as a result reduced its tax provision by $390,000 in each year. The net deferred
tax assets and liabilities are comprised as follows:
YEAR ENDED DECEMBER 31
-----------------------------
1995 1994
----------- -----------
Current deferred taxes
Assets........................................................ $22,910,000 $16,622,000
Liabilities................................................... (3,921,000) (3,680,000)
----------- -----------
Total deferred taxes-current.................................. 18,989,000 12,942,000
Noncurrent deferred taxes
Assets........................................................ 21,749,000 22,625,000
Liabilities................................................... (4,466,000) (19,883,000)
----------- -----------
Total deferred taxes-noncurrent............................... 17,283,000 2,742,000
----------- -----------
Total deferred taxes............................................ $36,272,000 $15,684,000
=========== ===========
The assets and liabilities classified as current relate primarily to the
allowance for uncollectible patient accounts and the current portion of the
temporary differences related to self-insurance reserves and the change in
accounting method. Under SFAS 109, a valuation allowance is required when it is
more likely than not that some portion of the deferred tax assets will not be
realized. Realization is dependent on generating sufficient future taxable
income. Although realization in not assured, management believes it is more
likely than not that all the deferred tax assets will be realized. Accordingly,
the Company has not provided a valuation allowance. The amount of the deferred
tax asset considered realizable, however, could be reduced if estimates of
future taxable income during the carryforward period are reduced.
6) LEASE COMMITMENTS
Certain of the Company's hospital and medical office facilities and
equipment are held under operating or capital leases which expire through 2013
(See Note 8). Certain of these leases also contain provisions allowing
37
39
the Company to purchase the leased assets during the term or at the expiration
of the lease at fair market value. A summary of property under capital lease
follows:
DECEMBER 31
-----------------------------
1995 1994
----------- -----------
Land, buildings and equipment................................... $27,415,000 $24,782,000
Less: accumulated amortization.................................. 12,867,000 10,426,000
----------- -----------
$14,548,000 $14,356,000
=========== ===========
Future minimum rental payments under lease commitments with a term of more
than one year as of December 31, 1995, are as follows:
CAPITAL OPERATING
YEAR LEASES LEASES
- - --------------------------------------------------------------- ----------- ------------
1996........................................................... $ 5,931,000 $ 26,004,000
1997........................................................... 4,852,000 21,555,000
1998........................................................... 2,697,000 19,270,000
1999........................................................... 1,543,000 17,984,000
2000........................................................... 858,000 14,485,000
Later Years.................................................... -- 20,679,000
----------- -------------
Total minimum rental........................................... $15,881,000 $119,977,000
=============
Less: Amount representing interest............................. 1,661,000
-----------
Present value of minimum rental commitments.................... 14,220,000
Less: Current portion of capital lease obligations............. 5,117,000
-----------
Long-term portion of capital lease obligations................. $ 9,103,000
===========
Capital lease obligations of $4,961,000, $4,654,000 and $5,371,000 in 1995,
1994 and 1993, respectively, were incurred when the Company entered into capital
leases for new equipment.
7) COMMITMENTS AND CONTINGENCIES
Most of the Company's subsidiaries are self-insured for general liability
risks for claims limited to $5 million per occurrence and for professional
liability risks for claims limited to $25 million per occurrence. Coverage in
excess of these limits up to $100 million is maintained with major insurance
carriers. Since 1993, certain of the Company's subsidiaries, including one of
its larger acute care facilities, have purchased general and professional
liability occurrence policies with commercial insurers. These policies include
coverage up to $25 million per occurrence for general and professional liability
risks.
As of December 1995 and 1994, the reserve for professional and general
liability risks was $67.2 million and $62.4 million, respectively, of which
$22.8 million and $11.0 million in 1995 and 1994, respectively, is included in
current liabilities. Self-insurance reserves are based upon actuarially
determined estimates. These estimates are based on historical information along
with certain assumptions about future events. Changes in assumptions for such
things as medical costs as well as changes in actual experience could cause
these estimates to change in the near term.
Effective January 1, 1996, the Company's self-insured subsidiaries
purchased general and professional liability insurance coverage for a three year
term with a commercial insurer. These policies include coverage for claims in
excess of $5 million and limited to $25 million per occurrence and have an
unlimited aggregate.
The Company has outstanding letters of credit totalling $20.8 million
related to the Company's self-insurance programs ($10.8 million), as support for
various debt instruments ($1.3 million) and as support for a loan guarantee for
an unaffiliated party ($8.7 million). The Company has also guaranteed
approximately $1.1 million of loans.
38
40
The Company is committed to invest at least an additional $30 million, over
a ten year period, to renovate the existing facility and construct an additional
facility related to its 1994 acquisition of a 112-bed acute care hospital
located in Edinburg, Texas (See Note 2). The Company has also agreed to
construct a medical complex, including a 129-bed acute care facility, in
Summerlin, Nevada for a total cost of approximately $60 million.
The Company signed a letter of intent to acquire a 360-bed acute care
hospital located in Amarillo, Texas. The closing of this transaction, which is
expected to be completed during the second quarter of 1996, is subject to a
number of conditions. Cash consideration is expected to approximate $120
million.
The Company estimates the cost to complete major construction projects in
progress at December 31, 1995 will approximate $45.8 million.
The Company has entered into a long-term contract with a third party to
provide certain data processing services for its acute care and psychiatric
hospitals. This contract expires in 2002.
Various suits and claims arising in the ordinary course of business are
pending against the Company. In the opinion of management, the outcome of such
claims and litigation will not materially affect the Company's consolidated
financial position or results of operations.
8) RELATED PARTY TRANSACTIONS
At December 31, 1995, the Company held approximately 8% of the outstanding
shares of Universal Health Realty Income Trust (the "Trust"). Certain officers
and directors of the Company are also officers and/or Directors of the Trust.
The Company accounts for its investment in the Trust using the equity method of
accounting. The Company's pre-tax share of income from the Trust was $1,052,000,
$1,095,000 and $757,000 in 1995, 1994 and 1993, respectively, and is included in
net revenues in the accompanying consolidated statements of income. The carrying
value of this investment at December 31, 1995 and 1994 was $8,468,000 and
$8,404,000, respectively, and is included in other assets in the accompanying
consolidated balance sheets. The market value of this investment at December 31,
1995 and 1994 was $12,489,000 and $11,261,000, respectively.
During 1993, pursuant to the terms of its lease with the Trust, the Company
purchased the real property of a 48-bed psychiatric hospital located in Texas
for $3.2 million. The real property of this hospital was previously leased by
the Company and base rental payments continued under the existing lease until
the date of sale. Operations at this hospital were discontinued during the first
quarter of 1992, however, the facility is currently being utilized for
outpatient services at one of the Company's acute care hospitals. Also during
1993, the Company sold to the Trust certain real estate assets of a 134-bed
hospital located in Illinois for approximately $1.9 million. These assets
consisted of additions and improvements made to the facility by the Company
since the sale of the major portion of the real estate assets to the Trust in
1986. The operations of this facility were sold during 1993 to an operator
unaffiliated with the Company.
As of December 31, 1995, the Company leased seven hospital facilities from
the Trust with initial terms expiring in 1999 through 2003. These leases contain
up to six 5-year renewal options. Future minimum lease payments to the Trust are
included in Note 6. The terms of the lease provide that in the event the Company
discontinues operations at the leased facility for more than one year, the
Company is obligated to offer a substitute property. If the Trust does not
accept the substitute property offered, the Company is obligated to purchase the
leased facility back from the Trust at a price equal to the greater of its then
fair market value or the original purchase price paid by the Trust. During 1995,
in exchange for the real estate assets of a 126-bed acute care hospital divested
by the Company during the year, the Company exchanged with the Trust substitute
properties consisting of additional real estate assets owned by the Company but
related to three acute care facilities owned by the Trust and operated by the
Company (See Note 2). Total rent expense under these operating leases was
$16,000,000 in 1995, $15,700,000 in 1994 and $16,600,000 in 1993. The Company
received an advisory fee of $953,000 in 1995, $909,000 in 1994 and $880,000 in
1993 from the Trust for investment and administrative services provided under a
contractual agreement which is included in net revenues in the accompanying
consolidated statement of income.
39
41
A member of the Company's Board of Directors is a partner in the law firm
used by the Company as its principal outside counsel. Another member of the
Company's Board of Directors is a managing director of one of the underwriters
who performed investment banking services related to the Senior Notes issued
during 1995.
9) OTHER NONRECURRING CHARGES
Changes in third party payment methods, advances in medical technologies,
legislative and regulatory initiatives at the Federal and state levels along
with increased competition from other providers have impacted operating margins
at the Company's facilities in recent years. These industry conditions have
adversely impacted certain of the Company's specialized facilities and certain
of the Company's smaller facilities in more competitive markets.
The increased penetration of managed care into the chemical dependency
segment of the behavioral health services market, increased competition from
acute care providers seeking to expand their service lines and the continuing
shift to partial hospitalization and outpatient treatment programs have resulted
in significant reduction in admissions and patient days at the Company's two
chemical dependency facilities. Changes in CHAMPUS regulations and the
increasing influence of managed care have led to shorter lengths of stay for
patients at the Company's two residential treatment centers. These factors have
led management to conclude that there has been a permanent impairment in the
carrying value of these four facilities in the behavioral health services
division.
Increased competition and penetration of managed care in the two geographic
markets where three of the Company's ambulatory treatment centers are located
have led management to conclude that there has been a permanent impairment in
the carrying value those facilities.
In conjunction with the development of the Company's operating plan and
1996 budget, management assessed the current competitive position of these
facilities and estimated future cash flows expected from these facilities. As a
result, the Company recorded a $14.2 million pre-tax nonrecurring charge in the
1995 consolidated statement of income related primarily to the write-down of the
carrying value of certain intangible and tangible assets at these facilities. In
measuring the impairment loss, the Company estimated fair value by discounting
expected future cash flows from each facility using the Company's internal
hurdle rate.
10) PENSION PLAN
The Company maintains a contributory and non-contributory retirement plan
for eligible employees. The non-contributory plan is a defined benefit pension
plan which covers employees of one of the Company's subsidiaries. The benefits
are based on years of service and the employee's highest compensation for any
five years of employment. The Company's funding policy is to contribute annually
at least the minimum amount that should be funded in accordance with the
provisions of ERISA.
The plan's funded status and amounts recognized in the Company's balance
sheet as of December 31, 1995 are as follows:
Actuarial present value of benefit obligations as of December 31, 1995:
Accumulated benefit obligation, including vested benefits of
$29,890,000....................................................... $ 32,197,000
===========
Projected benefit obligation for service rendered to date.............. $(37,211,000)
Plan assets at fair value, primarily listed stock and U.S.
obligations.......................................................... 20,008,000
-----------
Projected benefit obligation in excess of plan assets.................. (17,203,000)
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions................................ 2,480,000
-----------
Accrued pension cost................................................... $(14,723,000)
===========
40
42
Significant actuarial assumptions used in measuring benefit obligations and
the expected return on plan assets at December 31, 1995 are as follows:
Weighted-average discount rate........................................ 7.00%
Weighted-average rate of compensation increase........................ 4.00%
Expected rate of return on assets..................................... 9.00%
Pension expense related to this plan is not material to the consolidated
financial statements.
11) QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the Company's quarterly financial data for
the two years ended December 31, 1995.
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
- - ---------------------------------------- ------------ ------------ ------------ ------------
Net revenues............................ $220,715,000 $214,165,000 $234,144,000 $262,102,000
Income before income taxes.............. $ 19,344,000 $ 14,448,000 $ 11,299,000 $ 7,898,000
Net income.............................. $ 11,841,000 $ 9,555,000 $ 7,229,000 $ 6,859,000
Earning per share (fully diluted)....... $ 0.85 $ 0.68 $ 0.51 $ 0.48
Net revenues in 1995 include $12.6 million of additional revenues received
from special Medicaid reimbursement programs. Of this amount, $3.8 million was
recorded in each of the first and second quarters, $3.1 million in the third
quarter and $1.9 million in the fourth quarter. These programs are scheduled to
terminate in August, 1996. These amounts were recorded in the periods that the
Company met all of the requirements to be entitled to these reimbursements. The
second quarter results include a $2.7 million pre-tax charge related to the
Company's divestiture of two acute care hospitals in connection with the
acquisition of the acute care hospital located in Aiken, South Carolina (See
Note 2). The fourth quarter results include a $5.3 million gain related to the
Company's divestiture of an acute care hospital. The fourth quarter results also
include a $14.2 million pre-tax charge for an impairment loss at certain
facilities (See Note 9).
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- - ---------------------------------------- ------------ ------------ ------------ ------------
Net revenues............................ $194,432,000 $192,199,000 $191,512,000 $204,056,000
Income before income taxes.............. $ 16,794,000 $ 13,357,000 $ 9,622,000 $ 7,156,000
Net income.............................. $ 10,287,000 $ 8,153,000 $ 5,835,000 $ 4,445,000
Earnings per share (fully diluted)...... $ 0.72 $ 0.57 $ 0.41 0.32
Net revenues in 1994 include $12.4 million of additional revenues received
from special Medicaid reimbursement programs. Of this amount, $3.0 million was
recorded in each of the first and second quarters, $3.1 million in the third
quarter and $3.3 million in the fourth quarter. Net revenues in the fourth
quarter also include $3.0 million of proceeds related to the Company's
previously disposed UK operations. The first quarter operating results also
include approximately $1.3 million of expenses related to the disposition of a
non-strategic business. The second quarter results include a $2.8 million
write-down recorded against the book value of the real property of a psychiatric
hospital owned by the Company and leased to an unaffiliated third party, which
is currently in default under the terms of the lease. Also included in operating
expenses during the second quarter is a $1.1 million favorable adjustment made
to reduce the Company's workers' compensation reserves. The fourth quarter
results include a $1.3 million write-down recorded against the book value of the
real property of a psychiatric hospital owned by the Company and for which its
lease was terminated by an unaffiliated third party and a $4.3 million charge
related to the anticipated disposition of two acute care hospitals (See Note 2).
41
43
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
---------------------------
BALANCE AT CHARGED TO WRITE-OFF OF BALANCE
BEGINNING COSTS AND ACQUISITIONS UNCOLLECTIBLE AT END
DESCRIPTION OF PERIOD EXPENSES OF BUSINESSES ACCOUNTS OF PERIOD
- - ------------------------------------------------ ---------- ---------- ------------- ------------- ----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE:
Year ended December 31, 1995.................. $34,957,000 $76,905,000 $ 4,797,000 $(67,643,000) $49,016,000
=========== =========== =========== ============= ===========
Year ended December 31, 1994.................. $28,444,000 $58,347,000 $ -- $(51,834,000) $34,957,000
=========== =========== =========== ============= ===========
Year ended December 31, 1993.................. $27,257,000 $55,409,000 $ -- $(54,222,000) $28,444,000
=========== =========== =========== ============= ===========
42
44
INDEX TO EXHIBITS
10.5 Agreement effective January 1, 1996, to renew Advisory Agreement, dated as of
December 24, 1986, between Universal Health Realty Income Trust and UHS of Delaware,
Inc.
10.26 1992 Stock Option Plan, As Amended.
10.27 Stock Purchase Plan.
10.28 Asset Purchase Agreement, dated as of February 6, 1996, among Amarillo Hospital
District, UHS of Amarillo, Inc., and Universal Health Services, Inc.
11. Statement re: computation of per share earnings.
22. Subsidiaries of Registrant.
24. Consent of Independent Public Accountants.
27. Financial Data Schedule.
1
[UNIVERSAL HEALTH REALTY INCOME TRUST LETTERHEAD]
January 10, 1996
Mr. Alan B. Miller
President
UHS of Delaware, Inc.
367 South Gulph Road
King of Prussia, PA 19406
Dear Alan:
The Board of Trustees of Universal Health Realty Income Trust at their
December 1, 1995, meeting authorized the renewal of the current Advisory
Agreement between the Trust and UHS of Delaware, Inc. ("Agreement") upon the
same terms and conditions.
This letter constitutes the Trust's offer to renew the Agreement until
December 31, 1996, upon the same terms and conditions. Please acknowledge UHS
of Delaware, Inc.'s acceptance of this offer by signing in the space provided
below and returning one copy of this letter to me.
Sincerely yours,
/s/ KIRK E. GORMAN
Kirk E. Gorman
President and Secretary
KEG/jds
cc: Warren J. Nimetz, Esquire
Charles Boyle
AGREED TO AND ACCEPTED:
UHS OF DELAWARE, INC.
By: /s/ ALAN B. MILLER
----------------------------
Alan B. Miller, President
1
EXHIBIT 10.26
UNIVERSAL HEALTH SERVICES, INC.
1992 STOCK OPTION PLAN, AS AMENDED
1. Purpose. The purpose of the Universal Health Services, Inc.
1992 Stock Option Plan (the "Plan") is to enable Universal Health Services,
Inc. (the "Company") and its stockholders to secure the benefits of common
stock ownership by key personnel of the Company and its subsidiaries. The
Board of Directors of the Company (the "Board") believes that the granting of
options under the Plan will foster the Company's ability to attract, retain and
motivate those individuals who will be largely responsible for the continued
profitability and long-term future growth of the Company.
2. Stock Subject to the Plan. The Company may issue and sell a
total of 1,500,000 shares of its Class B Common Stock, $.01 par value (the
"Common Stock"), pursuant to the Plan. Such shares may be either authorized
and unissued or held by the Company in its treasury. New options may be
granted under the Plan with respect to shares of Common Stock which are covered
by the unexercised portion of an option which has terminated or expired by its
terms, by cancellation or otherwise.
3. Administration. The Plan will be administered by a committee
(the "Committee") consisting of at least two directors appointed by and serving
at the pleasure of the Board. If a Committee is not so established, the Board
will perform the duties and functions ascribed herein to the Committee. To the
extent required by the applicable provisions of Rule 16(b)-3 under the
Securities Exchange Act of 1934, no member of the Committee shall have received
an option under the Plan or any other plan within one year before his or her
appointment or such other period as may be prescribed by said Rule. Subject to
the provisions of the Plan, the Committee, acting in its sole and absolute
discretion, will have full power and authority to grant options under the Plan,
to interpret the provisions of the Plan and option agreements made under the
Plan, to supervise the administration of the Plan, and to take such other
action as may be necessary or desirable in order to carry out the provisions of
the Plan. A majority of the members of the Committee will constitute a quorum.
The Committee may act by the vote of a majority of its members present at a
meeting at which there is a quorum or by unanimous written consent. The
decision of the Committee as to any disputed question, including questions of
construction, interpretation and administration, will be final and conclusive
on all persons. The Committee will keep a record of its proceedings and acts
and will keep or caused to be kept such books and records as may be necessary
in connection with the proper administration of the Plan.
4. Eligibility. Options may be granted under the Plan to present
or future key employees of the Company or a subsidiary of the Company (a
"Subsidiary") within the meaning of Section 424(f) of the Internal Revenue Code
of 1986 (the "Code"), and to consultants to the Company or a Subsidiary who are
not employees. Options may not be granted to directors of
2
the Company or a Subsidiary who are not also employees of or consultants to the
Company and/or a Subsidiary. Subject to the provisions of the Plan, the
Committee may from time to time select the persons to whom options will be
granted, and will fix the number of shares covered by each such option and
establish the terms and conditions thereof (including, without limitation,
exercise price and restrictions on exercisability of the option or on the
shares of Common Stock issued upon exercise thereof). Notwithstanding anything
to the contrary contained herein no person may receive grants of options to
purchase more than 200,000 shares in any one calendar year.
5. Terms and Conditions of Options. Each option granted under
the Plan will be evidenced by a written agreement in a form approved by the
Committee. Each such option will be subject to the terms and conditions set
forth in this paragraph and such additional terms and conditions not
inconsistent with the Plan as the Committee deems appropriate.
(a) Option Period. The period during which an option may be
exercised will be fixed by the Committee and will not exceed 10 years
from the date the option is granted .
(b) Exercise of Options. An option may be exercised by
transmitting to the Company (1) a written notice specifying the number
of shares to be purchased, and (2) payment of the exercise price (or,
if applicable, delivery of a secured obligation therefor), together
with the amount, if any, deemed necessary by the Committee to enable
the Company to satisfy its income tax withholding obligations with
respect to such exercise (unless other arrangements acceptable to the
Company are made with respect to the satisfaction of such withholding
obligations).
(c) Payment of Exercise Price. The purchase price of shares of
Common Stock acquired pursuant to the exercise of an option granted
under the Plan may be paid in cash and/or such other form of payment
as may be permitted under the option agreement, including, without
limitation, previously-owned shares of Common Stock. The Committee
may permit the payment of all or a portion of the purchase price in
installments (together with interest) over a period of not more than 5
years.
(d) Rights as a Stockholder. No shares of Common Stock will be
issued in respect of the exercise of an option granted under the Plan
until full payment therefor has been made (and/or provided for where
all or a portion of the purchase price is being paid in installments).
The holder of an option will have no rights as a stockholder with
respect to any shares covered by an option until the date a stock
certificate for such shares is issued to him or her. Except as
otherwise provided herein, no adjustments shall be made for dividends
or distributions of other rights for which the record date is prior to
the date such stock certificate is issued.
(e) Nontransferability of Options. No option granted under the
Plan may be assigned or transferred except by will or by the
applicable laws of descent and distribution; and each such option may
be exercised during the optionee's lifetime only by the optionee.
2
3
(f) Termination of Employment or Other Service. Unless otherwise
provided by the Committee in its sole discretion, if an optionee
ceases to be employed by or to perform services for the Company and
any Subsidiary for any reason other than death or disability (defined
below), then each outstanding option granted to him or her under the
Plan will terminate on the date of termination of employment or
service (or, if earlier, the date specified in the option agreement).
Unless otherwise provided by the Committee in its sole discretion, if
an optionee's employment or service is terminated by reason of the
optionee's death or disability (or if the optionee's employment or
service is terminated by reason of his or her disability and the
optionee dies within one year after such termination of employment or
service), then each outstanding option granted to the optionee under
the Plan will terminate on the date one year after the date of such
termination of employment or service (or one year after the later
death of a disabled optionee) or, if earlier, the date specified in
the option agreement. For purposes hereof, the term "disability"
means the inability of an optionee to perform the customary duties of
his or her employment or other service for the Company or a Subsidiary
by reason of a physical or mental incapacity which is expected to
result in death or be of indefinite duration.
(g) Other Provisions. The Committee may impose such other
conditions with respect to the exercise of options, including, without
limitation, any conditions relating to the application of federal or
state securities laws, as it may deem necessary or advisable.
6. Capital Changes, Reorganization, Sale.
(a) Adjustments Upon Changes in Capitalization. The aggregate
number and class of shares for which options may be granted under the
Plan, the maximum number of shares for which options may be granted to
any person in any one calendar year, the number and class of shares
covered by each outstanding option and the exercise price per share
shall all be adjusted proportionately for any increase or decrease in
the number of issued shares of Common Stock resulting from a split-up
or consolidation of shares or any like capital adjustment, or the
payment of any stock dividend.
(b) Cash, Stock or Other Property for Stock. Except as provided
in subparagraph (c) below, upon a merger (other than a merger of the
Company in which the holders of Common Stock immediately prior to the
merger have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization (other
than a mere reincorporation or the creation of a holding company) or
liquidation of the Company, as a result of which the Stockholders of
the Company receive cash, stock or other property in exchange for or
in connection with their shares of Common Stock, any option granted
hereunder shall terminate, but the optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation to
exercise his or her option in whole or in part to the extent permitted
by the option agreement, and, if the Committee in its sole
3
4
discretion shall determine, may exercise the option whether or not the
vesting requirements set forth in the option agreement have been
satisfied.
(c) Conversion of Options on Stock for Stock Exchange. If the
Stockholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common
Stock in any transaction involving a merger (other than a merger of
the Company in which the holders of Common Stock immediately prior to
the merger have the same proportionate ownership of Common Stock in
the surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation or
reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted
into options to purchase shares of Exchange Stock unless the Company
and the corporation issuing the Exchange Stock, in their sole
discretion, determine that any or all such options granted hereunder
shall not be converted into options to purchase shares of Exchange
Stock but instead shall terminate in accordance with the provisions of
subparagraph (b) above. The amount and price of converted options
shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock
receive in such merger, consolidation, acquisition of property or
stock, separation or reorganization. The Board shall determine in its
sole discretion if the converted options shall be fully vested whether
or not the vesting requirements set forth in the option agreement have
been satisfied.
(d) Fractional Shares. In the event of any adjustment in the
number of shares covered by any option pursuant to the provisions
hereof, any fractional shares resulting from such adjustment will be
disregarded and each such option will cover only the number of full
shares resulting from the adjustment.
(e) Determination of Board to be Final. All adjustments under
this paragraph 6 shall be made by the Board, and its determination as
to what adjustments shall be made, and the extent thereof, shall be
final, binding and conclusive.
7. Amendment and Termination of the Plan. The Board may amend or
terminate the Plan. Except as otherwise provided in the Plan with respect to
equity changes, any amendment which would increase the aggregate number of
shares of Common Stock as to which options may be granted under the Plan,
materially increase the benefits under the Plan, or modify the class of persons
eligible to receive options under the Plan shall be subject to the approval of
the Stockholders of the Company. No amendment or termination may affect
adversely any outstanding option without the written consent of the optionee.
8. No Rights Conferred. Nothing contained herein will be deemed
to give any individual any right to receive an option under the Plan or to be
retained in the employ or service of the Company or any Subsidiary.
4
5
9. Governing Law. The Plan and each option agreement shall be
governed by the laws of the State of Delaware.
10. Term of the Plan. The Plan shall be effective as of July 15,
1992, the date on which it was adopted by the Board, subject to the approval of
the stockholders of the Company at the next Annual Meeting of Stockholders.
The Plan will terminate on July 15, 2002, unless sooner terminated by the
Board. The rights of optionees under options outstanding at the time of the
termination of the Plan shall not be affected solely by reason of the
termination and shall continue in accordance with the terms of the option (as
then in effect or thereafter amended).
5
1
EXHIBIT 10.27
UNIVERSAL HEALTH SERVICES, INC.
STOCK PURCHASE PLAN
(Effective January 1, 1996)
This is the Universal Health Services, Inc. Stock Purchase
Plan (the "Plan") intended to provide the eligible employees of Universal
Health Services, Inc. (the "Company") and its participating subsidiaries a
convenient means of purchasing shares of the Company's Class B common stock,
par value $.01 per share (the "Stock"). The Plan is intended to qualify as an
"employee stock purchase plan" under section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and shall be administered, interpreted and
construed in a manner consistent with the requirements of that section of the
Code.
ARTICLE I
DEFINITIONS
1.1 "Account" means the bookkeeping account established
on behalf of each Participant by the Committee to record payroll deduction
contributions made by such Participant and shares of Stock purchased on his or
her behalf.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Business Day" means each day on which the New York
Stock Exchange is open for business.
1.4 "Company 401(k) Plan" means a qualified retirement
plan established by the Company or a Subsidiary that is intended to comply with
section 401(k) of the Code.
1.5 "Compensation" means all regular salary, wages or
earnings, including overtime pay, commissions and bonuses.
1.6 "Committee" means the Compensation Committee of the
Company's Board of Directors.
1.7 "Employee" means any person who is regularly
scheduled to work a minimum of 20 hours per week for the Company or a
Participating Subsidiary.
1.8 "Effective Date" means January 1, 1996, subject to
the appropriate consent of the shareholders of the Company obtained at a
special or annual meeting on or before December 31, 1996.
2
1.9 "Exercise Date" means the date Participants elect to
exercise options granted pursuant to the Plan, which shall be no later than
5:00 p.m. Eastern Time on the Purchase Date.
1.10 "Grant Date" means the date options to purchase Stock
pursuant to the Plan are granted to Participants, which shall be 9:00 a.m.
Eastern Time on the Purchase Date.
1.11 "Participant" means an Employee who has met the
eligibility requirements of Article II and who has elected to participate
pursuant to an election under Section 3.1.
1.12 "Participating Subsidiary" means each United States
Subsidiary of the Company approved for participation in the Plan by the Board.
1.13 "Plan Year" means the 12-month period ending December
31.
1.14 "Purchase Date" means such Business Date after the
end of each month upon which the Committee elects to purchase Stock for use
under the Plan.
1.15 "Subsidiary" means a subsidiary corporation of the
Company as that term is defined in section 424(f) of the Code.
1.16 "Year of Service" means a consecutive 12-month period
during which an individual is an Employee, measured from his or her date of
hire by the Company or a Participating Subsidiary.
ARTICLE II
ELIGIBILITY
2.1 Eligibility. Except as provided in Sections 2.2 and
2.3, an Employee who has completed two or more Years of Service before January
1, 1996 and who continues to be employed by the Company or a Participating
Subsidiary as of December 31, 1995 shall be eligible to participate in the Plan
as of January 1, 1996. Each other Employee, except as provided in Section 2.2
or Section 2.3, shall be eligible to participate in the Plan as of the date he
or she completes two Years of Service.
2.2 Ineligible Employees. Notwithstanding any other
provision of the Plan to the contrary, each of the following Employees shall be
ineligible to participate in the Plan:
2.2.1 An Employee who is a member of a collective
bargaining unit whose agreement with the
Company or a Participating Subsidiary does
not provide for participation in the Plan;
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2.2.2 An Employee who is employed by a Subsidiary
that is not a Participating Subsidiary; and
2.2.3 An Employee who is treated as owning stock
possessing five percent or more of the total
combined voting power or value of all classes
of stock of the Company or any of its
Subsidiaries (for purposes of this provision,
the rules of section 424(d) of the Code shall
apply in determining stock ownership of any
Employee).
2.3 Eligibility Restrictions. An Employee who elects to
terminate participation in the Plan in accordance with Section 3.5 shall be
prohibited from participating in the Plan for at least 90 days after the date
of such termination. An Employee who makes a hardship withdrawal from a
Company 401(k) Plan shall be prohibited from participating in the Plan for one
year after the date of such withdrawal.
ARTICLE III
PARTICIPATION
3.1 Commencement of Participation. An eligible Employee
may become a Participant in the Plan by completing an enrollment and payroll
deduction form and delivering it to the Company or the Participating Subsidiary
employing him or her in accordance with procedures established by the
Committee.
3.2 Payroll Deduction. At the time a Participant files
his enrollment and payroll deduction form, he or she shall elect to have
withheld from his or her Compensation on a monthly basis any amount between $20
and $1,000.
3.3 Participants' Accounts. All payroll deductions made
from a Participant's Compensation shall be credited to his or her Account and
used to purchase shares of Stock in accordance with Article V.
3.4 Changes in Payroll Deductions. Except as provided in
Section 3.5, a Participant may elect to change the amount of his or her
contributions to any other permissible amount as soon as administratively
feasible after the Participant files written notice thereof with the Committee.
3.5 Suspension and Resumption of Payroll Deductions. A
Participant may terminate contributions under the Plan. A termination of
contributions shall be effective as soon as administratively feasible after the
date the Participant files written notice thereof with the Committee. A
Participant who has terminated his or her participation in the Plan shall be
prohibited from resuming contributions under the Plan
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for at least 90 days after the date of such a termination. In addition, all
contributions by a Participant shall be automatically suspended upon a hardship
withdrawal from a Company 401(k) Plan. A Participant whose contributions have
been terminated in accordance with the preceding provisions may resume
contributions under the Plan in accordance with Section 2.3.
3.6 Statutory Limitation. No Employee shall be granted
an option that permits his or her rights to purchase Stock under the Plan and
all other employee stock purchase plans (as described in section 423 of the
Code) of the Company or its Subsidiaries to accrue at a rate that would cause
the fair market value of all such Stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time
to exceed $25,000. For purposes of this Section 3.6:
3.6.1 the right to purchase stock under an option
accrues when the option (or any portion
thereof) first becomes exercisable during the
calendar year;
3.6.2 the right to purchase stock under an option
accrues at the rate provided in the option,
but in no case may such rate exceed a rate
that would cause the fair market value of
such stock purchased to exceed $25,000
(determined at the time such option is
granted) for any one calendar year; and
3.6.3 a right to purchase stock that has accrued
under one option granted pursuant to a plan
may not be carried over to any other option.
ARTICLE IV
OFFERINGS
4.1 Monthly Offerings. The Plan shall be implemented
through monthly offerings of options to purchase the Company's Stock. Unless
the Committee declines to issue options for a particular month, options shall
be granted under the Plan on the Grant Date following each month. All options
granted on a Grant Date must be exercised on the Exercise Date. Any options
which are not exercised on the relevant Exercise Date shall expire and be null
and void.
4.2 Purchase Price. The "Purchase Price" per share of
Stock with respect to each month shall be 90 percent of the average price of
the Stock purchased for use under the Plan on the Purchase Date.
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4.3 Maximum Offering. The maximum number of shares of
Stock that shall be issued under the Plan, subject to adjustment upon changes
in capitalization of the Company as provided in Section 9.3, shall be 400,000
shares. If the total number of shares that would be purchased for any month
exceeds the maximum number of available shares, the Committee shall make a pro
rata allocation of the available shares in a manner that it determines to be
equitable and the balance of payroll deductions credited to the Accounts of
Participants shall be returned to such Participants as soon as administratively
practicable.
ARTICLE V
PURCHASE OF STOCK
5.1 Automatic Exercise. On each Exercise Date, each
Participant shall automatically and without any further act on his or her part
be deemed to have purchased Stock to the full extent of the payroll deductions
credited to his or her Account as of the end of the month preceding such
Exercise Date.
5.2 Fractional Shares. Unless otherwise determined by
the Committee, fractional shares of Stock shall be allocated to Participants'
Accounts.
5.3 Acquisition of Stock. The Company may make available
Stock for use under the Plan from authorized but unissued shares, or treasury
shares, or may acquire Stock in the open market or in privately negotiated
transactions for such use.
ARTICLE VI
ACCOUNTING
6.1 General. The Committee shall establish procedures to
account for payroll deductions made by a Participant and the number of shares
of Stock, including fractions, purchased on a Participant's behalf.
6.2 Allocation of Stock. Shares of Stock allocated to a
Participant's Account shall be registered in the name of the Company or its
nominee for the benefit of the Participant on whose behalf such shares are
purchased.
6.3 Accounting for Distributions. Shares of Stock sold
from a Participant's Account shall be debited against his or her Account on a
first-in, first-out basis.
6.4 Account Statements. Each Participant shall receive
quarterly statements of all payroll deductions and shares of Stock allocated to
his or her Account, together with all other transactions affecting such
Account.
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ARTICLE VII
SALES AND DISTRIBUTIONS
7.1 Sale of Stock. Shares allocated to a Participant's
Account shall be held by the Company until the Participant terminates
employment with the Company and all affiliated employers. Notwithstanding the
foregoing, a Participant may elect to withdraw or sell all or any portion of
the shares of Stock allocated to his or her Account by providing notification
to the Company in accordance with procedures established by the Committee. As
soon as administratively practicable following notification of a Participant's
election, the Committee shall issue a certificate to the Participant
representing the shares he or she elected to withdraw or cause the number of
shares of Stock identified by the Participant to be sold, as appropriate. The
certificate or the net proceeds from the sale of the shares, as applicable,
shall be delivered to the Participant as soon as administratively feasible
after the provision of notice by the Participant.
7.2 Distribution Upon Termination. As soon as
administratively practicable after a Participant's termination of employment
with the Company for any reason, the Committee shall cause the Company to issue
a certificate representing all of the whole shares of Stock allocated to his or
her Account, and to deliver it to the Participant (or to his or her personal
representative in the event of his or her death), together with cash equal to
the fair market value of any fractional share (as determined under Section 4.2)
and any unapplied cash in the Account.
7.3 Distribution of Payroll Deductions. Payroll
deductions allocated to a Participant's Account shall be distributed to the
Participant if he terminates employment with the Company and all affiliated
employers or his or her participation in the Plan is terminated pursuant to
Section 3.5. In addition, a Participant may elect to receive a distribution of
payroll deductions allocated to his or her Account during a month by providing
notice to the Committee before the Exercise Date for that month. Any
distributions made pursuant to this Section shall be made in a cash lump sum as
soon as administratively practicable after the occurrence of the event giving
rise to the distribution.
ARTICLE VIII
ADMINISTRATION
8.1 Authority of Committee. The Committee shall have the
exclusive power and authority to administer the Plan, including without
limitation the right and power to interpret the provisions of the Plan and make
all determinations deemed necessary or advisable for the administration of the
Plan. All such actions, interpretations and determinations that are done or
made by the Committee in good faith shall be final, conclusive and binding on
the Company, the Subsidiaries, the
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7
Participants and all other parties claiming through them or any of them, and
shall not subject the Committee to any liability.
8.2 Committee Procedures. The Committee may select one of
its members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable and may hold telephonic meetings. A majority
of its members then in office shall constitute a quorum. All determinations of
the Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by a majority of the members of the
Committee shall be as fully effective as if it had been made by a majority vote
at a meeting duly called and held. The Committee may appoint a secretary and
shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
8.3 Expenses. The Company and its Participating
Subsidiaries shall pay all expenses incident to the operation of the Plan,
including the costs of recordkeeping, accounting fees, legal fees and the costs
of delivery of stock certificates to Participants. However, neither the
Company nor any of the Participating Subsidiaries shall pay any expenses
incurred in connection with the sale of shares of Stock credited to a
Participant's Account. Expenses in connection with any such sale shall be
deducted from the proceeds of sale prior to any remittance to the Participant.
ARTICLE IX
MISCELLANEOUS
9.1 Transferability. Neither payroll deductions credited
to a Participant's Account nor any rights with regard to the purchase of Stock
under the Plan may be assigned, transferred, pledged or otherwise disposed of
in any way by the Participant other than by will or the laws of descent and
distribution.
9.2 Status as Owner. Each Participant shall be deemed to
own legally all shares of Stock allocated to his or her Account and shall be
entitled to exercise all rights associated with ownership of the shares,
including, without limitation, the right to vote such shares in all matters for
which Stock is entitled to vote, receive dividends, if any, and tender such
shares in response to a tender offer.
9.3 Adjustment Upon Changes in Capitalization. In the
event of a reorganization, recapitalization, stock split, spin-off, split-off,
split-up, stock dividend, combination of shares, merger, consolidation or any
other change in the corporate structure of the Company, or a sale by the
Company of all or part of its assets, the Board may make appropriate
adjustments in the number and kind of shares that are subject to purchase under
the Plan and in the exercise price applicable to outstanding options.
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9.4 Amendment and Termination. The Board shall have
complete power and authority to amend or terminate the Plan (including without
limitation the power and authority to make any amendment that may be deemed to
affect the interests of any Participant adversely); provided, however, that the
Board shall not, without the approval of the shareholders of the Company (i)
increase the maximum number of shares that may be offered under the Plan
(except pursuant to Section 9.3); (ii) modify the requirements as to
eligibility for participation in the Plan; or (iii) in any other way cause the
Plan to fail the requirements of section 423 of the Code.
The Plan and all rights of Employees hereunder shall
terminate: (i) at any time, at the discretion of the Board, in which case any
cash balance in Participants' Accounts shall be refunded to such Participants
as soon as administratively possible; or (ii) on the Exercise Date on which
Participants become entitled to purchase a number of shares of Stock that
exceeds the maximum number of shares available under the Plan.
9.5 No Employment Rights. The Plan does not, directly or
indirectly, create in any employee any right with respect to continuation of
employment by the Company or any Subsidiary and it shall not be deemed to
interfere in any way with the Company's or any Subsidiary's right to terminate,
or otherwise modify, an employee's terms of employment at any time.
9.6 Withholding. To the extent any payments or
distributions under the Plan are subject to Federal, state or local taxes, the
Company or any Participating Subsidiary are authorized to withhold all
applicable taxes. The Company or any Participating Subsidiary may satisfy its
withholding obligation by (i) withholding shares of Stock allocated to a
Participant's Account, (ii) deducting cash from a Participant's Account, or
(iii) deducting cash from a Participant's other compensation. A Participant's
election to participate in the Plan authorizes the Company or the appropriate
Participating Subsidiary to take any of the actions described in the preceding
sentence.
9.7 Use of Funds. All payroll deductions held by the
Company under the Plan (other than amounts representing Federal, state or local
taxes withheld) may be used by the Company for any corporate purpose and the
Company shall not be obligated to hold such payroll deductions in trust or
otherwise segregate such amounts.
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9.8 Governing Law. Except to the extent superseded by
Federal law, the laws of the Commonwealth of Pennsylvania will govern all
matters relating to the Plan.
* * * *
To record the adoption of the Plan, Universal Health Services,
Inc. has caused its authorized officers to affix its corporate name and seal
this 15th day of December, 1995.
[CORPORATE SEAL] UNIVERSAL HEALTH SERVICES, INC.
Attest: By: /s/ KIRK E. GORMAN
------------------------ -------------------------------
Senior Vice President & CFO
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EXHIBIT 10.28
ASSET PURCHASE AGREEMENT
AMONG
AMARILLO HOSPITAL DISTRICT
AND
UHS OF AMARILLO, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL HEALTH SERVICES, INC.)
AND
UNIVERSAL HEALTH SERVICES, INC.
DATED AS OF FEBRUARY 6, 1996
2
TABLE OF CONTENTS
Section Page
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1. Purchase and Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Assets Conveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Payment of the Purchase Price and Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Initial Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2.1 Estimated Working Capital Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Final Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3.1 Final Working Capital Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3.2 Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3.3 Payment of Post-Closing Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Dispute of Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Liabilities Assumed by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Liabilities Retained by AHD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.8 Instruments of Conveyance and Transfer of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . 13
3. Representations and Warranties of AHD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Organization, Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Authority and No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Financial Statements, Books and Records and Change in Condition. . . . . . . . . . . . . . . . . . . . . . . 18
3.4.1 Financial Statements Provided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4.2 [Intentionally Left Blank] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.4.3 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.4.4 Events Subsequent to the Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.6 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.7 Property to Operate Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.8 Trade Names, Trademarks, Copyrights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.10 Compliance with Laws; Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.12 Employee and Labor Matters and Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.13 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.14 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.15 Professional Staff, Medicare, Medicaid and Other Healthcare Programs . . . . . . . . . . . . . . . . . . . . 44
3.16 Facility Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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Section Page
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3.17 Suppliers and Providers of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.18 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.19 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.20 Tax Returns Through Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.21 Subsequent Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.22 FIRPTA Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.23 No Illegal or Improper Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.24 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.25 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4. Representations and Warranties of the Purchaser and UHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.2 Authority and No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.3 Defaults, Consents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.4 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5. Obligations Before and After Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.1.1 Access to Premises and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.1.2 Conduct of Business in Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.1.3 Representations and Warranties True at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.1.4 Further Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.1.5 Hiring of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.1.6 No Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.1.7 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.1.8 Payments for Enhanced Children's Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.2.1 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.2.2 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.2.3 Confidentiality Obligations of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.2.5 Indigent Care Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.3.1 Representations and Warranties True at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.3.2 Further Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.3.3 Employment of AHD Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.3.4 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.3.5 Use of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6. Conditions Precedent to the Performance of UHS and the Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.4 Certification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.5 Opinion of AHD's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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Section Page
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6.6 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.7 Legal Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.8 Consents, Approvals, Permits, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.9 Property Tax Records; Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.10 Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.11 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.12 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7. Conditions Precedent to AHD's Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.1 Accuracy of Representations and Warranties of UHS and the Purchaser . . . . . . . . . . . . . . . . . . . . 67
7.2 Performance; Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.3 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.4 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.6 Opinion of Counsel for UHS and the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.7 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.8 Indigent Care Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.9 Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8. Joint Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.1 Post-Closing Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.2 Preservation and Access to Patient and Employee Records After the Closing . . . . . . . . . . . . . . . . . 69
8.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9. Certain Actions After the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.1 Purchaser to Act as Agent for AHD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.2 Delivery of Property Received by AHD, UHS or the Purchaser After Closing . . . . . . . . . . . . . . . . . . 71
9.3 Purchaser Appointed Attorney for AHD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.4 Subrogation of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.5 Payment of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
11. Survival of Representations; Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.1 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.2 Indemnification by AHD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.3 Indemnification by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.4 Procedure for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
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Section Page
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11.5 Limitations on Indemnification Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
11.6 Disposition of Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
12. Entire Agreement; Modification, Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
13. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
14. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
15. Successors and Assigns; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
17. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
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ASSET PURCHASE AGREEMENT
AGREEMENT, made as of the 6th day of February, 1996, by and among (i)
UHS OF AMARILLO, INC., a Texas corporation (the "Purchaser"), and a wholly-owned
subsidiary of UNIVERSAL HEALTH SERVICES, INC. ("UHS"), a Delaware corporation,
(ii) UHS and (iii) AMARILLO HOSPITAL DISTRICT, a body politic and corporate and
a political subdivision of the State of Texas, established and created pursuant
to Article IX, Section 5(a) of the Texas Constitution (1958) and Chapter 32,
Page 59, Acts of the 56th Legislature (1959) (as it has heretofore been and may
be amended) ("AHD").
W I T N E S S E T H :
WHEREAS, AHD provides healthcare related services in the City of
Amarillo, Texas through the operation of the healthcare facilities listed on
Exhibit A hereto (collectively, the "Facilities"), including Northwest Texas
Healthcare System (the "Hospital"), Psychiatric Pavilion, Pickens Indigent Care
Clinic and J.O. Wyatt Community Health Center;
WHEREAS, the Purchaser desires to purchase and AHD desires to sell
substantially all of the assets used by AHD in the operation of the Facilities
which are intended to be used to continue the operation of the Facilities as
healthcare facilities, upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, the Board of Managers of AHD has determined that it is in the
best interest of AHD, and in furtherance of its purposes, to sell substantially
all assets, real, personal and mixed, tangible and intangible, owned or leased
by AHD and associated with or employed in the operations of the Hospital, and
substantially all other related operations owned or leased by
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AHD to Purchaser which will use the property for hospital purposes or purposes
incidental and necessary to hospital purposes;
WHEREAS, the Board of Managers of AHD commissioned a broad search for a
potential purchaser and has negotiated a sales price with Purchaser intended to
maximize the compensation paid for the assets comprising the Hospital, which
compensation will be used and dedicated to further the purposes of AHD;
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, the parties hereto agree as follows:
1. Purchase and Sale of Assets.
1.1 Assets Conveyed. At the closing of the transactions contemplated
hereby (the "Closing") on the Closing Date (as hereinafter defined), and upon
the basis of the representations, warranties, covenants and agreements contained
herein, AHD shall sell, transfer, assign, convey and deliver to the Purchaser,
and the Purchaser shall purchase on the terms set forth herein, all of AHD's
right, title and interest in and to the Assets free and clear of all liens,
charges, claims, pledges, security interests, equities and encumbrances of any
nature whatsoever (collectively, "Liens"), except for those Liens created by the
Purchaser and except for Permitted Encumbrances. "Permitted Encumbrances" shall
mean (a) the lien of current taxes not yet due and payable, (b) easements,
rights of way, servitudes, restrictions and other matters which, in the
aggregate, do not materially adversely affect the use or value of the Assets and
(c) the Assumed Liabilities and liens and security interests associated
therewith (as defined below). The "Assets" shall mean all those personal,
tangible and intangible properties, and the real property and improvements of
AHD used in connection with the operation of the Facilities as set forth below
other than Excluded Assets (as defined below) including without limitation,
those more
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particularly described in the Schedules to this Section 1.1, including the going
concern value of the Facilities.
(a) Contractual Rights: all rights and benefits of AHD under (i)
all contracts relating to the operation of the Facilities as listed on Schedule
1.1(a) hereto (which also recites those contracts, the assignment of which by
their terms requires third party consent) including leases, (ii) such other
contracts which individually involve the annual expenditure of $10,000 or less
and in the aggregate do not require annual expenditures in excess of $250,000,
and (iii) such other contracts for goods and services entered into in the
ordinary course of business which are not specifically excluded by the terms of
this Agreement except such of those contracts (A) that are unreasonable by
industry standards or (B) that Purchaser determines in its discretion are
unreasonable and are not terminable upon not more than six months' notice
without penalty (the "Assumed Contracts");
(b) Licenses and Permits: to the extent permitted by applicable
law and regulation, all licenses and permits held or used by AHD in connection
with the ownership of the Assets and the conduct of the operations of the
Facilities as listed on Schedule 1.1(b) hereto;
(c) Equipment: all equipment, computers, computer hardware and
software, tools, supplies, furniture, vehicles, and other tangible personal
property and assets of AHD related to the Facilities as listed on Schedule
1.1(c) hereto;
(d) Leases: all the interest of and the rights and benefits
accruing to AHD as lessee under (i) the leases relating to the Leased Properties
and all leasehold improvements and fixtures relating thereto as defined and
described in Schedule 3.6 hereto and
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(ii) the leases or rental agreements covering equipment, computers, computer
hardware and software, all such leases as described in Schedule 1.1(d) hereto;
(e) Current Assets: all accounts and notes receivable (including
without limitation, any claims, remedies and other rights related thereto)
evidencing rights to payment for services rendered through the Closing Date,
including amounts equal to the proceeds of receivables for all claims for
amounts due, or that may become due from Medicare, Medicaid or any other
healthcare or payment intermediary for care and treatment of patients (other
than those resulting from cost reports adjustments or other adjustments),
inventories of supplies relating to the Facilities and prepaid expenses relating
to the Facilities on the Closing Date arising in connection with AHD's conduct
of the operations of the Facilities ("Current Assets");
(f) Names, etc.: all right, title and interest AHD has to use
the names set forth on Schedule 1.1(f) hereto and any variation thereof, and the
trade names, trademarks, service marks, copyrights, patents and the like set
forth on Schedule 1.1(h) hereto;
(g) Records: all operating data and records of AHD relating to
the Facilities and the Assets, including without limitation, client lists and
records, patient records, referral sources, research and development reports and
records, production reports and records, equipment logs, operating guides and
manuals, projections, copies of financial, accounting and personnel records,
correspondence and other similar documents and records except as to medical
records, if any, which are prohibited by law to be transferred and assigned
without patient approval and except for records and data relating to AHD's
pension plan which shall be retained by AHD;
(h) Intellectual Property: all of the intangible and
intellectual property of AHD used in the operation of the Facilities, including
all software (including all source codes
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and object codes), products, research data, marketing plans and strategies,
forecasts, trademarks, servicemarks, tradenames, licenses (if transferable),
copyrights, operating rights, permits and other similar intangible property and
rights relating to the Facilities including without limitation those listed in
Schedule 1.1(h); and
(i) Real Property: all of the land and leasehold interests
described in Schedule 3.6 and the improvements, fixtures and other property
located thereon that is classified under Texas law as real property.
1.2 Excluded Assets. Anything to the contrary in Section 1.1
notwithstanding, the Assets shall exclude and the Purchaser shall not purchase
the following (collectively, the "Excluded Assets"):
(a) assets reflected in the Closing Balance Sheet in the entries
entitled:
(i) "cash and cash equivalents;"
(ii) "limited use assets - current;"
(iii) "Limited Use Assets - Long Term;"
(iv) "Investments;"
(v) "Estimated Third Party Payor Settlements;"
(vi) "Taxes Receivable;"
(vii) "Other Assets;"
(viii) "Due From Donor Restricted Fund;"
(ix) "Fiduciary Fund."
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(b) settlements and retroactive adjustments, if any, and all
claims for amounts due, or that may become due from Medicare, Medicaid or any
other healthcare or payment intermediary resulting from cost reports adjustments
or other adjustments,
(c) pension and retirement plan assets and all records relating
to such plan;
(d) the name "Amarillo Hospital District";
(e) excluded contracts;
(f) AHD's membership interest in the Bi-City-County Public
Health District;
(g) intercompany receivables;
(h) those other items specifically set forth in Schedule 1.2
hereto.
2. Payment of the Purchase Price and Assumption of Liabilities.
2.1 Purchase Price. The aggregate purchase price (the "Purchase
Price") for the Assets shall be equal to the amounts set forth in subparagraph
(a) and (b) below:
(a) Purchaser shall make a cash payment of $120,000,000 subject
to adjustment as set forth in this Section 2 to AHD on the Closing Date.
(b) Purchaser further agrees that for a period of seven years
following the Closing Date, commencing on April 1, 1997 and ending on March 31,
2003, it will pay to AHD an amount equal to 15% of the earnings before
depreciation, interest and taxes (the "EBDIT Earnings") of Purchaser in excess
of $24 million in each of such seven year periods. The EBDIT Earnings will be
determined by Purchaser in accordance with generally accepted accounting
principles applied on a consistent basis both historically and in comparison to
the determination of earnings before depreciation, interest and taxes (but after
property and sales
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taxes) of other hospital facilities of UHS (it being understood that revenues
received under the Indigent Care Agreement annexed as Exhibit B hereto shall be
included in revenues in determining net earnings); provided that corporate
overhead allocation (including all allocations by UHS or any affiliates of UHS
(other than Purchaser) shall not exceed 2% of the net revenues (such net
revenues to be calculated without giving effect to the payments made by AHD
pursuant to the Indigent Care Agreement annexed as Exhibit B hereto). Payments
by Purchaser to AHD under this paragraph 2.1 shall be made not later than May 31
following each of the seven years. In the event AHD disputes the computation by
Purchaser of the EBDIT Earnings for any year, the parties will retain mutually
agreeable independent accountants to determine the EBDIT Earnings for such year,
and the cost of such review by such independent accountants shall be borne by
the parties equally.
2.2 Initial Purchase Price Adjustment.
2.2.1 Estimated Working Capital Adjustment. The "Estimated
Working Capital Adjustment" shall be equal to the difference between AHD's Net
Working Capital (as hereinafter defined) based upon AHD's most recent unaudited
Balance Sheet prior to closing (the "Interim Balance Sheet") and $11,853,000.
The Cash Purchase Price on the Closing Date shall be increased (if the Net
Working Capital is greater than $11,853,000) or decreased (if the Net Working
Capital is less than $11,853,000) by an amount equal to the Estimated Working
Capital Adjustment. The Interim Balance Sheet shall be prepared using the same
methodologies and assumptions used in connection with the preparation of the
audited Balance Sheet dated September 30, 1995, and in accordance with GAAP (as
hereinafter defined). For the purpose of the Initial Purchase Price Adjustment,
AHD's Net Working Capital shall be equal to (a) the sum of the amounts reflected
in the entries on the Interim Balance Sheet entitled (i) "Net patient
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accounts receivable," less 5% of all receivables other than those payable by
Medicare or Texas Medicaid, (ii) "Inventories" and (iii) the "Prepaid
expenses;" minus (b) the sum of the amounts reflected on the Interim Balance
Sheet in the entries entitled (i) "Accounts payable trade" and (ii) "Accrued
expenses."
2.3 Final Purchase Price Adjustment.
2.3.1 Final Working Capital Adjustment. Not more than ninety
(90) days after the Closing Date (the "Post Closing Adjustment Date"), Purchaser
shall deliver to AHD a balance sheet of AHD as of the Closing Date (the "Closing
Balance Sheet"). The Closing Balance Sheet shall be prepared using the same
methodologies and assumptions used in connection with preparation of the Interim
Balance Sheet. AHD shall have thirty (30) days from its receipt of the Closing
Balance Sheet to review the Closing Balance Sheet. AHD and Purchaser agree to
reasonably cooperate with each other in the preparation and review of the
Closing Balance Sheet. On the 120th day following the Closing Date (the "Post
Closing Adjustment Date"), AHD will pay to Purchaser any decrease in the Net
Working Capital reflected on the Closing Balance Sheet as compared to the
Interim Balance Sheet; and Purchaser will pay to AHD any increase in the Net
Working Capital reflected on the Closing Balance Sheet as compared to the
Interim Balance Sheet.
2.3.2 Proration. For purposes of the Final Purchase Price
Adjustment to the extent not included in AHD's Final Working Capital Adjustment,
AHD and Purchaser shall prorate as of the Closing Date, any amounts which become
due and payable after the Closing Date which are attributable to the period
prior to Closing, and any amounts which are paid prior to the Closing Date which
are attributable to the period subsequent to Closing, including without
limitation (i) amounts payable with respect to contracts and leases, (ii) ad
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valorem taxes, if any, on the Assets; (iii) property taxes on the Assets; and
(iv) all utilities servicing any of the Assets, including, without limitation,
water, sewer, telephone, electricity and gas service (the "Prorations").
2.3.3 Payment of Post-Closing Adjustment. On or before the Post
Closing Adjustment Date either AHD shall pay Purchaser or Purchaser shall pay
AHD in immediately available funds the amount by which the Estimated Working
Capital Adjustment is different than the sum of the Final Working Capital
Adjustment. At such time, AHD or Purchaser will pay to the other the net amount
of Prorations, if any, due to Purchaser or AHD.
2.4 Dispute of Adjustment. In the event that AHD and/or Purchaser
shall dispute the final determinations of the adjustments to the Purchase Price
to be effected hereunder and such dispute is not resolved to the mutual
satisfaction of AHD and Purchaser within one hundred twenty (120) days after the
Closing Date, AHD and Purchaser shall each have the right to require that such
disputed determinations other than accounts receivable which shall not be
subject to review be submitted to Ernst & Young, L.L.P. acting as experts and
not as arbitrators, or to such other certified public accounting firm as AHD and
Purchaser may then mutually agree upon in writing, for computation or
verification in accordance with the provisions of this Agreement and otherwise
where applicable in accordance with generally accepted accounting principles
("GAAP"). The foregoing provisions for certified public accounting firm review
shall be specifically enforceable by the parties; the decision of such
accounting firm shall be final and binding upon AHD and Purchaser; there shall
be no right of appeal from such decision; and such accounting firm's fees and
expenses for each such disputed determination shall be borne by the party whose
determination has been modified by such accounting firm's report or by both
parties in proportion to the relative amount each party's determination has been
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modified. Any additional payments due under this Agreement shall bear interest
until paid in full as specified in Section 2.5.
2.5 Interest. Unless otherwise provided herein to the contrary, any
payment required to be made by any party pursuant to this Agreement other than
pursuant to Section 2.1(b) and the Post Closing Adjustment, if not paid on the
Closing Date, shall include interest from the Closing Date to the day such
payment is made, computed at an annual rate equal to the average prime rate of
Morgan Guaranty Trust Company of New York ("Morgan") during such period. The
Post Closing Adjustment, if not paid in full on the Post Closing Adjustment
Date, shall bear interest from its due date until paid at an annual rate equal
to the average prime rate of Morgan during such period.
2.6 Liabilities Assumed by the Purchaser. In further consideration
for the sale of the Assets, on and as of the Closing Date, the Purchaser shall
assume and agree to pay, perform and discharge the Assumed Liabilities. For
purposes of this Agreement, the term "Assumed Liabilities" shall include, and
shall be limited solely to (a) all Assumed Contracts (other than capitalized
leases and Memorandum of Understanding between Texas Department of Health and
Amarillo Hospital District regarding disproportionate share payments) and
operating leases of AHD relating to the operation of the Facilities, which
contracts and leases are set forth on Schedules 1.1(a), 1.1(d) and/or Schedule
3.6 hereto, (b) any Medicare recapture liability resulting from the transactions
contemplated hereby, (c) all "accounts payable - trade" and "accrued expenses"
to the extent of the amount reflected on the Closing Balance Sheet of AHD and
used in calculating the Net Working Capital.
2.7 Liabilities Retained by AHD. Notwithstanding anything to the
contrary contained herein, the Purchaser shall not assume any debts, obligations
or liabilities of AHD not
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expressly assumed pursuant to Section 2.6 hereof; and AHD shall continue to be
obligated to pay, perform and discharge such debts, obligations and liabilities
and hold the Purchaser harmless from any such liabilities, including without
limitation:
(a) any and all obligations for the payment of any long term
indebtedness and capital leases (including the current portion of each thereof)
relating to the Facilities whether or not set forth on the Closing Balance
Sheet;
(b) any and all accrued interest through the Closing Date;
(c) any and all actual or contingent liabilities or obligations
of or demands upon AHD arising from acts or omissions (actual or alleged) prior
to the Closing Date including liabilities or obligations arising from breach by
AHD of any Assumed Contract, or any liabilities now existing or which may
hereafter exist by reason of any alleged violation or law or Governmental
regulation or any other claims arising out of any act or omission of AHD prior
to the Closing Date including, without limitation, any malpractice or workers'
compensation or other employee health or other insurance claims or liabilities;
(d) all liabilities arising out of or in connection with the
existence of Hazardous Materials (as defined in Section 3.10(d)) upon, about,
beneath or migrating or threatening to migrate from the Real Property (as
defined in Section 3.6(a)) or the existence of any violation of any
Environmental Laws (as defined in Section 3.10(d)) pertaining to any such Real
Property or the operation of the Facilities or any other business operated
therefrom;
(e) all liabilities for amounts due or that may become due to
Medicare, Medicaid or any other healthcare reimbursement or payment intermediary
resulting from cost report or other adjustments other than recapture;
(f) intercompany liabilities relating to the Assets and the
Facilities;
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(g) any liability or obligation to any broker, finder,
investment banker or other intermediary engaged by AHD in connection with the
sale of the Assets, including, without limitation, the transactions contemplated
by this Agreement;
(h) all self insurance costs;
(i) AHD's obligations and liabilities arising under this
Agreement;
(j) federal, state and local income taxes, if any, payable with
respect to the operation of the Facilities through the Closing Date and
"Deferred Tax Revenue";
(k) sales and other taxes (including, without limitation, use
taxes) payable with respect to the operation of the Facilities through the
Closing Date or the transactions contemplated hereby;
(l) any liability for benefits or otherwise that has arisen or
may arise under any Employee Plan as described in Section 3.12 hereof; and
(m) amounts on the Closing Balance Sheet under the caption
entitled "Long Term Debt, including current installments;" "Capital Lease
Obligations, including current portion;" "Estimated Investment Liability,
including current portion;" "Deferred Tax Reserve;" "Estimated Third Party
Settlements;" "Other Accrued Expenses" and "Accrued Interest."
2.8 Instruments of Conveyance and Transfer of Books and Records.
(a) At the Closing, AHD shall deliver to the Purchaser such
deeds, bills of sale, endorsements, assignments and other instruments of sale,
conveyance, transfer and assignment, satisfactory in form and substance to the
Purchaser and its counsel, as may be reasonably requested by the Purchaser, in
order to convey to the Purchaser good and marketable title to the Assets, free
and clear of all Liens except Permitted Encumbrances. AHD shall pay all sales,
transfer or stamp taxes, or similar charges, payable by reason of the sale
hereunder.
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(b) At the Closing, AHD shall use its reasonable best efforts to
deliver to the Purchaser all written consents which are required under any
Assumed Contract being assigned to the Purchaser hereunder; provided, however,
that as to any Assumed Contract the assignment of which by its terms requires
prior consent of the parties thereto, if such consent is not obtained prior to
or on the Closing Date, AHD shall deliver to the Purchaser written documentation
setting forth arrangements for the transfer of the economic benefit of such
Assumed Contracts to the Purchaser as of the Closing Date under terms and
conditions acceptable to all the parties hereto, in accordance with the terms of
Section 7.5 hereof.
(c) At the Closing, AHD shall deliver special warranty deeds to
the Real Property owned by AHD in form reasonably acceptable to the Purchaser
and its counsel with good and marketable title, free and clear of all Liens
other than Permitted Encumbrances and except as described in or permitted by
Section 3.6 hereof. Within thirty (30) days hereof, AHD shall deliver a binding
commitment for the issuance of a standard Texas fee owners title insurance
policy insuring title to each parcel of Real Property owned by AHD in the
Purchaser as prospective fee owner, in an amount determined in accordance with
the Appraisal delivered in accordance with Section 7.9 hereof from a title
insurance company mutually acceptable to AHD and Purchaser. AHD shall also
deliver within thirty (30) days hereof surveys of the Real Property made by a
registered land surveyor bearing a certificate addressed to the Purchaser and
the title insurance company, signed by the surveyor, certifying that the survey
was actually made on the ground and that there are no encumbrances except as
shown, and complying with the minimum detail requirements of a Category 1A,
Condition II survey, as prescribed by the Manual of Practice for Land Surveying
in Texas published by the Texas Surveyors Association. The survey shall show the
following items (whether covered by the minimum detail requirements
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specified above or not): (i) all courses and distances of the boundaries and the
legal description of the Real Property; (ii) the location and dimensions of all
improvements and their relation to lot lines, set back and building line
requirements (whether such requirements are imposed by law, deed or plat); and
(iii) the location of all utilities, rights of way, water courses, drains,
sewers and easements, whether above or under ground. AHD shall pay all premiums
and other expenses relating to such survey and title insurance policy commitment
including, without limitation, the title insurance premium. AHD shall pay all
transfer taxes and recording fees payable by reason of the delivery or recording
of the special warranty deeds to the Real Property subject to Section 13 hereof.
(d) Within twenty (20) days following Purchaser's receipt of the
preliminary title report or commitment and the documents of record reflected
therein, Purchaser shall give written notice (the "Objection Notice"), together
with a copy of the title commitment to the attorneys for AHD, of any conditions
of title subject to which Purchaser is not obligated to take the Real Property
pursuant to the provisions of this Agreement (the "Objections"). If AHD gives
Purchaser notice (the "Response Notice") that AHD is unable to convey title to
the Real Property as required by this Agreement within thirty (30) days after
receipt by AHD of the Objection Notice, Purchaser may elect, by written notice
given to AHD within ten (10) days after the Response Notice is given, to (i)
accept such title as AHD is able to convey, (ii) extend the time for the cure or
removal of the Objections, provided such extension shall not derogate from
Purchaser's rights under subpart (iv) below, (iii) cause the Objections to be
cured at AHD's expense (or by Purchaser curing the Objections and taking a
credit in such amount against the Purchase Price), provided that such expense
shall not exceed $5 million in excess of
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any deeds of trust or similar items which shall all be removed at the cost of
AHD, and proceed to the Closing or (iv) terminate this Agreement.
(e) If AHD shall be unable to convey title to the Real Property
in accordance with this Section 2.8 and Purchaser terminates this Agreement, in
accordance with clause (iv) of Section 2.8(d), the sole obligation and
responsibility of AHD shall be to reimburse Purchaser for all its costs and
expenses incurred in connection with the transactions contemplated hereby,
including, without limitation, legal and accounting fees and expenses, financing
fees, appraisal costs, the cost of title examination, survey costs and fees of
structural engineers and environmental consultants and, upon the making of such
reimbursement, this Agreement and the lien, if any, of Purchaser against the
Real Property shall wholly cease and neither party shall have any further right,
obligation or liability to the other.
3. Representations and Warranties of AHD.
In order to induce the Purchaser to enter into and perform this
Agreement, AHD represents, warrants and agrees as follows:
3.1 Organization, Authorization, Etc. AHD is a body politic and
corporate and a political subdivision of the State of Texas, established and
created pursuant to Article IX, Section 5(a) of the Texas Constitution (1958)
and Chapter 32, Page 59, Acts of the 56th Legislature (1959) (as it has
heretofore been and may be amended), and is validly existing and in good
standing under the laws of the jurisdiction of its organization, and has all
requisite power and authority to execute and deliver and, subject to applicable
law, perform this Agreement and to consummate the transactions contemplated
hereby.
3.2 Ownership of Assets. Except as set forth in Schedule 3.2 hereto,
AHD is the legal and beneficial owner of the Assets described in Section 1.1
hereto, free and clear
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of any Liens other than Permitted Encumbrances, and AHD has full right, power
and authority subject to applicable law to sell, transfer, assign, convey and
deliver all of the Assets to be sold by it hereunder and delivery thereof will
convey to Purchaser good and marketable title to said Assets, free and clear of
any Liens other than Liens created by the Purchaser and Permitted Encumbrances.
3.3 Authority and No Conflict. (a) AHD has full right, power and
authority to execute, deliver and carry out the terms of this Agreement and all
documents and agreements necessary to give effect to the provisions of this
Agreement, and this Agreement has been duly authorized, executed and delivered
by AHD. The execution and delivery of this Agreement by AHD does not, and
subject to the receipt of all regulatory approvals and compliance with other
requirements of law consummation of the transactions contemplated hereby will
not (a) conflict with, or result in any violation of or default or loss of any
benefit under, any provision of AHD's governing instruments; (b) conflict with,
or result in any violation of or default or loss of any material benefit under,
any permit, concession, grant, franchise, law, rule or regulation, or any
judgment, decree or order of any court or other governmental agency or
instrumentality to which AHD is a party or to which the Facilities are subject;
(c) except for undelivered consents to assignment of assumed contracts or leases
acceptable to Purchaser, conflict with, or result in a breach or violation of or
default or loss of any material benefit under, or accelerate the performance
required by, the terms of any agreement, contract, indenture or other instrument
to which AHD is a party or to which the Facilities are subject, or constitute a
default or loss of any right thereunder or an event which, with the lapse of
time or notice or both, might result in a default or loss of any right
thereunder or the creation of any Lien upon the Facilities; or (d) result in any
suspension, revocation, impairment, forfeiture or nonrenewal of (i) any material
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License (as defined in Section 3.18) relating to the ownership and operation of
healthcare facilities or (ii) any other material License; which in each case
Purchaser will be unable to obtain in its own name. All action and other
authorizations prerequisite to the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement have been taken
or obtained by AHD. This is a valid and binding agreement of AHD enforceable in
accordance with its terms.
(b) The execution and delivery and, subject to applicable law,
the performance by AHD of this Agreement, and subject to applicable law, the
performance of the transactions contemplated by this Agreement, do not require
the authorization, consent, approval, certification, license or order of, or any
filing with, any court or governmental agency of such a nature that the failure
to obtain the same would have a Material Adverse Effect on the Assets, and
except for such governmental authorizations, consents, approvals,
certifications, licenses and orders that customarily accompany the transfer of
healthcare facilities such as the Facilities.
3.4 Financial Statements, Books and Records and Change in Condition.
3.4.1 Financial Statements Provided. AHD has delivered to the
Purchaser true, correct and complete copies of the (i) audited balance sheet of
the Facilities as of September 30, 1995 and the related statements of revenues
and expenses and changes in fund balance for the 12 months then ended, together
with notes to such financial statements, together with a report thereon of
Clifton, Gunderson & Co., certified public accountants (the "1995 Financial
Statements") and (ii) the unaudited balance sheet of the Facilities as of
December 31, 1995 (the "December Balance Sheet") and the related statements of
revenues and expenses and changes in fund balance for the three months then
ended (the "December Financial Statements").
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The 1995 Financial Statements and the December Financial Statements are in
accordance with the books and records of the Facilities and have been prepared
in accordance with generally accepted accounting principles (except to the
extent the December Financial Statements do not contain any footnotes as
required by generally accepted accounting principles) consistently followed
throughout the periods covered thereby (except as otherwise indicated in the
notes thereto), and the balance sheets included therein present fairly as of
their respective dates the financial condition of the Facilities. The statements
of revenues and expenses and changes in fund balance included in the 1995
Financial Statements and the December Financial Statements present fairly the
statements of revenues and expenses and changes in fund balance of the
Facilities for the periods indicated, and the notes included in the 1995
Financial Statements and the December Financial Statements present fairly the
information purported to be shown thereby. The statements of operations included
in the 1995 Financial Statements and the December Financial Statements do not
contain any items of special or non-recurring income or other income not earned
in the ordinary course of business except as expressly specified therein.
3.4.2 [Intentionally Left Blank].
3.4.3 Inventories. All inventories of the Facilities set forth
on the December Balance Sheet, and all inventories acquired subsequent to
December 31, 1995 (the "Balance Sheet Date") are valued at the lower of cost
(applied on a first- in-first-out basis) or market in accordance with generally
accepted accounting principles. All inventories included in the Assets consist,
and at the Closing will consist, of a quality and quantity usable and saleable
in the ordinary course of business without discount or reduction, except for
items of obsolete materials, which have been written down on the December
Balance Sheets to realizable market value. In AHD's experience, the present
quantities of inventory of the Facilities are, and
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at Closing will be, reasonable and warranted in the present and then
circumstances of the Facilities.
3.4.4 Events Subsequent to the Balance Sheet Date. Since the
Balance Sheet Date there has been no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations or prospects, of the Facilities, whether as a result of
any legislative or regulatory change (except those applicable generally to
healthcare facilities in the State of Texas), revocation of any License or right
to do business, fire, explosion, accident, casualty, labor trouble, flood,
drought, riot, storm, condemnation or act of God or otherwise, and, to the best
knowledge of AHD, no fact or condition exists or is contemplated or threatened
which could reasonably be anticipated to cause such a change in the future.
Since the Balance Sheet Date, AHD, with respect to the Facilities,
and the Facilities have not (a) borrowed any amount or incurred or become
subject to any liability (absolute, accrued or contingent), except current
liabilities incurred and liabilities under contracts entered into, all of which
were in the ordinary course of business; (b) discharged or satisfied any Lien or
incurred or paid any obligation or liability (absolute, accrued or contingent)
other than current liabilities shown on the most recent balance sheet included
in the December Financial Statements and current liabilities incurred since the
Balance Sheet Date in the ordinary course of business [and Bonds]; (c)
mortgaged, pledged or subjected to Lien any of their assets, tangible or
intangible (including the Assets), other than Liens of current real property
taxes not yet due and payable; (d) sold, assigned or transferred any of their
tangible assets except in the ordinary course of business, or canceled any debt
or claim; (e) sold, assigned, transferred or granted any license with respect to
any trademark, trade name, service mark, copyright, trade secret or other
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intangible asset; (f) suffered any loss of property or waived any right of
substantial value whether or not in the ordinary course of business; (g)
suffered any material adverse change in their relations with, or any loss or
threatened loss of, any of its material suppliers, managed care contracts,
physician relationships or Medicare or Medicaid contracts; (h)(1) except in the
ordinary course of business consistent with past practice, entered into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) or arrangement with any of its directors,
officers or employees, (2) increased any benefits payable under any existing
severance or termination pay policies or employment agreements, or (3) increased
the compensation, bonus or other benefits payable to any of its directors,
officers or, other than in the ordinary course of business and consistent with
past practice, employees; (i) made any material change in the manner of its
business or operations, including without limitation any change in the manner in
which any of the Facilities extends credit to patients or otherwise deals with
patients; (j) made any material change in any method of accounting or accounting
practice, except for any such changes required by reason of a concurrent change
in generally accepted accounting principles or disclosed in the December
Financial Statements; (k) been the subject of any labor dispute or threat
thereof; (l) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby; (m) suffered any material decline
in the aggregate number of admissions made by members of the medical staff of
the Facilities who were among the top twenty admitters in the fiscal year ended
September 30, 1995; or (n) entered into any commitment (contingent or otherwise)
to do any of the foregoing.
3.5 Absence of Undisclosed Liabilities. None of AHD, with respect to
the Facilities, or the Facilities has any direct debt, liability or obligation
of any nature, whether accrued, absolute, contingent or otherwise, and whether
due or to become due, which is not
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reflected or reserved against in the December Financial Statements except for
(a) those which are not required by generally accepted accounting principles to
be so reflected, and (b) those which were incurred in the ordinary course of
business and are usual and 0normal in amount both individually and in the
aggregate.
3.6 Real Property.
(a) Schedule 3.6 hereto identifies all interests in real
property including land and improvements held by AHD which is used or useful by
the Facilities in the conduct of their business and operations as of the date
hereof, together with the nature of such interest. To the extent that any such
interest is shared, Schedule 3.6 also sets forth the nature and proportion of
the sharing arrangement. Each of the properties on Schedule 3.6 is identified
either as a property in which AHD holds all or a portion of the fee title
(individually, an "Owned Property" and collectively, the "Owned Properties"), or
all or a portion of a leasehold estate in the property (individually, a "Leased
Property" and collectively, the "Leased Properties"). The Owned Properties and
the Leased Properties are collectively referred to herein as "Real Property."
(b) As of Closing, AHD will convey good, valid and marketable
title to each Owned Property free and clear of all Liens whatsoever except for
Permitted Encumbrances identified in Schedule 3.6. As of Closing, AHD's
occupation, possession and use of the Leased Properties has not been disturbed
and no claim has been asserted or, to the best knowledge of AHD, threatened,
except as set forth on Schedule 3.6, adverse to the respective rights of AHD to
the continued occupation, possession and use of the Leased Properties, as
currently utilized and as presently contemplated to be utilized.
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(c) All buildings, structures, improvements, fixtures,
facilities, equipment, all components of all buildings, structures and other
improvements included within the Real Property, including but not limited to the
roofs and structural elements thereof (other than the roof which is being
repaired at a cost of approximately $1.4 million pursuant to contract to be paid
for by Purchaser, and the heating, ventilation, air conditioning, plumbing,
electrical, mechanical, sewer, waste water, storm water, paving and parking
equipment, systems and facilities included therein (collectively, the
"Improvements") are in good operating condition and repair, subject to normal
wear and maintenance and are usable in the regular and ordinary course of
business, and no material maintenance, repair or replacement thereof has
knowingly been deferred. There are no unsatisfied requests for any material
repairs, restorations or improvements to the Real Property and Improvements from
any person, including without limitation any foreign or domestic court,
administrative agency or commission or other governmental authority or
instrumentality (a "Governmental Entity"), there are no ongoing material repairs
to the Real Property and Improvements being made by or on behalf of AHD and all
material repairs have been paid for. No portion of the Real Property has
suffered any material damage by fire or other casualty which heretofore has not
been completely repaired and restored. No Person other than AHD owns any
Improvements necessary to the operation of the business of the Facilities,
except for leased Improvements disclosed on Schedule 3.6. The walls, roof and
subterranean portions, if any, of the Improvements presently are, and as of the
Closing will be, sound and watertight and presently there is, and as of the
Closing there will be, no water, chemical or gaseous seepage, diffusion or other
intrusion into said buildings, including any subterranean portions which would
impair the beneficial use of the Real Property and Improvements by the
Purchaser.
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(d) The use and operation of the Real Property and Improvements
by AHD is lawful and in compliance with all use statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards and
restrictions, including without limitation, zoning and land use laws
(collectively, "Use Laws") of every Governmental Entity having jurisdiction over
any such Real Property and Improvements except where failure to comply would not
have material adverse effect on the Hospital or Purchaser's ability to operate
the Hospital in the manner currently operated. As of Closing, the construction
and use of the Improvements on each parcel of Real Property is lawful and in
compliance with all use statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards and restrictions, including without
limitation, all laws relating to the construction and safety of the Improvements
and access thereto by the handicapped (collectively, "Construction Laws" and,
collectively with the Use Laws, "Real Property Laws") of every Governmental
Entity having jurisdiction over any such Improvements except where failure to
comply would not have material adverse effect on the Hospital or Purchaser's
ability to operate the Hospital in the manner currently operated. Effective as
of the Closing, the Purchaser shall have the right under all Real Property Laws
to continue the use and operation of the Real Property and Improvements for
their current uses in the operation of the business of the Facilities. None of
AHD or the Facilities has received any notice of any uncured violation of or
pending investigation regarding any Real Property Laws. As of Closing, none of
the Real Property or the Improvements, the appurtenances thereto or the
equipment therein or the operation or maintenance thereof violates any
restrictive covenant or encroaches on any property owned by others or any
easement, right of way or other encumbrance or restriction affecting the Real
Property and/or Improvements in any manner which would, individually or in the
aggregate, interfere in any material respect with
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(i) the use, occupancy or operation thereof as currently used, occupied and
operated or (ii) receiving a title insurance policy which would only contain
exceptions normally acceptable to a mortgagee. To the best knowledge of AHD, no
building or structure of any third party encroaches upon the Real Property or
any easement or right of way benefitting the Real Property. The Real Property
and its continued use, occupancy and operation as currently used, occupied and
operated does not constitute a nonconforming use under any Real Property Law. To
the extent they exist, AHD has provided the Purchaser with copies of the most
recent title reports in their possession relating to the Real Property and all
title insurance policies currently in effect with respect to such Real Property.
(e) AHD has not received notice of, nor does it otherwise have
knowledge of, any condemnation, fire, health, safety, building, zoning or other
land use regulatory proceedings, either instituted or planned to be instituted,
which would have a material adverse effect on the use and operation of any
portion of the Real Property and/or Improvements as currently conducted or for
their respective intended purposes by the Purchaser or the value of any material
portion of the Real Property or Improvements, nor has AHD received notice of any
special improvements, liens, assessments or assessment proceedings affecting any
of the Real Property or Improvements, nor has AHD received any written notice of
uncured violation or pending claimed violation of any Real Property Law.
(f) As of Closing, all water, sewer, gas, electric, telephone
and drainage facilities, and all other utilities required by any applicable law
or by the current use and operation of the Real Property and Improvements are
installed to the property lines of the Real Property, are connected pursuant to
valid permits to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Real Property and
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Improvements as currently used in the operation of the business of the
Facilities and to permit full compliance with the requirements of all Real
Property Laws. AHD has no knowledge or notice of any fact or condition which
could result in the termination or reduction of the current access from the Real
Property to existing roads or to sewer or other utility services presently
serving the Real Property.
(g) As of Closing, all licenses, permits, certificates
(including without limitation certificates of occupancy), easements and rights
of way, including proof of dedication, required from all Governmental Entities
having jurisdiction over the Real Property for the use and operation of the Real
Property and Improvements as currently used in the operation of the business of
the Facilities and to ensure vehicular and pedestrian ingress to and egress from
the Real Property have been obtained, except where the failure to obtain any
such license, permit, certificate, easement or right of way would not have a
material adverse effect on the value or use of the Real Property by the
Purchaser. The transactions contemplated hereby will not require the issuance of
any new or amended license, permit or certificate other than a hospital
operating license and related licenses.
(h) None of the Real Property is located in an area identified
as a "flood hazard area" by the United States Department of Housing and Urban
Development except as shown in the survey to be attached as part of Schedule 3.6
hereto which, to the best knowledge of AHD is accurate and complete in all
respects. AHD has not granted any easements or entered into an arrangement or
agreement since the date of such survey which would cause any change to be made
in such survey if such survey was performed as of the date hereof.
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3.7 Property to Operate Facilities. The Assets constitute, in the
aggregate, all the assets and property necessary for the conduct of the
Facilities as currently conducted. All the assets and property of AHD necessary
or useful in the conduct of the Facilities are located at the Real Property. All
tangible personal property is in good operating condition and repair, reasonable
wear and tear excepted, and is suitable for use in the ordinary conduct of the
operations of the Facilities, and no maintenance, repair or replacement has
knowingly been deferred except to the extent such assets have been written down
or written off on the September Balance Sheet.
3.8 Trade Names, Trademarks, Copyrights, Etc. Schedule 3.8 contains
a schedule of all trade names, trademarks, service marks, copyrights, patents or
applications for patents, and trade secrets used by AHD in the operation of the
Facilities and their respective businesses or in which they have any rights
(including licenses), together with a brief description of each. To the best of
AHD's knowledge, AHD has not infringed, or is now infringing, any trade name,
trademark, service mark, copyright, patent or trade secret belonging to a third
party and AHD has not received any notice of infringement upon or conflict with
the asserted rights of others. Except as set forth on Schedule 3.8 hereto, none
of such names, marks, copyrights or patents, however, are registered with the
United States Patent and Trademark Office or the United States Copyright Office.
To the knowledge of AHD there are no trade names, trademarks, service marks,
copyrights, patents or applications for patents and trade secrets other than
those listed on Schedule 3.8 which are necessary for the conduct of the
respective businesses of the Facilities as now being conducted, the loss of
which could materially and adversely affect the prospects, operations or
condition, financial or otherwise, of the Facilities.
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No director, officer, or, to the best knowledge of AHD, employee, of AHD or any
Facility or any predecessor has any interest in any of the foregoing rights.
3.9 Litigation. Except as set forth on Schedule 3.9 hereto, there is
no action, suit, arbitration, proceeding or investigation pending or, to the
best knowledge of AHD, threatened against or affecting the Facilities or any of
their respective properties or rights by or before any Governmental Entity, or
any basis in fact therefor known to AHD, against or involving the Facilities or
any of their respective officers, directors or employees, assets or business,
whether at law or in equity.
3.10 Compliance with Laws; Environmental Matters.
(a) The Facilities are in compliance with all applicable laws,
rules or regulations relating to or affecting the operation, conduct or
ownership of their respective properties or business (including without
limitation any that relate to the ownership and operation of hospitals and
healthcare facilities, consumer protection, health and safety, products and
services, proprietary rights, anti-competitive practices, collective bargaining,
equal opportunity and improper payments), except for violations that
individually or in the aggregate would not and, insofar as may reasonably be
foreseen, in the future will not, have a material adverse effect on the
condition, financial or otherwise, of the Facilities. None of AHD or the
Facilities, or to the best knowledge of AHD, any director, officer, consultant
or employee of AHD or the Facilities, is in default with respect to any order,
writ, injunction or decree, known to, or served upon, AHD, of any Governmental
Entity. To the best knowledge of AHD, there is no existing law, rule, regulation
or order, whether Federal, state or local, which would prohibit or materially
restrict the Facilities from, or otherwise materially adversely affect any
Facility in,
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conducting its business in any jurisdiction in which it is now conducting
business or in which it currently proposes to conduct business.
(b) AHD has not received any notice of any uncured claim,
requirement or demand of any Governmental Entity having or claiming any
licensing, certifying, supervising, evaluating or accrediting authority over the
Facilities or their business to rework or redesign the Facilities, professional
staff or professional services, procedures or practices in any material respect
or to provide additional furniture, fixtures, equipment or inventory so as to
make such Facilities conform to or comply with applicable law.
(c) AHD, with respect to the Facilities, the Facilities and
their respective officers and directors, and persons who provide professional
services under agreements with AHD (in such capacity and on behalf of AHD) or
any of the Facilities have not engaged in any activities which are prohibited
under any 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 healthcare 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;
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(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 or
Medicaid, or other state healthcare 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 or Medicaid or other state healthcare program; (vi)
knowingly making a payment, directly or indirectly, to a physician as an
inducement to reduce or limit services to individuals who are under the direct
care of the physician and who are entitled to benefits under Medicare, Medicaid,
or other state healthcare 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
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 fact required to be stated therein or
necessary to make the statements 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 healthcare
program certification, or (b) information required to be provided under Section
1124A of the Social Security Act (42 U.S.C. Section 1320a-3); (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
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contribution from an organization or from a person unrelated to the patient) (x)
as a precondition of admitting the patient, or (y) as a requirement for the
patient's continued stay in the Facility.
(d) (i) Specifically, without limiting the representations
contained in subsection (a) hereof, AHD has obtained for the Facilities all
material permits, licenses and other authorizations which are required to
conduct the business of the Facilities under all Federal, state, county and
local statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, concessions, grants, franchises, agreements or governmental
restrictions relating to the environment or the general treatment, storage,
recycling, transportation, release or disposal of any Hazardous Materials (as
defined below) into the environment (collectively, "Environmental Laws"). The
Facilities are in compliance (1) with the terms and conditions of all such
permits, licenses and authorizations and (2) with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Environmental Law applicable to any of
them in connection with the conduct of their business or in any regulation,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved under any Environmental Law. In addition, no
notice, notification, demand, request for information, citation, summons or
order has been issued, no complaint has been filed, no penalty has been assessed
and no investigation or review is pending or, to the best knowledge of AHD,
threatened by any Governmental Entity or any executive, legislative, judicial,
regulatory or administrative entity with respect to any alleged failure by AHD
to have any permit, license or authorization required in connection with the
generation, treatment, storage, recycling, transportation, release or disposal
of any pollutant, toxic or hazardous material, hazardous substance, hazardous
constituent or waste of any kind as defined under any Environmental Laws
(collectively "Hazardous Materials") generated by or relating to
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any Facility or any of its respective properties (or any predecessor to any of
the businesses or assets of the Facilities with respect to such businesses or
assets) whether or not occurring at or on property owned, leased or operated by
AHD or the Facilities. No Facility has, nor are any of its respective properties
subject to, any material liability, contingent or otherwise, arising out of or
resulting from the release, leakage, pouring, emission, emptying, injection,
pumping, escaping, leaching, dumping, discharge, spillage, storage, burying or
other disposal, whether on its own premises or through other persons, of any
Hazardous Materials. Except as disclosed on Schedule 3.10, there are no
Hazardous Substances (as such term is defined in the Comprehensive Environment
Response, Compensation and Liability Act of 1980 ("CERCLA") and equivalent state
laws) upon, beneath or migrating or threatening to migrate from the Real
Property, and except as set forth on Schedule 3.10 hereto, there are no
underground storage tanks for Hazardous Substances, active or abandoned, at any
property now or previously owned or leased by AHD, with respect to the
Facilities or any Facility and there are no encumbrances in favor of any
Governmental Entity for (A) any liability under Environmental Laws or (B)
damages arising from or costs incurred by such Governmental Entity in response
to a release or threatened release of Hazardous Substances into the environment
(collectively, "Environmental Encumbrances") arising under or pursuant to any
Environmental Laws, and no governmental actions have been taken or are in
process which could reasonably be anticipated to subject the business of the
Facilities to such Environmental Encumbrances and no Facility is required to
place any notice or restriction relating to the presence of Hazardous Substances
at any Facility.
3.11 Contracts.
(a) Neither AHD, with respect to the Facilities, nor any of the
Facilities has any existing contract, obligation or commitment (written or oral)
(other than such
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other contracts which individually involve the annual expenditure of $10,000 or
less and in the aggregate do not require annual expenditures in excess of
$250,000, and such other contracts for goods and services entered into in the
ordinary course of business which are not specifically excluded by the terms of
this Agreement and which are terminable upon not more than six months' notice
without penalty) of any nature, including without limitation the following,
except for contracts listed in Schedule 3.11:
(i) Employment, bonus, severance or consulting agreements,
retirement or similar plans;
(ii) Loan or other agreements, notes, indentures, or
instruments relating to or evidencing indebtedness for borrowed
money or mortgaging, pledging or granting or creating a lien or
security interest or other encumbrance on any of the assets of
AHD with respect to the Facilities or of any Facility or any
agreement or instrument evidencing any guaranty by AHD or any
Facility of payment or performance by any other person;
(iii) Agreements with any labor union or collective
bargaining organization or other labor agreements;
(iv) Any contract or series of contracts with the same
person for the furnishing or purchase of equipment, goods or
services;
(v) Any joint venture contract or arrangement or other
agreement involving a sharing of profits or expenses to which
AHD, with respect to the Facilities, or any Facility is a party
or by which any of them is bound;
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(vi) Agreements which would, after the Closing Date, limit
the freedom of the Purchaser to compete in any line of business
or in any geographic area or with any person;
(vii) Agreements providing for acquisition or disposition of
the assets, businesses or a direct or indirect ownership
interest in any Facility;
(viii) Any lease under which AHD, with respect to the
Facilities, or any Facility is either lessor or lessee;
(ix) Any contract, commitment or arrangement not made in the
ordinary course of business of AHD or any Facility, including
without limitation, any powers-of-attorney giving any person
authority to act on behalf of any Facility;
(x) Any license, agreement, or arrangement, whether as
licensor, licensee, or otherwise, with respect to any trade
name, trademark, service mark, copyright, patent or trade
secret;
(xi) Any contract or series of contracts, commitments or
arrangement relating to the provision of goods or services for
any Facility by any person who is related to, or an affiliate
of, AHD or any Facility or any officer or director of any
Facility, and any contract or series of contracts, commitments
or arrangement relating to the provision of goods or services
for any Facility by any person the terms of which were not
determined on an arms' length basis;
(xii) Any contract with any managed care, preferred provider
or other similar entity;
(xiii) Any patient care or pharmacy vending contract not
entered into in the ordinary course of business; or
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(xiv) Agreements with any Governmental Entity, including
without limitation Medicare and Medicaid provider agreements and
indigent care contracts.
True and correct copies of all contracts, agreements, arrangements and similar
instruments set forth on Schedule 3.11 have been provided to the Purchaser
except as otherwise indicated thereon. Each contract, agreement, arrangement,
plan, lease (including lease agreements with respect to the Leased Properties
under which AHD is either lessor or lessee) or similar instrument to which AHD
is a party, whether or not listed on Schedule 3.11 (collectively, the "AHD
Contracts"), is a valid and binding obligation of AHD and, to the best knowledge
of AHD, the other parties thereto, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law), and is in full force and effect (except for any
AHD Contracts which by their terms expire after the date hereof or are
terminated after the date hereof in accordance with the terms thereof), and AHD
is not nor, to the best of knowledge of AHD, is any other party thereto in
breach of any material provision of, nor is in default in any material respect
under the terms of (and, to the best knowledge of AHD, no condition exists
which, with the passage of time, the giving of notice, or both (including
consummation of the transactions contemplated hereby), would result in a
material default under the terms of), any of the AHD Contracts.
(b) Except as listed on Schedule 3.11, (i) no purchase contracts
or commitments of AHD as they relate to a Facility continue for a period of more
than 12 months or are in quantities or amounts in excess of the normal,
ordinary, usual and current requirements
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of its respective business or in excess of market prices generally available to
purchasers of similar quantities; (ii) no AHD Contract requires any Facility to
provide services at a fixed price; (iii) AHD does not have, as it relates to a
Facility, outstanding any bid, contract, commitment or proposal either (x)
continuing for a period of more than 12 months or (y) quoting prices which will
not result in profits consistent with past experience; and (2) none of such AHD
Contracts obligates any Facility to perform services which AHD knows or has
reason to believe are pursuant to terms or conditions a Facility cannot
reasonably expect to satisfy or fulfill in its entirety.
3.12 Employee and Labor Matters and Plans.
(a) Schedule 3.12 lists each of the following plans, contracts,
policies and arrangements which is or, within six years prior to the date
hereof, was sponsored, maintained or contributed to by, or otherwise binding
upon, AHD, with respect to the Facilities, or in the case of an "employee
pension plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), any person, firm or entity (whether or not
incorporated) which, by reason of its relationship with AHD, is required to be
aggregated with AHD under Sections 414(b), 414(c) or 414(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), or which, together with AHD, is a
member of a controlled group within the meaning of Section 4001(a) of ERISA (an
"ERISA Affiliate"), for the benefit of any current or former employee or other
personnel (including any such plan, contract, policy or arrangement approved or
adopted before, but effective on or after, the date of this Agreement): (i) any
"employee benefit plan," as such term is defined in Section 3(3) of ERISA,
whether or not subject to the provisions of ERISA, (ii) any personnel policy and
(iii) any other employment, consulting, collective bargaining, stock option,
stock bonus, stock purchase, phantom stock,
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incentive, bonus, deferred compensation, retirement, severance, vacation,
dependent care, employee assistance, fringe benefit, medical, dental, sick
leave, death benefit, golden parachute or other compensatory plan, contract,
policy or arrangement which is not an employee benefit plan as defined in
Section 3(3) of ERISA (each such plan, contract, policy and arrangement being
herein referred to as an "Employee Plan").
(b) With respect to each Employee Plan, AHD has delivered to the
Purchaser true and complete copies of (i) each contract, plan document, policy
statement, summary plan description and other written material governing or
describing the Employee Plan and/or any related funding arrangements (including
without limitation any related trust agreement or insurance company contract)
or, if there are no such written materials, a summary description of the
Employee Plan and (ii), where applicable, (1) the last two annual reports (5500
series) filed with the Internal Revenue Service (the "IRS") or the Department of
Labor, (2) the most recent balance sheet and financial statement, (3) the most
recent actuarial report or valuation statement, (4) the most recent
determination letter issued by the IRS, as well as any other determination
letter, private letter ruling, opinion letter or prohibited transaction
exemption issued by the IRS or the Department of Labor within the last six years
and any application therefor which is currently pending and (5) the last PBGC-1
filed with the United States Pension Benefit Guaranty Corporation (the "PBGC").
(c) Each Employee Plan has been maintained and administered in
accordance with its terms and in substantial compliance with the provisions of
applicable law, including without limitation applicable disclosure, reporting,
funding and fiduciary requirements imposed by ERISA and/or the Code. All
contributions, insurance premiums, benefits and other payments required to be
made to or under each Employee Plan have been made timely and in
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accordance with the governing documents and in substantial compliance with
applicable law. With respect to each Employee Plan, (i) no application,
proceeding or other matter is pending before the IRS, the Department of Labor,
the PBGC or any other Governmental Entity; (ii) no action, suit, proceeding or
claim (other than routine claims for benefits) is pending or threatened; and
(iii) to the best knowledge of AHD, no fact exists which could give rise to an
action, suit, proceeding or claim which, if asserted, could result in a material
liability or expense to any Facility or the plan assets.
(d) With respect to each Employee Plan which is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA or which is a "plan"
within the meaning of Section 4975(e) of the Code, to the best knowledge of AHD,
there has occurred no transaction which is prohibited by Section 406 of ERISA or
which constitutes a "prohibited transaction" under Section 4975(c) of the Code
and with respect to which a prohibited transaction exemption has not been
granted and is not currently in effect.
(e) Schedule 3.12 identifies each funded Employee Plan which is
an employee pension plan within the meaning of Section 3(2) of ERISA (other than
a multiemployer plan within the meaning of Section 3(37) of ERISA). With respect
to each such Employee Plan, (i) the Employee Plan is a qualified plan under
Section 401(a) or 403(a) of the Code, and its related trust is exempt from
Federal income taxation under Section 501(a) of the Code, (ii) a favorable IRS
determination letter is currently in effect and, since the date of the last
determination letter, the Employee Plan has not been amended or, to the best
knowledge of AHD, operated in a manner which would adversely affect its
qualified status and no event has occurred which has caused or could cause the
loss of such status, (iii) there has been no termination or partial termination
within the meaning of Section 411(d)(3) of the Code, (iv) with
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respect to each such Employee Plan which is covered by Section 412 of the Code,
there has been no accumulated funding deficiency, whether or not waived, within
the meaning of Section 302(a)(2) of ERISA or Section 412 of the Code, and there
has been no failure to make a required installment by its due date under Section
412(m) of the Code and (v) with respect to each such Employee Plan which is
covered by Title IV of ERISA, (1) no reportable event within the meaning of
Section 4043(b) of ERISA and the regulations thereunder has occurred, (2) no
notice of intent to terminate the plan has been provided to participants or
filed with the PBGC under Section 4041 of ERISA, nor has the PBGC instituted or
threatened to institute any proceeding under Section 4042 of ERISA to terminate
the plan, (3) no liability has been incurred under Title IV of ERISA to the PBGC
or otherwise (except for the payment of PBGC premiums) and (4) in the case of a
defined benefit pension plan, the value of the plan assets exceeds the total
present value of the plan's benefit liabilities on a plan termination basis
based upon actuarial assumptions and asset valuation principles applied by the
PBGC. Neither AHD nor any ERISA Affiliate has ceased operations at a facility so
as to become subject to the provisions of Section 4068(f) of ERISA, withdrawn as
a substantial employer so as to become subject to the provisions of Section 4063
of ERISA or ceased making contributions to any Employee Plan which is a pension
plan subject to Section 4064(a) of ERISA.
(f) Each trust which is intended to be exempt from Federal
income taxation pursuant to Section 501(c)(9) of the Code has been identified as
such on Schedule 3.12, and each such trust satisfies the requirements of that
Section and is covered by a favorable IRS determination letter, and neither the
trust nor any related plan has been amended or, to the best knowledge of AHD,
operated since the date of the most recent determination letter in a manner
which would adversely affect such exempt status.
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(g) No Employee Plan listed on Schedule 3.12 is a multiemployer
plan within the meaning of Section 3(37) of ERISA. Neither AHD nor any ERISA
Affiliate is, or within six years prior to the date hereof was, obligated to
contribute or otherwise a party to any such multiemployer plan. Neither AHD nor
any ERISA Affiliate has incurred or expects to incur any withdrawal liability
under Title IV of ERISA (either as a contributing employer or as part of a
controlled group which includes a contributing employer) in connection with a
complete or partial withdrawal from a multiemployer plan, and no ERISA Affiliate
has received notice from any such multiemployer plan that the plan is in
reorganization or insolvency pursuant to Sections 4241 or 4245 or ERISA or that
the plan is intended to terminate or has terminated under Sections 4041A or 4042
of ERISA.
(h) AHD and its respective ERISA Affiliates have complied in all
material respects with the provisions of Section 4980(B) of the Code with
respect to any Employee Plan or benefit arrangement which is a group health plan
within the meaning of Section 5001(b)(1) of the Code. With respect to the
Facilities, AHD does not maintain, contribute to, or is not obligated under any
plan, contract, policy or arrangement providing health or death benefits
(whether or not insured) to current or former employees or other personnel
beyond the termination of their employment or other services. Except as set
forth in Schedule 3.12, AHD has reserved the right to unilaterally terminate
and/or amend each Employee Plan at any time.
(i) The consummation of the transactions contemplated by this
Agreement will not (either alone or in conjunction with another event, such as a
termination of employment or other services) entitle any employee or other
person to receive severance or other compensation which would not otherwise be
payable absent the consummation of the transactions
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contemplated by this Agreement or cause the acceleration of the time of payment
or vesting of any award or entitlement under any Employee Plan.
(j) Schedule 3.12 sets forth a complete and accurate list
showing the names, titles, length of employment or service, the rate of
compensation (and the portions thereof attributable to salary and bonuses,
respectively), fringe benefits, and the amount of accrued bonuses, vacation,
sick leave, maternity leave and other leave of all current officers of each
Facility or any ERISA Affiliate and of all employees of or consultants to each
Facility or any ERISA Affiliate that received, for the year ended September 30,
1995, annual base salary or other compensation in excess of $60,000. Except as
set forth on Schedule 3.12, none of such personnel is a party or subject to any
oral or written employment, bonus, pension, profit-sharing, deferred
compensation, percentage compensation, employee benefit (including without
limitation medical disability, life insurance and other welfare benefit plans),
incentive, pension or retirement plans, fringe benefit or termination or
severance agreements, plans or commitments. AHD is not in default with respect
to any of the foregoing obligations. With respect to the Facilities, AHD is not
in default with respect to any withholding or other employment taxes or payments
with respect to accrued vacation or severance pay on behalf of any employee for
which it is obligated on the date hereof and will maintain and continue to make
all such necessary payments or adjustments arising through the Closing Date. To
the best knowledge of AHD, no officer or employee listed on Schedule 3.12, and
no group of any Facility's, or any ERISA Affiliate's employees, has any plans to
terminate their employment. Neither any Facility nor any ERISA Affiliate has
instituted any "freeze" of, or delayed or deferred the grant of, any
cost-of-living or other salary adjustments for any of its employees.
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(k) Schedule 3.12 comprises a complete and correct list of (i)
the names, titles, length of employment or service and current annual salary
rates and all other compensation and fringe benefits of each of the employees,
officers, directors or consultants of AHD who are engaged in the conduct of the
business and operations of the Facilities; and (ii) the amount of accrued
bonuses, vacation, sick leave, maternity leave and other leave for such
personnel. There have been no audits of the equal employment opportunity
practices of the Facilities and, to the best knowledge of AHD, no basis for such
claim exists. There is no strike, dispute, slowdown or stoppage pending or
threatened against or involving any Facility and none has occurred since January
1, 1989. Neither AHD nor any Facility has received notice from any union or
employees setting forth demands for representation, elections or for present or
future changes in wages, terms of employment or working conditions.
(l) Schedule 3.12 sets forth all outstanding loans and other
advances (other than travel advances in the ordinary course of business which do
not exceed $1,000 per individual) made by AHD, with respect to the Facilities,
or any Facility to any of its officers, directors, employees or consultants.
3.13 Insurance Policies. Schedule 3.13 contains a correct and
complete description of all insurance policies of AHD covering the Facilities
and their respective employees, agents and assets. Each such policy is in full
force and effect, is covered by self-insurance or responsible commercial
insurance carriers and, to the best knowledge of AHD, is adequate in coverage
and amount to insure fully against risks to which the Facilities and their
employees, businesses, properties and other assets may be exposed in the
operation of their respective businesses. All retroactive premium adjustments
under any worker's compensation policy of AHD, with respect to the Facilities,
have been recorded in the Facilities' respective
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financial statements in accordance with generally accepted accounting principles
and are reflected in the 1995 Financial Statements and the December Financial
Statements. 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 best knowledge of AHD, neither
AHD nor any Facility has failed to give any notice or present any claim
thereunder in due and timely fashion. There are no pending claims against such
insurance by AHD, with respect to the Facilities, or any Facility as to which
the insurers have denied coverage or otherwise reserved rights. No Facility has
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 since the date it
commenced operations within the past two years.
3.14 Records. AHD has records that accurately and validly reflect
the Facilities' transactions and accounting controls sufficient to insure that
such transactions are (i) in all material respects executed in accordance with
each of their respective management's general or specific authorization and (ii)
recorded in conformity with generally accepted accounting principles.
3.15 Professional Staff, Medicare, Medicaid and Other Healthcare
Programs.
(a) The professional staff of the Facilities consist
substantially of the persons whose names and status are set forth on Schedule
3.16 hereto.
(b) Each Facility is certified for participation in the
Medicare and Texas Medicaid programs, and has a current and valid provider
contract with such programs.
(c) AHD and the Facilities have timely filed or caused to be
timely filed all cost reports and other reports of every kind whatsoever
required by any Governmental
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Entity to be made by them 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, subject to normal adjustments (that
shall not be material and adverse) to such reports upon audit or review by such
third parties, all such reports are complete and accurate in all material
respects. AHD and the Facilities have paid or caused to be paid all refunds,
discounts or adjustments which have become due pursuant to said reports and
there is no further liability now due (whether or not disclosed in any report
heretofore or hereafter made) for any such refund, discount or adjustment, and
no interest or penalties accruing with respect thereto, except as may be
disclosed in the 1995 Financial Statements or the December Financial Statements.
AHD has delivered to the Purchaser true and correct copies of all of their
Medicare and Medicaid Cost Reports submitted by the Facilities for the two most
recent fiscal years.
(d) AHD and the Facilities and their respective affiliates and,
to the best knowledge of AHD and the Facilities, their respective officers and
directors (acting in their individual and non-representative capacities), and
persons who provide professional services under agreements with any Facility or
their respective affiliates (in such capacity and on behalf of AHD), have not
engaged in any activities which (i) could subject such person to sanctions under
42 U.S.C. Section 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.Section Section 1320a-7a and 1320a-7b, or the regulations promulgated
pursuant to such statutes or related state or local statutes or regulations.
3.16 Facility Surveys. True and complete copies of any and all
licensure survey reports and any and all Medicare and/or Medicaid and JCAHO
survey reports issued within the 24-month period preceding the execution of this
Agreement with respect to each Facility for
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which surveys are conducted by the appropriate state or Federal agencies and
JCAHO having jurisdiction thereof have been furnished to the Purchaser, along
with true and complete copies of any and all plans of correction which the
agencies in question required to be submitted in response to said survey
reports.
3.17 Suppliers and Providers of Services.
(a) Schedule 3.17 lists all suppliers of goods to, and providers
of services to, the Facilities (collectively, "Suppliers") to which AHD or the
Facilities made payments during the fiscal year ended September 30, 1995, in
excess of five percent of any Facilities' operating expenses as reflected on its
statement of operations for such year.
(b) Neither AHD nor any Facility has any information which might
reasonably indicate that any of the Suppliers listed on Schedule 3.17 intends to
cease selling or rendering services to, or dealing with, the Facilities, nor has
any information been brought to their attention which might reasonably lead them
to believe any such Supplier intends to alter in any material respect the amount
of sales or service or the extent of dealings with the Purchaser, or would alter
in any material respect the sales or service or dealings in the event of the
consummation of the transactions contemplated hereby.
3.18 Licenses. Each Facility and its respective officers, directors
and employees possess all governmental registrations, certificates of need,
consents, qualifications and accreditations relating to the ownership or
operation of the Facilities, and other material licenses, permits,
authorizations and approvals that are required by every Governmental Entity for
the conduct of the business of such Facility and the use of its properties as
presently conducted or used including without limitation all material licenses
required under any Federal, state or local law relating to, public health and
safety, or employee health and safety
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(collectively, "Licenses"). Schedule 3.18 contains a true and complete list of
the Licenses, exclusive of any Licenses with respect to state or local sales,
use or other Taxes (as defined in Section 3.19). All of the Licenses are in full
force and effect and no action or claim is pending nor, to the best knowledge of
AHD and the Facilities, is threatened to revoke or terminate any License or
declare any License invalid in any material respect. Neither AHD nor any
Facility or any of its officers or directors or, to the best knowledge of AHD
and the Facilities, employees is in default in any material respect under any of
such Licenses and, to the best knowledge of AHD and the Facilities, other than
as set forth on the Facility survey reports referred to in Section 3.16, copies
of which have been provided to the Purchaser, no event has occurred and no
condition exists which, with the giving of notice, the passage of time, or both,
would constitute a default thereunder, which default could reasonably be
expected to have a material adverse effect on the business or operations of any
Facility.
3.19 Taxes.
(a) Except as specifically set forth in Schedule 3.19, (i) AHD
has filed on a timely basis (taking into account any extensions received from
the relevant taxing authorities) all returns and reports of Taxes (which for the
purposes of this Agreement shall include all U.S. federal, state, local and
foreign income, profits, franchise, unincorporated business, capital, general
corporate, sales, use, occupation, property, excise and any and all other taxes)
relating to the Assets or the Facilities that are or were required to be filed
with the appropriate taxing authorities in all jurisdictions in which such
returns and reports are or were required to be filed, and all such returns and
reports are true, correct and complete in all material respects, (ii) all Taxes
(including interest, additions to tax and penalties thereon together with
interest on such additions to tax and penalties) relating to the Assets or the
Facilities that
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are due from or may be asserted against the Facilities (including deferred
taxes) in respect of or attributable to all periods ending on or before the
Closing Date have been fully paid, deposited or adequately provided for on the
books and financial statements of the Facilities or are being contested in good
faith by appropriate proceedings, (iii) no issues have been raised (or are
currently pending) by any taxing authority in connection with any of the returns
and reports referred to in clause (i) which might be determined adversely to AHD
or the Facilities and which would have a material adverse effect on the
Facilities, (iv) the Facilities have not given or been requested to give waivers
or extensions of any statute of limitations with respect to the payment of Taxes
relating to the Facilities, and (v) no tax liens which have not been satisfied
or discharged by payment or concession by the relevant taxing authority or as to
which sufficient reserves have not been established on the books and financial
statements of the Facilities are in force as of the date hereof with respect to
any of the assets of the Facilities.
(b) To the best of AHD's and the Facilities' knowledge, all
deficiencies proposed in writing by taxing authorities which would have a
material adverse effect on the Facilities have been paid, reserved against,
settled or are being contested in good faith by appropriate proceedings.
(c) All Taxes relating to the Assets or the Facilities that AHD
or the Facilities are or were required by law to withhold, to deposit or to
collect have been duly withheld, deposited or collected and, to the extent
required, have been paid to the relevant taxing authority or have been accrued
and reflected in the accounts of the Facilities.
3.20 Tax Returns Through Closing Date. AHD shall prepare and file on
a timely basis all required reports and returns of Taxes relating to the Assets
or the Facilities with respect to all periods through and including the Closing
Date and shall pay or cause to be paid
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when due all Taxes relating to the Assets or the Facilities for such periods,
including any interest, additions to tax or penalties thereon together with
interest on such additions to tax or penalties except as otherwise assumed by
the Purchaser pursuant to this Agreement. AHD shall be entitled to receive any
tax refund of Taxes attributable to the Assets or conduct of the Facilities in
respect of any period prior to and through the Closing Date to the effect paid
by AHD.
3.21 Subsequent Liability. If, subsequent to the Closing Date, any
liability for Taxes relating to the Assets or the conduct of the Facilities is
imposed on the Purchaser with respect to any period prior to and through the
Closing Date which has not otherwise been assumed by the Purchaser pursuant to
this Agreement, then AHD shall indemnify and hold the Purchaser harmless, from
and against, and shall pay, the full amount of such Tax liability, including any
interest, additions to tax and penalties thereon, together with interest on such
additions to tax or penalties (as well as reasonable attorneys' or other fees
and disbursements of the Purchaser incurred in determination thereof or in
connection therewith), or AHD shall, at its sole expense and in its reasonable
discretion, either settle any Tax claim that may be the subject of
indemnification under this Section 3.21 at such time and on such terms as they
shall deem appropriate or assume the entire defense thereof, provided, however,
that AHD shall not in any event take any position in such settlement or defense
that subjects the Purchaser to any civil fraud or any civil or criminal penalty.
Notwithstanding the foregoing, AHD shall not consent, without the prior written
consent of the Purchaser, which prior written consent shall not be unreasonably
withheld, to any change in the treatment of any item which would, in any manner
whatsoever, affect the tax liability of the Purchaser for a period subsequent to
the Closing Date.
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3.22 FIRPTA Affidavits. At the Closing, AHD shall execute and
deliver to the Purchaser affidavits complying in all respects with Section
1445(b)(2) of the Code and the Purchaser agrees that, except as otherwise
provided in Section 1445(b)(7) of the Code and the Treasury Regulations
promulgated pursuant thereto, upon the execution and delivery of such affidavits
to the Purchaser, no deduction shall be made or claimed against the Purchase
Price of the Assets by reason of the requirements of Section 1445 of the Code.
3.23 No Illegal or Improper Transactions. Neither AHD nor any of the
Facilities, nor any of AHD's or the Facilities' directors, officers, affiliates,
employees acting on behalf of AHD, directly or indirectly used funds or other
assets of any Facility, or made any promise or undertaking in such regard, for
(a) illegal contributions, gifts, entertainment or other expenses relating to
political activity; (b) illegal payments to or for the benefit of governmental
officials or employees, whether domestic or foreign; (c) illegal payments to or
for the benefit of any person, firm, corporation or other entity, or any
director, officer, employee, agent or representative thereof; or (d) the
establishment or maintenance of a secret or unrecorded fund; and there have been
no false or fictitious entries made in the books or records of any Facility.
3.24 No Misleading Statements. This Agreement, the information and
schedules referred to herein and the information that has been furnished to the
Purchaser in connection with the transactions contemplated hereby do not include
any untrue statement of a material fact and do not omit to state any material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which they were made, not misleading. There is no fact
known to AHD or the Facilities which materially adversely affects or in the
future may (so far as AHD or the Facilities can now reasonably foresee)
materially adversely affect the
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business, condition (financial or otherwise), property or assets of the
Facilities which has not been set forth herein other than those of general
applicability to healthcare facilities in Texas..
3.25 No Broker. AHD represents and warrants that it has not dealt
with any broker or finder in connection with any of the transactions
contemplated by this Agreement.
4. Representations and Warranties of the Purchaser and UHS.
In order to induce AHD to enter into and perform this Agreement, the
Purchaser and UHS, jointly and severally, represent and warrant as follows:
4.1 Organization. Each of UHS and the Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and has all requisite power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. Each of UHS and the Purchaser is duly qualified to transact
business as a foreign corporation in each state in which the nature of the
business conducted by it or its ownership or leasing of property make such
qualification necessary.
4.2 Authority and No Conflict. Each of UHS and the Purchaser has the
full power and authority to execute, deliver and carry out its obligations under
this Agreement and all documents and agreements necessary to give effect to the
provisions of this Agreement. This Agreement has been duly authorized, executed
and delivered by each of UHS and the Purchaser, and the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any conflict, breach or violation of, or default under, any statute,
judgment, order, decree, mortgage, agreement, deed of trust, indenture or other
instrument to which UHS or the Purchaser is a party or by which either of them
is bound. All action and other authorizations prerequisite to the execution of
this Agreement and the consummation of
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the transactions contemplated by this Agreement have been taken or prior to the
Closing Date will have been obtained by UHS and the Purchaser. This is a valid
and binding agreement of UHS and the Purchaser enforceable against each of them,
respectively, in accordance with its terms.
4.3 Defaults, Consents, Etc. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
result in a material violation by UHS or the Purchaser of, or constitute a
default by UHS or the Purchaser under, any material contractual obligation of
UHS or the Purchaser or any legal requirement applicable to UHS or the
Purchaser. No approval, consent, authorization or other order of, and no
declaration, filing, registration, qualification or recording with, any
governmental authority or any other person, including, without limitation, any
party to any contractual obligation of UHS or the Purchaser, is required to be
made by or on behalf of UHS or the Purchaser for the execution, delivery or
performance of this Agreement by UHS and the Purchaser except for those
contemplated hereby or which have been or will be obtained or for which waivers
will be obtained prior to the Closing.
4.4 No Broker. UHS and the Purchaser represent and warrant that
neither of them has dealt with any broker or finder in connection with any of
the transactions contemplated by this Agreement and, insofar as they know, no
broker or other person is entitled to any commission or finder's fee in
connection with any of such transactions.
5. Obligations Before and After Closing.
A. From and after the date hereof until the Closing Date, AHD agrees
that:
5.1.1 Access to Premises and Information. The Purchaser, UHS and
their counsel, accountants, and other representatives will have reasonable
access during normal
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business hours to the Facilities and to all properties, books, accounts and
records, contracts and documents of or relating to the business of the
Facilities, provided that such access shall not interfere with the operation of
the Facilities. AHD will furnish or cause to be furnished to the Purchaser, UHS
and their representatives all data and information within AHD's possession or
control concerning the business, finances, and properties of AHD and the
Facilities that may reasonably be requested.
5.1.2 Conduct of Business in Ordinary Course. AHD will conduct
the business of the Facilities (including the operation of the Facilities)
diligently, in the ordinary course and in substantially the same manner as such
business has previously been conducted, and will not make or institute any
unusual or novel purchase, sale, lease, management, accounting policy or
operation that will vary materially from those methods used by it during the 12
month period ending on the date of this Agreement.
Without limiting the foregoing, from the date hereof until the
Closing Date, as it relates to the Facilities and their operation, AHD will (i)
not increase any compensation payable to any employees or consultants of the
Facilities (except in the ordinary course of business); (ii) not enter into,
amend or terminate any material contract, agreement, permit or lease without the
prior written consent of the Purchaser; (iii) not enter into any commitment to
borrow money, mortgage, pledge, or subject to lien, charge or encumbrance any of
the Assets except in the ordinary course of business or as contemplated
hereunder; (iv) not sell or transfer any of the Assets or cancel any claim
applicable to the Facilities except in the ordinary course of conduct of
business or as contemplated hereunder; (v) keep in full force and effect all
insurance relating to the business of Facilities, comparable in amount and scope
of coverage to that now maintained; (vi) perform all material obligations under
Licenses, the AHD
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Contracts and other documents relating to or affecting conduct of business of
the Facilities, all in the same manner as heretofore performed; (vii) use its
best efforts to maintain and preserve the Assets, the Facilities, their good
will and relationships with their officers, employees, Suppliers, professional
staff and others having a business relationship with them, and maintain all
Licenses requisite to the conduct of the Facilities' businesses as now
conducted; and (viii) maintain in working condition all equipment, and other
personal property, reasonable wear and tear excepted.
5.1.3 Representations and Warranties True at Closing. All
representations and warranties of AHD set forth in this Agreement will also be
true and correct as of the Closing Date as if made on that date. It is
understood and agreed that AHD has not provided the Schedules to Purchaser as of
the date of this Agreement. AHD undertakes to provide such Schedules within ten
(10) business days of the date hereof. AHD further undertakes to revise and
update all Schedules hereto as may be necessary from the date hereof until the
Closing Date. No such Schedules provided and revisions made to such Schedules
pursuant to this Section shall be deemed to be accepted by Purchaser, nor cure
any breach of any representation or warranty made in this Agreement unless the
Purchaser specifically agrees thereto in writing or by initialing such Schedule,
nor shall any such Schedule or revision thereto be considered to constitute or
give rise to a waiver by the Purchaser of any condition set forth in this
Agreement.
5.1.4 Further Authorization. AHD will take, or cause to be
taken, all such further actions as may be necessary or appropriate to authorize
the execution, delivery and performance of this Agreement by it.
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5.1.5 Hiring of Employees. The Purchaser shall be permitted to
interview all employees of AHD engaged in the Facilities and discuss with, and
offer employment to, any of such employees. It is understood and agreed,
however, that Purchaser shall not be obligated to offer employment to any of the
AHD's employees. Purchaser agrees that it will not take any action which will
impose liability to AHD under the Worker Adjustment and Retraining Notification
Act.
5.1.6 No Shopping. From the date of this Agreement until the
termination hereof, neither AHD nor any of its agents or representatives shall
provide information to, solicit any indications of interest from, or negotiate
with, any third party with respect to any possible sale of stock or assets,
merger or other business combination or similar transaction involving AHD and/or
the Facilities until the termination of this Agreement in accordance with the
terms hereof.
5.1.7 Non-Competition. AHD agrees that neither it nor any of its
affiliates will, for a period of five (5) years from the Closing Date directly
or indirectly (i) own, build, invest in, assist in the development of, or have
any management role in, any firm, corporation, business or other organization or
enterprise engaged, directly or indirectly, in the provision of healthcare
services within thirty miles of Amarillo, Texas, (ii) solicit for employment any
employee of UHS or the Purchaser or any of their affiliates, or (iii) interfere
with, disrupt or attempt to disrupt the relationship between UHS and the
Purchaser or any of their affiliates and any of their respective lessors,
lessees, licensors, licensees, customers or suppliers. If any court determines
that any of the restrictive covenants set forth in this Section 5.1.7, or any
part of such covenants, is unenforceable because of the duration of such
provision or the area covered thereby, such court shall have the power to reduce
the duration or area of
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such provision and, in its reduced form, such provision shall then be
enforceable and shall be enforced. Notwithstanding anything to the contrary
contained herein, nothing shall prevent AHD from providing services to indigents
if Purchaser fails to honor its commitments under the Indigent Care Agreement
annexed as Exhibit B hereto.
5.1.8 Payments for Enhanced Children's Services. In the event
Purchaser or UHS proceeds with the development of enhanced medical healthcare
services for children in the City of Amarillo ("Enhanced Children's Services"),
AHD shall provide one-third of the development and construction costs (which
shall include costs of substantial renovation but not ordinary maintenance and
repairs) of the Enhanced Children's Services, up to an aggregate of $6,500,000
to be refunded to Purchaser by AHD as a reduction of the Purchase Price. All
such construction must be commenced within ten years from the date hereof.
Payments by AHD as a reduction of the Purchase Price in connection with the
development and construction costs of the Enhanced Children's Services will be
made within 30 days of receipt by AHD of invoices setting forth the cost
thereof. Such invoices will represent the total costs of development and
construction to the date of the invoice and will indicate the one-third portion
attributable to AHD. AHD will have no equity in or creditor relationship with
the entity involved with the Enhanced Children's Services, Purchaser or UHS as a
result of its making the foregoing repayments.
B. AHD and the Purchaser agree that:
5.2.1 Consents. AHD and the Purchaser, as promptly as
practicable, (i) will make, or cause to be made, all filings and submissions
under laws, rules and regulations applicable to it, or to its subsidiaries and
affiliates, as may be required for any party hereto to consummate the
transactions contemplated hereby; (ii) will use its reasonable efforts to
obtain,
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or cause to be obtained, all authorizations, approvals, consents and waivers
from all persons and Governmental Entities necessary to be obtained by it, or
any subsidiaries or affiliates, in order for it so to consummate such
transactions; and (iii) will use its best efforts to take, or cause to be taken,
all other actions necessary, proper or advisable in order for it to fulfill its
obligations hereunder. In particular, AHD shall seek and use its reasonable best
efforts to obtain all consents necessary (i) from all governmental entities, and
(ii) to any assignment to the Purchaser of Licenses necessary to operate the
Facilities. AHD and the Purchaser will coordinate and cooperate with one another
in exchanging information and supplying such reasonable assistance as may be
reasonably requested by each in connection with the foregoing. The Purchaser
shall use its reasonable efforts to assist AHD in obtaining all consents
required under the Assumed Contracts as a result of this Agreement and the
transactions contemplated hereby.
5.2.2 Public Announcements. Unless and to the extent required by
law, each party hereto will agree in advance prior to the issuance by either of
any press release or the making of any public statement with respect to this
Agreement and the transactions contemplated hereby and shall not issue any such
press release or make any such public statement without the agreement of the
other party. In the event that either party is required to issue a press release
or make a public statement by law, it will use its reasonable efforts to notify
the other party of the contents thereof in advance of the issuance or making
thereof.
5.2.3 Confidentiality Obligations of the Parties. The
confidentiality obligations of the parties from the time of the execution of
this Agreement are contained in Exhibit C.
5.2.4 Core Expenses. Purchaser and AHD agree that prior to
closing they will negotiate in good faith with the Bi-City-County Public Health
District ("BCPHD") with
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respect to the transfer of functions, services, revenues and expenses relating
to the core public health services to the BCPHD.
5.2.5 Indigent Care Agreement. AHD, Purchaser and UHS shall
execute and deliver an Indigent Care Agreement, in the form of Exhibit B hereto,
pursuant to which the Purchaser shall provide medically necessary care to
qualified indigents and Purchaser shall be entitled to receive the payments and
other contributions set forth therein.
C. The Purchaser and UHS agree that:
5.3.1 Representations and Warranties True at Closing. All
representations and warranties of the Purchaser and UHS set forth in this
Agreement will also be true and correct as of the Closing Date as if made on
that date.
5.3.2 Further Authorization. The Purchaser and UHS will take, or
cause to be taken, such further actions as may be necessary or appropriate to
authorize the execution, delivery and performance of this Agreement by them.
5.3.3 Employment of AHD Personnel.
(a) The Purchaser shall offer a comprehensive benefit
package to employees of Purchaser comparable to the benefits provided to
employees at other UHS facilities. The Purchaser will also offer retention of
the medical staff with the same privileges (subject to then applicable medical
staff by-law requirements) to all persons on the medical staff of the Facilities
on the Closing Date. AHD shall maintain existing benefits for all employees
employed by Purchaser after the Closing Date for a period of up to six (6)
months at Purchaser's expense (including a reasonable administrative fee) and
Purchaser shall reimburse AHD for the costs thereof promptly after the end of
each month. In addition, the parties agree that the Purchaser qualifies for
successor status under Rev. Proc. 84-77. Pursuant to that
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pronouncement, the parties agree the Purchaser will file (with the federal
government and the state, where appropriate) a single W-2 for each employee,
reporting the wages paid by both the Purchaser and AHD. In addition, both
parties will file 941's for the quarter during which the sale takes place,
reflecting the wages and deposits made during its period of ownership. Each
employee will carry over to his employment with the Purchaser years of service
with AHD for determining vacation, sick leave, retirement and other terms of
employment affected by seniority under the Purchaser's employment policies
except that the Purchaser shall be under no obligation to waive the preexisting
condition limitations under any applicable benefit plan of Purchaser for any
employee. The Purchaser shall not be liable for any accrued sick leave, vacation
or paid time off except as provided with respect to paid time off in Section 2.3
hereto. AHD will remain liable for any COBRA coverage applicable to its current
and former employees (and beneficiaries) in respect of their participation in a
group health plan of AHD; and Purchaser shall have COBRA responsibility only for
those employees of AHD who (a) become employees of the Purchaser, and (b) become
covered under the Purchaser's group health plan or under AHD's plan during the
six month period after the Closing Date as described in Section 5.3.3(a). In
addition, AHD shall remain liable for all coverage of employees for all claims
relating to periods prior to the Closing Date.
(b) AHD shall cause to be provided to all employees and
former employees of AHD who do not become employees of Purchaser sufficient
medical, mental health, vision, dental, and other group health plan benefits and
perform all obligations necessary to satisfy the obligations, if any, of AHD and
Purchaser under the continuation of coverage provisions described in Section
4980B of the Code and Sections 601 through 608 of ERISA and similar continuation
of health coverage provisions under applicable state law; provided, however,
that if AHD terminates its plans, at the request of AHD, if
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Purchaser's plan qualifies under applicable law, Purchaser shall provide
benefits to former employees of AHD entitled to COBRA benefits with respect to
the plan at AHD's expense (including a reasonable administrative fee) and AHD
shall reimburse Purchaser for all costs thereof promptly after the end of each
month.
(c) Notwithstanding any provision herein, no term of this
Agreement shall be deemed to create any contract between the Purchaser and any
such employee which gives the employee the right to be retained in the
employment of the Purchaser or any related employer, or to interfere with
Purchaser's right to terminate employment of any employee at any time or to
change its policies regarding salaries, benefits and other employment matters at
any time or from time to time. The representations, warranties, covenants and
agreements contained herein are for the sole benefit of the parties hereto, and
employees are not intended to be and shall not be construed as beneficiaries
hereof.
5.3.4 Bulk Sales Law. The Purchaser hereby waives compliance by
AHD with all applicable bulk sales laws; provided, however, that this waiver
shall not relieve AHD of its indemnification obligations to UHS and the
Purchaser pursuant to Section 11.2 hereof as a result of AHD's non-compliance
with any applicable bulk sales or similar laws.
5.3.5 Use of Office. Purchaser shall provide AHD with an office
in the Facility at no cost to AHD for a period of five years after the Closing
Date to conduct its operations.
6. Conditions Precedent to the Performance of UHS and the Purchaser.
The obligations of UHS and the Purchaser under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out below. UHS
and the Purchaser may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that
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no such waiver of a condition shall constitute a waiver by UHS or the Purchaser
of any of their other rights or remedies, at law or in equity, if AHD is in
default of any of the representations, warranties, or covenants contained in
this Agreement, except to the extent that such defaults are expressly waived.
6.1 Accuracy of Representations and Warranties. All representations
and warranties by AHD in this Agreement or in any agreement or in any written
statement that is delivered to UHS or the Purchaser pursuant to this Agreement
will be true and correct on and as of the Closing Date as though made on that
date.
6.2 Performance. AHD will have performed, satisfied, and complied
with all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it on or before the Closing Date.
6.3 No Material Adverse Change. There shall have been no change in
the Assets, tangible property, condition, financial or otherwise, results of
operations or prospects (including, without limitation, any material decline in
the number of admissions by members of the medical staff) of the Facilities from
December 31, 1995 which in the aggregate are materially adverse to the
Facilities.
6.4 Certification by the Company. UHS and the Purchaser will have
received certificates, dated the Closing Date, signed by the Chairman of the
Board of AHD, on behalf of AHD, certifying, in such detail as UHS and the
Purchaser and their counsel may reasonably request, that the conditions
specified in Sections 6.1, 6.2 and 6.3 hereof have been fulfilled in all
material respects, including, but not limited to, certified copies of all
documentation of AHD pertaining to authorization of the execution, delivery and
performance of this Agreement.
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6.5 Opinion of AHD's Counsel. UHS and the Purchaser shall have
received from counsel to AHD, an opinion, dated the Closing Date, in form and
substance reasonably satisfactory to UHS and the Purchaser.
6.6 Absence of Litigation. No action, suit, or proceeding before any
court or any Governmental Entity, pertaining to the transactions contemplated by
this Agreement or to their consummation, will have been instituted or threatened
on or before the Closing Date.
6.7 Legal Prohibition. 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 could materially adversely affect the Facilities. No
federal, state or local statute, rule or regulation shall have been enacted the
effect of which would be to prohibit, restrict, impair or delay the consummation
of the transactions contemplated hereby or restrict or impair the ability of the
Purchaser to own or conduct the business of the Facilities.
6.8 Consents, Approvals, Permits, Licenses, etc. All material
authorizations, consents, waivers, approvals, orders, registrations,
qualifications, designations, declarations, filings or other action required
with or from any Governmental Entity (including without limitation receipt of
licenses to own and operate the Facilities in Texas for the Purchaser to conduct
the business of the Facilities as currently conducted, approvals of the Texas
agencies responsible for hospital licensing) or third party (including without
limitation all parties to each of the Assumed Contracts) and all other
requirements of law in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contem-
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plated hereby shall have been duly obtained and shall be reasonably satisfactory
to UHS and the Purchaser and their counsel. No such consent or approval (a)
shall be conditioned on the modification, cancellation or termination of any
Assumed Contract, or (b) shall impose on UHS or the Purchaser any material
condition or provision or requirement with respect to the Facilities or their
operation that is more restrictive than or different from the conditions imposed
upon such operation prior to Closing, unless UHS and the Purchaser give their
prior written approval.
6.9 Property Tax Records; Appraisal. UHS and the Purchaser shall
have received such property tax records of AHD as they relate to the Facilities
as they shall have reasonably requested, and an appraisal of the Assets
(including the Real Property) by a qualified appraiser, satisfactory to UHS and
the Purchaser, which records and appraisal will be used in arriving at and
supporting the allocation of the Purchase Price for the Assets referred to in
Section 8.2 hereof.
6.10 Closing Matters. All proceedings to be taken by AHD in
connection with the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to UHS and the Purchaser and their counsel.
6.11 Supplemental Disclosure. If AHD shall have delivered,
supplemented or amended any Schedule pursuant to its obligations set forth in
Section 5.1.3 hereof, UHS and the Purchaser shall not have given notice to AHD
that, as a result of information provided to UHS and the Purchaser in connection
with any or all of such amendments or supplements, UHS and the Purchaser have
determined not to proceed with the consummation of the transactions contemplated
hereby.
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6.12 Risk of Loss. The risk of loss or damage to any of the tangible
property, transfer of which is contemplated hereby, shall remain with AHD until
the Closing and AHD shall maintain its insurance policies covering the Assets
and the Real Property through the Closing. With respect to the Real Property:
(a) If prior to the Closing, all or any part of the Real
Property is destroyed or damaged by fire or the elements or by any other cause,
AHD shall within ten (10) days provide written notice thereof to Purchaser and
shall also provide Purchaser, together with such notice, copies of all insurance
then in force relating to such Real Property, whereupon Purchaser may, by
written notice to AHD within twenty (20) days after receipt of notice of the
occurrence, elect in writing not to purchase the Assets if such damage exceeds
$1,000,000 and if AHD does not agree to repair, restore and replace such Real
Property to Purchaser's reasonable satisfaction and in compliance with all state
licensing requirements and Laws within 60 days of the notice of the casualty
delivered to Purchaser. Purchaser's election to so terminate may be exercised,
however, if after AHD agrees to so repair, restore and replace, AHD fails to
effect such repair, restoration and replacement within such 60 day period. Upon
such election, this Agreement shall wholly cease and terminate. If all or any
part of the Real Property is so destroyed but this Agreement is not so
terminated by Purchaser, this Agreement shall not be affected, but Purchaser
shall retain all of AHD's right, title and interest in and to the policies of
insurance insuring against the loss and AHD's interest in sums payable
thereunder and AHD shall pay to Purchaser the amount of any deductibles under
such insurance policies and any payments theretofore made on account of the
destruction or damage.
(b) In the event of the institution of any proceeding involving
the proposed taking by eminent domain or a taking by eminent domain of all or
any portion of the
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Real Property, which Purchaser, in its sole discretion deems relevant or which
would materially alter the grade, or access to any street or would, in the
reasonable judgment of Purchaser, otherwise injure, damage, or decrease the
value of the Real Property, Purchaser shall have the right and option to elect
to cancel and terminate this Agreement by giving AHD notice to such effect
within thirty (30) days after its receipt of written notice of any such
occurrence, whereupon this Agreement shall be deemed to be terminated. AHD shall
within ten (10) days furnish Purchaser with written notice of any such
occurrence and all available data related thereto. Should Purchaser so terminate
this Agreement, this Agreement shall cease and terminate. If Purchaser does not
so terminate this Agreement, Purchaser shall accept the Real Property subject to
such proceeding or without the portion of the Real Property taken, and the
Purchaser shall retain all of the right, title and interest of AHD, as owner of
the Real Property, in and to such proceeding and the proceeds of the award to be
made in such proceeding, and AHD shall turn over to Purchaser the proceeds of
any award (or payment made pending the making of the award) already received by
AHD to the extent not retained by AHD.
All insurance proceeds attributable to the damage,
destruction, or casualty loss of any of the assets other than the Real Property
prior to the Closing Date not retained by AHD shall be assigned to Purchaser at
the Closing, and the Purchase Price shall be reduced by an amount equal to the
deductible amount under the applicable insurance policy.
7. Conditions Precedent to AHD's Performance.
The obligations of AHD under this Agreement are subject to the
satisfaction, at or before the Closing, of all the following conditions. AHD may
waive any or all of these conditions in whole of in part without prior notice;
provided, however, that no such waiver of a condition shall constitute a waiver
of any of AHD's other rights or remedies, at law or in
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equity, if UHS or the Purchaser is in default of any of the representations,
warranties or covenants contained in this Agreement, except to the extent that
such defaults are expressly waived.
7.1 Accuracy of Representations and Warranties of UHS and the
Purchaser. All representations and warranties by UHS and the Purchaser contained
in this Agreement or in any written statement delivered by UHS and the Purchaser
under this Agreement will be true in all material respects on and as of the
Closing Date as though such representations and warranties were made on and as
of that date.
7.2 Performance; Authorization. UHS and the Purchaser will have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by it on or before
the Closing Date.
7.3 Certificates. AHD will have received certificates, dated the
Closing Date, signed by the president or vice president and secretary or
assistant secretary of UHS and the Purchaser certifying, in such detail as AHD
may reasonably request, that the conditions specified in Sections 7.1 and 7.2
hereof have been fulfilled in all material respects, including, but not limited
to, certified copies of all resolutions of UHS and the Purchaser pertaining to
authorization of the execution, delivery and performance of this Agreement by
UHS and the Purchaser.
7.4 Absence of Litigation. No action, suit, or proceeding before any
court or any governmental body or authority pertaining to the transactions
contemplated by this Agreement or to their consummation, will have been
instituted or threatened on or before the Closing Date.
7.5 Consents. All agreements, consents, regulatory approvals and
compliance with other applicable provisions of law, necessary to permit the
consummation by AHD, UHS
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and the Purchaser of the transactions contemplated by this Agreement, shall have
been obtained by AHD, UHS and the Purchaser, respectively, and delivered to AHD,
UHS and the Purchaser, respectively, and no Governmental Entity having
jurisdiction over the transactions contemplated hereby shall have taken any
action to enjoin or prevent the consummation of such transactions. As to any
Assumed Contract the assignment of which by its terms requires prior consent of
the parties thereto, if such consent is not obtained prior to or on the Closing
Date, AHD shall deliver to UHS and the Purchaser written documentation setting
forth arrangements for the transfer of the economic benefit of such Assumed
Contracts to UHS and the Purchaser as of the Closing Date under terms and
conditions acceptable to all the parties hereto.
7.6 Opinion of Counsel for UHS and the Purchaser. AHD shall have
received from the counsel to UHS and the Purchaser a written opinion, dated the
Closing Date, in form and substance reasonably satisfactory to AHD.
7.7 Delivery of Documents. UHS and the Purchaser shall have
delivered to AHD such other documents and instruments as may be reasonably
deemed necessary or appropriate by AHD.
7.8 Indigent Care Agreement. UHS and the Purchaser shall execute and
deliver to AHD the Indigent Care Agreement, substantially in the form of Exhibit
B hereto.
7.9 Appraisal. AHD shall have received the appraisal of the Assets
referred to in Section 6.9 hereto.
8. Joint Covenants.
8.1 Post-Closing Access to Information. AHD and Purchaser
acknowledge that subsequent to Closing each party may need access to information
or documents in the control or possession of the other party (or their
affiliates) for the purposes of concluding the
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transactions set forth herein, audits, compliance with governmental requirements
and regulations, and the prosecution or defense of third-party claims.
Accordingly, AHD and Purchaser agree that for a period of five (5) years after
Closing each will, at the expense of the requesting party and upon written
request, make available during normal business hours to the other's agents,
independent auditors and/or governmental agencies such documents and information
as may be available relating to the Hospital and the Assets for periods prior
and subsequent to Closing to the extent necessary to facilitate concluding the
transactions set forth herein, audits, compliance with governmental requirements
and regulations and the prosecution or defense of claims.
8.2 Preservation and Access to Patient and Employee Records After
the Closing. After the Closing, Purchaser shall, in the ordinary course of
business and as required by law, keep and preserve all medical records, employee
records and other records of the Hospital existing as of the Closing and which
constitute a part of the Assets delivered to Purchaser at Closing, provided
that, Purchaser, at any time after the second anniversary of the Closing Date,
upon not less than sixty (60) days' prior written notice to AHD, may dispose of
such records in its possession relating to the Hospital, the Assets or any of
the transactions contemplated herein, in accordance with Purchaser's record
retention policies and applicable law; provided further, that AHD may, at its
own cost and expense, retain, or make arrangements for the retention of, such
records to which it would have a right of access under this Section 8.2, if AHD
notifies, in writing, Purchaser that AHD desires to retain such records.
Purchaser acknowledges that as a result of entering into this Agreement and its
ownership of the Assets, it will gain access to patient and other information
which is subject to rules and regulations concerning confidentiality. Purchaser
agrees to abide by any such rules and regulations relating to the confidential
information it acquires. Purchaser agrees to maintain the patient records
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delivered to Purchaser at Closing at the Hospital after Closing in accordance
with applicable law (including, if applicable, Section 1861(v)(i)(l) of the
Social Security Act (42 U.S.C.Section 1395(v)(I)(1), and requirements of
relevant insurance carriers, all in a manner consistent with the maintenance of
patient records generated at the Hospital after Closing. Upon reasonable notice
during normal business hours at the sole cost and expense of AHD and upon
Purchaser's receipt of appropriate consents and authorizations, Purchaser shall
afford to the representatives of AHD, including their counsel and accountants,
full and complete access to, and copies of, the records transferred to Purchaser
at the Closing (including, without limitation, access to patient records in
respect of patients treated by AHD at the Hospital prior to Closing). In
addition, AHD shall be entitled, at AHD's sole risk, to remove from the Hospital
any such patient records, but only for purposes of pending litigation involving
a patient to whom such records refer, as certified in writing prior to removal
by counsel retained by AHD in connection with such litigation and only upon
Purchaser's receipt of appropriate consents and authorizations. Any patient
records so removed from the Hospital shall be promptly returned to Purchaser
following its use by AHD. Any access to the Hospital, its records or Purchaser's
personnel granted to AHD in this Agreement shall be upon the condition that any
such access not materially interfere with the business operations of Purchaser.
8.3 Allocation of Purchase Price. The Purchase Price shall be
allocated in its entirety among the Assets and he non-competition provisions of
Section 5.1.7 hereof in accordance with Schedule 8.3 hereto and as required by
Section 1060 of the Code and Treasury Regulations promulgated thereunder. AHD,
UHS and the Purchaser shall file all required information and tax returns (and
any amendments thereto) in a manner consistent with this Section 8.3 and comply
with the applicable information reporting requirements of Section 1060
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of the Code and Treasury Regulations promulgated thereunder. If, contrary to the
intent of the parties hereto as expressed in this Section 8.3, any taxing
authority makes or proposes an allocation different from that contained in this
Section 8.3, AHD and the Purchaser shall cooperate with each other in good faith
to contest such taxing authority's allocation (or proposed allocation),
provided, however, that, after consultation with the party adversely affected by
such allocation (or proposed allocation), another party hereto may file such
protective claims or returns as may reasonably be required to protect its
interests.
9. Certain Actions After the Closing.
9.1 Purchaser to Act as Agent for AHD. This Agreement shall not
constitute an agreement to assign any contract right included among the Assets
if any attempted assignment of the same without the consent of the other party
thereto would constitute a breach thereof or in any way adversely affect the
rights of AHD thereunder. If such consent is not obtained or if any attempted
assignment would be ineffective or would adversely affect AHD's rights
thereunder so that the Purchaser would not in fact receive all such rights, then
the Purchaser shall act as the agent for AHD in order to obtain for the
Purchaser the benefits thereunder. Nothing herein shall be deemed to make the
Purchaser AHD's agent in respect of the Excluded Assets.
9.2 Delivery of Property Received by AHD, UHS or the Purchaser After
Closing. From and after the Closing, the Purchaser shall have the right and
authority to collect, for the account of the Purchaser, all assets which shall
be transferred or are intended to be transferred to the Purchaser as part of the
Assets as provided in this Agreement, and to endorse with the name of AHD any
checks or drafts received on account of any such assets. AHD agrees that it will
transfer or deliver to the Purchaser, promptly after the receipt thereof, any
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cash or other property which AHD receives after the Closing Date in respect of
any assets transferred or intended to be transferred to the Purchaser as part of
the Assets under this Agreement. In addition, UHS and the Purchaser agree that
they will transfer or deliver to AHD, promptly after receipt thereof, any cash
or other property which UHS or the Purchaser receives after the Closing Date in
respect of any assets not transferred or intended to be transferred to the
Purchaser as part of the Assets under this Agreement.
9.3 Purchaser Appointed Attorney for AHD. AHD, effective at the
Closing Date, hereby constitutes and appoints the Purchaser, its successors and
assigns, the true and lawful attorney of AHD, in the name of either the
Purchaser or AHD (as the Purchaser shall determine in its sole discretion) but
for the benefit of the Purchaser: (i) to institute and prosecute all proceedings
which the Purchaser may deem proper in order to collect, assert or enforce any
claim, right or title of any kind in or to the Assets as provided for in this
Agreement; (ii) to defend or compromise any and all actions, suits or
proceedings in respect of any of the Assets, and to do all such acts and things
in relation thereto as the Purchaser shall deem advisable; and (iii) to take all
action which the Purchaser, its successors or assigns may reasonably deem proper
in order to provide for the Purchaser, its successors or assigns, the benefits
under any of the Assets where any required consent of another party to the sale
or assignment thereof to the Purchaser pursuant to this Agreement shall not have
been obtained. AHD acknowledges that the foregoing powers are coupled with an
interest and shall be irrevocable. The Purchaser shall be entitled to retain for
its own account any amounts collected pursuant to the foregoing powers,
including any amounts payable as interest in respect thereof. The Purchaser
agrees to act in good faith in seeking to collect, assert or enforce any claim
against any third party in accordance with this Section 9.3.
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9.4 Subrogation of the Purchaser. In the event the Purchaser shall
become liable for or suffer any damage with respect to any matter which was
covered by insurance maintained by AHD on or prior to the Closing Date, AHD
agrees that the Purchaser shall be and hereby is, to the extent permitted under
such policies and to the extent consistent with Section 11 hereof, subrogated to
any rights of AHD under such insurance coverage, and, in addition, AHD agrees to
promptly remit to the Purchaser any insurance proceeds which they may receive on
account of any such liability or damage.
9.5 Payment of Liabilities. Following the Closing Date each of the
Purchaser and AHD agrees to discharge in accordance with their terms the Assumed
Liabilities and the Excluded Liabilities, respectively.
10. The Closing.
Assuming the satisfaction or the waiver of satisfaction of the
conditions contained herein, the Closing will take place at the offices of
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York, within ten
(10) business days of the date on which all conditions specified in Sections 6
and 7 hereof have been satisfied or waived, or at such other time and place as
the parties hereto may mutually agree but in no event later than April 30, 1996,
subject to extension at the option of Purchaser for a period not exceeding one
hundred twenty (120) days, in the event all required regulatory approvals have
not been received by such date through no fault of Purchaser despite reasonable
efforts. This date is the "Closing Date."
11. Survival of Representations; Indemnification.
11.1 Survival of Representations, Etc. All representations and
warranties contained in this Agreement shall survive the Closing and shall
remain in full force and effect until the expiration of three years from the
Closing Date, and, thereafter, in any case, to the
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extent a claim is made prior to such expiration with respect to any breach of
such representation or warranty until such claim is finally determined or
settled; provided, however, that (i) the representations and warranties of AHD
contained in Sections 3.15, 3.19, 3.20, 3.21, 3.22, 3.23 and 3.25 hereof, and
the representations and warranties of UHS and the Purchaser contained in Section
4.4 hereof shall remain in full force and effect until the expiration of the
applicable statute of limitations.
11.2 Indemnification by AHD. AHD shall defend and indemnify UHS and
the Purchaser and hold UHS and the Purchaser wholly harmless from and against
any and all losses, liabilities, damages, costs (including, without limitation,
court costs and costs of appeal) and expenses (including, without limitation,
reasonable attorneys' fees) that UHS and the Purchaser incur as a result of, or
with respect to:
(a) any inaccuracy in or breach of any representation or
warranty of AHD contained in this Agreement to the extent UHS and/or the
Purchaser suffer damage by reason of such breach;
(b) except as expressly assumed by the Purchaser under this
Agreement, any claim or cause of action against or liability or obligation
(actual or alleged), of any nature whatsoever of AHD arising out of or relating
to the use or operation of the Facilities or any other business of AHD prior to
the Closing Date, or any act or omission of AHD, or any of its agents,
employees, or officers, occurring prior to the Closing Date, including, without
limitation, any claim or cause of action arising out of or relating to any act
of malpractice occurring prior to or on the Closing Date.
11.3 Indemnification by the Purchaser. The Purchaser shall defend
and indemnify AHD and hold AHD wholly harmless from and against any and all
losses, liabilities,
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damages, costs (including, without limitation, court costs and cost of appeal)
and expenses (including, without limitation, reasonable attorneys' fees) that
AHD incurs as a result of, or with respect to:
(a) any inaccuracy in or breach of any representation,
warranty, covenant or agreement of UHS or the Purchaser contained in this
Agreement to the extent AHD suffers damage by reason of such breach;
(b) any claim, cause of action, liability or obligation (actual
or alleged), of any nature whatsoever of UHS or the Purchaser arising out of or
relating to any act or omission of UHS or the Purchaser, or any of their agents,
employees, or officers, occurring on or after the Closing Date, including,
without limitation, any claim or cause of action arising out of or relating to
any act of malpractice, occurring after the Closing Date.
11.4 Procedure for Indemnification. The following procedure shall
apply with respect to any claims or proceedings covered by the foregoing
agreements to indemnify and hold harmless:
(i) The party who is seeking indemnification (the "Claimant")
shall give written notice to the party from whom indemnification is
sought (the "Indemnitor") promptly after the Claimant learns of the
claim or proceeding but (with respect to breaches of representations
and warranties only) not later than the period after the Closing
Date (if any) specified in Section 11.1 hereof; provided that the
failure to give such notice shall not relieve the Indemnitor of its
obligations hereunder provided the Claimant uses its best efforts to
mitigate damages and except to the extent Indemnitor is actually
damaged thereby.
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(ii) With respect to any third-party claims or proceedings as
to which the Claimant is entitled to indemnification, the Indemnitor
shall have the right to select and employ counsel of its own
choosing to defend against any such claim or proceeding, to assume
control of the defense of such claim or proceeding, and to
compromise, settle or otherwise dispose of the same, if the
Indemnitor deems it advisable to do so, all at the expense of the
Indemnitor; provided, however that the Claimant may employ counsel,
of its own choosing, at its sole expense. The parties will fully
cooperate in any such action, and shall make available to each other
any books or records useful for the defense of any such claim or
proceeding. The Claimant may elect to participate in the defense of
any such third party claim, and may, at its sole expense, retain
separate counsel in connection therewith. Subject to the foregoing
the Claimant shall not settle or compromise any such third party
claim without the prior consent of the Indemnitor, which consent
shall not be unreasonably withheld.
11.5 Limitations on Indemnification Rights. Indemnification shall be
due only to the extent of the loss or damage actually suffered (i.e., reduced by
any offsetting or related asset or service received and by any recovery from any
third party, such as an insurer). No claim for indemnification for breach of any
representation or warranty (but not claims under Section 11.2(b) or 11.3(b)) by
Claimant under this Agreement may be made more than three years after the
Closing Date, except that any claim or breach of the representations or
covenants contained in Sections 3.15, 3.19 3.20, 3.21, 3.22, 3.23, 3.25 and 4.4
may be made within six months of expiration of statute of limitations and unless
and until the aggregate of all claims equals or exceeds $250,000, in which event
the claim may be made for all losses, liabilities,
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damages, costs and expenses.
11.6 Disposition of Recovery. Notwithstanding anything in Section 11
to the contrary, any indemnity in respect of the representations and warranties
provided for in Section 3.6 shall be net of any recovery received, or which
Purchaser subsequently receives, under the title policy referred to in Section
2.8 hereto arising out of or in respect of the matter which is the subject of
the indemnity claim. To the extent Purchaser's right to indemnification from AHD
is not adversely prejudiced, Purchaser at AHD's expense shall diligently seek by
appropriate procedures any recovery to which it is entitled under the title
policy but nothing contained herein shall limit Purchaser's right to proceed
concurrently against AHD for any claims under Section 11. If Purchaser has
previously received from AHD a payment for an indemnity claim hereunder in
respect thereof, Purchaser shall promptly pay over to AHD all such recoveries
received under the title policy (after deducting Purchaser's expenses in
pursuing such claim) up to the amount of the payment made by AHD. If any
recovery under the title policy is paid over to AHD or netted against the
indemnity obligations of AHD legally owing hereunder and such recovery is
subsequently required to be returned to the title company by reason of any
reservation of rights required in connection with the receipt thereof by
Purchaser, AHD shall promptly pay to Purchaser cash in the amount of such
recovery so credited against its indemnity obligations hereunder or otherwise
received by AHD in cash.
12. Entire Agreement; Modification, Waiver.
This Agreement and its Schedules and Exhibits constitute the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
understandings of the parties. No supplement, modification, or amendment of this
Agreement will be binding unless executed in
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writing by all of the parties. No waiver of any of the provisions of this
Agreement will be deemed, or will constitute, a waiver of any other provisions,
whether or not similar, nor will any waiver constitute a continuing waiver. No
waiver will be binding unless executed in writing by the party making the
waiver.
13. Expenses. The parties shall each bear their respective legal,
accounting and other expenses in connection with the transactions contemplated
hereby whether or not the transaction is consummated. Notwithstanding the
foregoing, AHD shall be responsible for all title costs, title insurance (based
on an amount not to exceed the value allocated to the Real Property and
Improvements in the allocation referred to in Section 8.2 hereof), recording
fees, transfer and other taxes and similar closing costs arising from the
transactions contemplated hereby. Each of AHD and Purchaser shall pay one-half
of the cost of the appraisal contemplated by Sections 6.9 and 7.9 hereof.
14. Further Assurances.
The parties from time to time will execute and deliver such
additional documents and instruments and take such additional actions as may be
necessary to carry out the transactions contemplated by the Agreement.
15. Successors and Assigns; Assignment.
This Agreement will be binding on, and inure to the benefit of, the
parties hereto and any and all respective heirs, legal representatives,
successors and assigns. Purchaser may assign all of its rights and obligations
hereunder to an affiliate of UHS.
16. Notices.
All notices, requests, demands and other communications required or
permitted to be given or made under this Agreement will be in writing and will
be delivered personally
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or will be sent postage prepaid by United States registered or certified mail,
return receipt requested or by overnight courier service as follows:
(a) To AHD:
P.O. Box 1110
1501 South Coulter
Amarillo, Texas 79175
Attention: Chairman of the Board
with a copy to:
Ruden, McClosky, Smith, Schuster & Russell, P.A.
701 Brickell Avenue, Suite 1900
Miami, FL 33131
Attention: John S. Schwartz, Esq.
(b) To the Purchaser at:
UHS of Amarillo, Inc.
c/o Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: President
with a copy to:
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: General Counsel
17. Governing Law.
This Agreement will be construed in accordance with, and governed
by, the laws of the State of Texas.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1996.
UHS OF AMARILLO, INC.
By:________________________________________
UNIVERSAL HEALTH SERVICES, INC.
By:________________________________________
AMARILLO HOSPITAL DISTRICT
By:_______________________________________
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EXHIBITS
A - Healthcare Facilities
B - Indigent Care Agreement
C - Confidentiality Obligations
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SCHEDULES
1.1(a) Contracts
1.1(b) Licenses and Permits
1.1(c) Equipment
1.1(d) Leases
1.1(f) Names
1.1(h) Intellectual Property
1.1(j) Application for Certificate of Need
1.2 Other Excluded Assets
3.2 Ownership of Assets
3.6 Description of Real Property
3.8 Trade Names
3.9 Litigation
3.10 Environmental Matters
3.11 Contracts and Contract Defaults
3.12 Employee Plans; Certain Employees
3.13 Insurance Policies
3.16 Professional Staff
3.17 Suppliers
3.18 Licenses
3.19 Taxes
3.24 Related Party Transactions
5.2.3 Core Expenses
5.3.3 List of Facilities Personnel
8.3 Allocation of Purchase Price
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EXHIBIT "A"
NORTHWEST TEXAS HEALTHCARE SYSTEM FACILITIES
1. NORTHWEST TEXAS HOSPITAL 1501 S. Coulter
Built in 1982, 275 licensed beds, 490,862 sq. ft., 5 stories with a tunnel
level, poured concrete structure with brick exterior, construction type
I(332), built-up roof, limited asbestos, limited fire sprinkler system,
automatic fire/smoke detection and alarm system that is monitored 24 hours
by a local security company and by PBX. Also has detached, three level,
parking garage which will park 321 cars.
2. The PAVILLION 7201 Evans (psychiatric hospital)
Built in 1965, 85 licensed beds, 126,190 sq. ft., 2 story, poured concrete
structure with brick exterior, construction type II(332), built-up roof,
limited asbestos, limited fire sprinkler system, automatic fire/smoke
detection and alarm system that is monitored 24 hours by a local security
company and by PBX.
3. KILLGORE 1200 Wallace (leased to Texas Panhandle Mental Health Authority)
Built in 1966, 24 licensed beds, 30,281 sq. ft., 3 buildings attached by
an enclosed walkway, the administrative building is 2 stories with a
basement, the cafeteria and patient room buildings are single story,
poured concrete/steel structure with brick exterior, construction type
II(111), built-up roof, limited asbestos, limited fire sprinkler
system, automatic fire/smoke detection and alarm system that is monitored
24 hours by a local security company.
4. PICKENS CENTER FOR COMMUNITY HEALTH 1300 Wallace (clinic)
Built in 1975, 23,103 sq. ft., single story, steel and brick structure,
built-up roof, limited asbestos, no fire sprinkler system, limited smoke
detection that is tied to a local security company.
5. J. O. WYATT COMMUNITY HEALTH CENTER 1411 Amarillo Blvd. East (clinic)
Built in 1994, 44,576 sq. ft., single story (41,304) with basement
(3,272), steel and brick structure, built-up roof, no asbestos, automatic
sprinkler system, automatic smoke detection system that is monitored 24
hours by a local security company.
6. MEDICAL CENTER PLAZA 1500 S. Coulter (medical office building)
Built in 1983, 21,733 sq. ft., single story (18,533) with basement (3,200),
steel and brick structure, built-up roof, asbestos not determined,
automatic sprinkler system in basement only, automatic smoke detection
system that is monitored 24 hours by a local security comapny.
7. TEMPORARY PARKING LOT 1500 S. Coulter
8. AMS STATION #1 4101 Mockingbird Lane (office and ambulance)
10,300 sq. ft.
9. AMS STATION #2 618 N. Fillmore (vacant)
2,403 sq. ft.
LEASED SPACE
10. W.I.C. (Old Bi-City Health Department Building) 411 S. Austin
14,824 sq. ft.
11. AEROBEX CENTER 7200 SW 45th Space #3
2,376 sq. ft.
12. CANYON CLINIC AT PLANNED PARENTHOOD 1911-F 4th Ave. (Canyon)
13. CLINIC AT WESLEY COMMUNITY CENTER 1615 S. Roberts
14. CLINIC AT NORTH BRANCH LIBRARY 1500 NE 24th Ave.
15. PLAINS STORAGE BUILDING 5119 Plains Blvd.
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EXHIBIT B
INDIGENT CARE AGREEMENT
INDIGENT CARE AGREEMENT (the "Agreement") dated as of _______________,
1996, is between Amarillo Hospital District, a body politic and corporate and a
political subdivision of the State of Texas, established and created pursuant to
Article IX, Section 5(a) of the Texas Constitution (1958) and Chapter 32, Page
59, Acts of the 56th Legislature (1959) (as it has heretofore been and may be
amended, the "Act") ("District"), and UHS of Amarillo, Inc. ("Provider"), a
Texas corporation and a wholly-owned subsidiary of Universal Health Services,
Inc., a Delaware corporation ("UHS").
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of
__________________, 1996, among District, Provider and UHS (the "Purchase
Agreement"), Provider has agreed to purchase substantially all of the assets of
District which relate to Northwest Texas Healthcare System, Amarillo, Texas,
including without limitation Northwest Texas Hospital and the clinics owned or
leased by the District (collectively the "Hospital");
WHEREAS, the conditions to the obligations of District to the Purchase
Agreement to consummate the transactions contemplated thereby include the
execution and delivery of this Agreement by the parties hereto;
WHEREAS, District is obligated to provide, or arrange for provision of,
medical and hospital care for indigent and needy residents of the District;
WHEREAS, District is empowered by Chapter 61 of the Texas Health and
Safety Code (the "Indigent Health Care and Treatment Act") to enter into
contracts relating to or arranging for the provision of such healthcare
services;
WHEREAS, District desires to contract with Provider for the provision
of such healthcare services to indigent and needy persons residing in the
District;
WHEREAS, Provider is willing and able to provide or arrange for the
provision of such services, all under the terms and conditions of this
Agreement;
WHEREAS, District has determined that this Agreement is in the best
interest of District and its residents and is necessary to enable District to
fulfill its obligations to provide or arrange for the provision of healthcare
services to indigent and needy residents of the District;
WHEREAS, as a material inducement to District to enter into this
Agreement and as a condition thereto, UHS is guaranteeing the performance by
Provider of its obligations under this Agreement pursuant to a Guaranty
Agreement dated as of date hereof in favor of District (the "Guaranty
Agreement"), a copy of which is attached hereto.
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NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS
a. Health Care Services. As used in this Agreement, the term "Health
Care Services" shall mean, at any time during the Term, (i)
Medically Necessary hospital services, (ii) Medically Necessary
outpatient services, including diagnostic and therapeutic services
available to all patients of the Provider, whether provided at the
Hospital, a dentist's or physician's office or other setting,
(iii) pharmaceuticals prescribed by a Physician authorized by
Provider to care for Indigents, except that Provider shall not be
required to provide more prescription drugs than a county is
required to provide pursuant to the applicable provisions of the
Texas Indigent Health Care and Treatment Act, as such act is now
or hereafter amended, (iv) pharmaceuticals prescribed in respect
of hospital services; provided, however, that pharmaceuticals
prescribed for use after a patient has been discharged or after
the outpatient hospital service has been rendered are subject to
the limitation set forth in subsection (iii) above, (v) Physician,
Dentist, and allied health professional services that are required
for the diagnosis and treatment of Indigents, whether provided at
the Hospital, a dentist's or physician's office or other setting,
and (vi) prostheses, appliances, and durable medical equipment if
approved by the Indigent's Physician.
b. Indigent. As used in this Agreement, the term "Indigent" shall
mean at any time during the Term a person who, at such time as he
receives Health Care Services, (A)(i) is a resident of the
District (including an alien who is a resident of the District),
(ii) is not a beneficiary of, or has used all funds then available
to him under, the Medicare, Medicaid and/or other government
health programs whether now or hereafter in effect, and is not
eligible to receive payments from other health benefit plans,
including health insurance, that pays for health care services of
the type described herein, (iii) is a member of a family whose
family income (such family income determination to be made based
on the same criteria used by the Department of Health and Human
Services in computing its Poverty Guidelines) is equal to or less
than 150% of the Department of Health and Human Services Poverty
Guidelines, as updated each year and (iv) has resources available
to the household of equity value (exclusive of homestead and
personal items) less than $5,000, or (B)(i) is a District resident
or a person charged with the commission of a crime within the
District who is a prisoner or inmate of a city or county jail
located within the District, provided no other third-party health
care benefits are available, and such person does not have
resources, income or assets that enable him to pay for the Health
Care Services he receives, (ii) is a District resident, who is
eligible according to the income and household resource
requirements listed herein and does not have health benefit plans
as set forth herein, and who may require Medically Necessary
Health Care Services
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at facilities outside of Potter County, or (iii) is judicially
determined to be an Indigent or otherwise entitled to receive
Health Care Services from the District or the Provider at no
charge.
c. Medically Necessary. As used in this Agreement, the terms
"Medically Necessary" shall mean Health Care Services which,
pursuant to the terms and conditions of this Agreement, are
determined by the attending Physician or other medical
professional, as may be appropriate in each case, to be:
i. appropriate and necessary for the symptoms, diagnosis or
treatment of the medical conditions of the Indigent
presenting himself or herself for treatment; and
ii. provided for the diagnosis or direct care and treatment of
the medical condition of the Indigent presenting himself or
herself for treatment; and
iii. not primarily for the convenience of the Indigent, the
Indigent's physician or another provider; and
iv. the appropriate level of service needed to provide safe and
adequate care;
d. Physician and Dentist. As used in this Agreement, the term
"Physician" shall mean, an individual licensed by the State of
Texas to practice medicine within the scope of his or her license;
"Dentist" shall mean, an individual licensed by the State of Texas
to practice dentistry within the scope of his or her license.
These professionals may or may not be under contract with Provider
for the delivery of Health Care Services. Provider may appoint a
"Medical Director" from the licensed Physicians in the community
to help monitor the nature and quality of Health Care Services
rendered to Indigents.
e. Resident. As used in this Agreement, the term "resident" means a
person who has a place of abode (not including a city or county
jail located within Potter County) within the Amarillo Hospital
District or Potter County, Texas, or a person who does not have a
homestead or maintain a place of abode outside the District or
Potter County.
f. Term. As used in this Agreement, the term "Term" shall have the
meaning set forth in Article 7 below.
2. RESPONSIBILITIES OF PROVIDER
a. Provision of Health Care Services. Provider agrees to provide all
Medically Necessary Health Care Services for Indigents during the
Term at no charge to such Indigents except as otherwise provided
herein. The determination of whether an
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individual is an "Indigent" eligible to receive Health Care
Services hereunder shall be made in accordance with Article 6
hereof. Provider may, at its option, charge a minimal access fee
to any Indigent who seeks care at Provider's facilities but whose
conditions do not require Emergency Services, to the extent
permitted by applicable law. District acknowledges that Provider
is not obligated to provide a level of medical and dental benefits
that is in excess of the local community standards of third-party
benefit panels. It is recognized that new treatment and diagnostic
modalities will become available over the Term and these new
services will be made available to the Indigents. Provider also
agrees that the Physician and Dentist component of the provision
of medical and dental benefits is its responsibility. Provider
also recognizes that it may be responsible for payments to other
providers, not under contract, who may have delivered covered
Health Care Services to Indigents. Provider acknowledges that, as
between District and Provider, the District will have no burden
for providing or funding Health Care Services, including without
limitation, medical or dental benefits, other than payments herein
provided to be made by District to Provider.
b. Books and Records.
i. At all times during the Term, Provider shall cause accurate
books and records of account and medical records to be
maintained as are necessary to permit the verification by
District of the Health Care Services provided by Provider to
Indigents.
ii. The Provider will also deliver to the District a written
report detailing the volume of Health Care Services delivered
to Indigents covered by this Agreement on an annual basis,
within ninety (90) days following each anniversary date of
the commencement date of this Agreement. The minimum
information required in such report will include the amount
of charges incurred by Indigents for hospital services,
outpatient services, physician and dentist services and
payments for care rendered outside of the facilities owned by
Provider. In addition to the financial resources expended for
Indigents, a statistical report of the number of outpatient
visits, surgery cases, days of hospitalization, births, home
health visits, and any other health care indicators compiled
by the Provider in the normal course of business will also be
submitted to the District on an annual basis, within ninety
(90) days following each anniversary date of the commencement
date of this Agreement.
iii. District shall have the right, at District's expense, to
inspect, examine, and copy, to the extent permitted by
applicable law, such portion of the books, records, files,
and other documents maintained by Provider, other than books,
records, files and other documents that constitute
confidential, proprietary information of Hospital or are
patient records protected from disclosure by
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law, as are reasonably necessary for District to verify the
matters listed in Section 2.(b)(i) and (ii) above.
iv. District agrees that the information which will be made
available to District, its officers, employees and agents
(collectively, "Agents") pursuant to Section 2.(b) is of a
confidential and proprietary nature. District agrees that it
will use its reasonable best efforts, subject to applicable
law, to cause its Agents to maintain the confidentiality of
all such information. District further agrees that District
will not, and will use its reasonable best efforts to cause
its Agents not to, use any such information in any way to
compete with or to permit others to compete with Provider or
its affiliates, successors or assigns or in a manner which
would be detrimental to the business, financial affairs or
reputation of Provider or Provider's officers and affiliates
and their successors and assigns. District for itself and its
Agents recognizes that any breach of this Section would
result in irreparable harm to Provider and Provider's
officers and affiliates and that therefore Provider or any of
Provider's officers and affiliates shall be entitled to an
injunction to prohibit any such breach by District or its
Agents in addition to all other legal and equitable remedies
available to them. Nothing in this Section shall prohibit the
use of such confidential information for such governmental
filings as are required by law or governmental regulations or
the disclosure of such confidential information if such
disclosure is compelled by judicial or administrative process
or, in the opinion of District's counsel, other requirements
of law.
c. Hospital License. Provider shall use its reasonable best efforts
to keep the Hospital appropriately licensed by the State of Texas
for the provision of inpatient and outpatient services, including
emergency room services, throughout the Term. Provider shall
provide District with formal documentation of its licenses to
provide Health Care Services at the Hospital and all renewals
thereof issued by the State of Texas and shall promptly notify
District of any modification, nonrenewal, revocation or suspension
thereof.
d. Insurance. During the Term, Provider shall, at its sole cost and
expense, procure and maintain policies of insurance and/or provide
and maintain self-insurance insuring against comprehensive general
liability and professional liability for damages directly or
indirectly related to the performance of any service provided
hereunder, and the use of any property and facilities provided by
Provider in connection with this Agreement, in such amounts, on
such terms and with such deductibles as are then commonly
maintained by providers with facilities and operations similar to
those of Provider. Upon District's request from time to time,
Provider will furnish District with certificates evidencing such
insurance and/or self-insurance; and Provider shall promptly
advise District of any change in the insurance and/or
self-insurance maintained by Provider.
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e. Non-Discrimination. Provider shall not discriminate in the
provision of Health Care Services to any person on the basis of
such person's status as an Indigent. Provider shall require any
subcontractor that provides Health Care Services to include in its
subcontract with Provider (i) a nondiscrimination clause similar
to the language contained in this Section 2(e) and (ii) a covenant
to include such a clause in any subcontract between such
subcontractor and any of its subcontractors that provide Health
Care Services.
f. Regulatory Requirements. Provider will operate the Hospital at all
times in compliance with federal, state and local law, rules and
regulations, and all accepted and approved methods and practices
of medicine for Health Care Services rendered to Indigents.
g. Medicare and Medicaid Participation. Provider will use its best
efforts to cause Hospital to be qualified for participation in
Medicare and Medicaid programs and any successor programs and will
maintain such qualifications throughout the Term.
h. Hospital Accreditation. Provider will use its best efforts to
cause the Hospital to maintain its accreditation as a general
hospital by the Joint Commission on Accreditation of Healthcare
Organizations, and any successor organizations.
3. REPRESENTATIONS AND WARRANTIES OF PROVIDER
As of the date hereof, Provider represents and warrants to District the
following:
a. Capacity. Provider is a corporation duly organize and validly
existing under the laws of the State of Texas with all requisite
corporate power and authority to own, operate and lease its
properties and to carry on its businesses as now being conducted.
b. Authorization: Absence of Conflicts; Contract Binding.
i. The execution, delivery and performance by Provider of this
Agreement:
(1) are within Provider's corporate powers, are not in
contravention of the terms of Provider's Articles of
Incorporation, Bylaws or any amendments thereto and have
been duly authorized and approved by the board of
directors and shareholder of Provider as and to the
extent required by Provider's Articles of Incorporation
and Bylaws and applicable law; and
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(2) (A) will not result in any breach of any indenture,
agreement, lease or instrument to which Provider is a
party or by which Provider or its assets is bound, (B)
will not constitute a violation of any judgment, decree
or order of any court of competent jurisdiction
applicable to Provider, (C) will not violate any law,
rule or regulation of any governmental authority
applicable to Provider or it assets and (D) will not
require any consent, approval or authorization of, or
notice to, or declaration, filing or registration with,
any governmental or regulatory authority.
ii. This Agreement has been duly and validly executed and
delivered by Provider and constitutes the valid, legal and
binding obligation of Provider, enforceable against Provider
in accordance with its terms.
4. PAYMENT OBLIGATIONS OF DISTRICT
a. District shall pay to Provider the following amounts, as adjusted
below, in cash during each of the 12 month periods following
commencement of the Term:
Amount Period
------ ------
$8,000,000 First 12 months
$8,000,000 Second 12 months
$8,000,000 Third 12 months
$8,000,000 Fourth 12 months
$6,000,000 Each of the succeeding 12 months through the
25th (or 40th if Provider option under
paragraph 7(b) is exercised) 12-month period
following the Closing Date.
b. Payments shall be made on a quarterly basis (each a "Quarterly
Payment") commencing on [May __ - 90 days from commencement of
Term], 1996, and the [__] day of [August] [November] and
[February] thereafter.
c. i. Quarterly Payments made through [February __], 1999, shall
not be adjusted.
ii. Thereafter, through the Quarterly Payment payable on
[February __], 2006, the Quarterly payments will be adjusted as
follows:
(1) For purposes of this paragraph 4.3, the following terms
shall be defined as set forth below:
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(A) "Index" shall mean the Consumer Price Index for
Urban ----- Consumers Unadjusted (All Items)
(1982/84 = 100), issued by the Bureau of Labor
Statistics of the U.S. Department of Labor. If the
Index shall be discontinued with no comparable
successor Index, the parties shall attempt in good
faith to agree upon a substitute formula. If the
parties are unable to agree upon a substitute
formula, then the matter shall be determined by
arbitration in accordance with the then prevailing
rules of the American Arbitration Association, and
judgment upon the award rendered shall be final and
binding upon the parties, and may be entered in any
court of competent jurisdiction.
(B) "Base Index" means (a) the Index for the most
recent month published prior to [February __], 1998
and (b) if Provider elects to exercise the
Extension Option under paragraph 7(b), the Index
for the most recent month published prior to
[February __], 2015;
(C) "Adjustment Date" means [February __], 1999 and
each subsequent [February __] through [February
__], 2005 and, if Provider elects to exercise the
Extension Option under paragraph 7(b), each
[February __] commencing [February __], 2016 and
ending [February __], 2020;
(D) "Adjustment Year" means the period from each
Adjustment Date to [February __] of the following
calendar year; and
(E) "Initial CPI Factor" shall mean a fraction whose
denominator is equal to the Base Index and whose
numerator is equal to the Index for the most recent
month published prior to the then current
Adjustment Date.
(F) "Subsequent CPI Factor" shall mean a fraction whose
denominator is equal to the Index for the most
recent month published prior to February 2015 and
whose numerator is equal to the Index for the most
recent month published prior to the then current
Adjustment Date.
(2) On each Adjustment Date through [February __], 2005, the
subsequent four Quarterly Payments payable by AHD shall
be increased or decreased to an amount equal to the
product obtained by
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multiplying the Initial CPI Factor by the amount of (i)
$2,000,000 in the case of the first Adjustment Date and
(ii) $1,500,000 in the case of each subsequent
Adjustment Date.
(3) Commencing with the Quarterly Payment payable on [May
__], 2006 through the Quarterly Payment payable on
[February __], 2021 (assuming Provider does not exercise
its option under paragraph 7(b), each Quarterly Payment
shall be in an amount equal to the lesser of the
Quarterly Payments paid to Provider by District in the
Adjustment Year ending [February __], 2005 or the
Adjustment Year ending [February __], 2006. Schedule A
attached hereto is an example setting forth the amounts
payable by District to Provider pursuant to paragraphs
4.b and 4.c assuming that there is an annual increase of
3% in the Initial CPI Factor for each of the Adjustment
Years ending [February __], 2000 through [February __],
2006 and assuming Provider does not elect to exercise
its option under paragraph 7(b).
(4) In the event Provider exercises its option pursuant to
paragraph 7(b), then on each Adjustment Date, commencing
[February __], 2016 through the Adjustment Date on
[February __], 2020, the subsequent four Quarterly
Payments payable by District to Provider shall be
increased or decreased to an amount equal to the product
obtained by multiplying the Subsequent CPI Factor by the
amount of the Quarterly Payments payable during the
Adjustment Year ending [February __], 2016. Commencing
with the Quarterly Payment payable on [May __], 2021,
through the Quarterly Payment payable on [February __],
2036, each Quarterly Payment shall be in an amount equal
to the Quarterly Payments paid to Provider by District
in the Adjustment Year ending [February __], 2021.
Schedule B attached hereto is an example setting forth
the amounts payable by District to Provider for the
Adjustment Years ending [February __], 2017 through
[February __], 2036, assuming that there is an annual
increase of 3% in the Subsequent CPI Factor for each of
the Adjustment Years ending [February __], 2018 through
[February __], 2022 and assuming Provider elects to
exercise the Extension Option under paragraph 7(b).
d. Although the District shall be under no legal obligation to
adjust the amounts payable to Provider during the period
commencing ________, 2006 through the expiration of the Term
except for the period commencing [February __], 2016 if
Provider elects to exercise the Extension Option under
paragraph 7(b) below, District will consider the possibility
of extending inflationary protection with respect to
quarterly payments due on and after [February __], 2006
hereunder.
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5. REPRESENTATIONS AND WARRANTIES OF DISTRICT
As of the date hereof, District represents and warrants to Provider the
following:
a. Capacity. District is a body politic and corporate and a political
subdivision of the State of Texas, duly established and created
pursuant to the Act with all requisite power and authority to own,
operate and lease its properties and to carry on its businesses as
now being conducted.
b. Authorization; Absence of Conflicts; Contract Binding.
i. The execution, delivery and, subject to receipt of any
required governmental approvals and compliance with other
requirements of law, performance by District of this
Agreement:
(1) are within District's powers, are not in contravention
of the terms of the Act and any other instruments
governing District (collectively, the "District
Documentation") and have been duly authorized and
approved by the Board of Managers of District; and
(2) (A) will not result in any breach of any indenture,
agreement, lease or instrument to which District is a
party or by which District or any of its assets is
bound, (B) will not constitute a violation of any
judgment, decree or order of any court of competent
jurisdiction applicable to District, (C) will not
violate any law, rule or regulation of any governmental
authority applicable to District or any of its assets,
and (D) will not require any consent, approval or
authorization of, or notice to, or declaration, filing
or registration with, any governmental or regulatory
authority.
ii. This Agreement has been duly and validly approved, executed
and delivered by District and , subject to receipt of any
required governmental approvals and compliance with other
requirements of law, constitutes the valid, legal and binding
obligation of District, enforceable against District in
accordance with its term.
6. INDIGENT CERTIFICATION PROCESS
a. Certification Procedures. Provider shall take such steps and make
such inquiries as Provider reasonably determines are appropriate
to timely determine whether a person
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requesting or requiring Medically Necessary Health Care Services
is an Indigent, to enable Provider to satisfy its obligations
hereunder without delay.
b. Review of Certification. District shall have the right to inspect,
examine and copy the books, records, files and other documents
maintained by Provider as are necessary for District to determine
the procedures utilized by Provider in determining the status of
persons as Indigent and to determine the eligibility of any person
as an Indigent. Based upon such review, District shall have the
right to object in writing to Provider's determination or method
of determination of Indigent status to one or more persons. Any
such notice shall state the basis of District's objection. Within
30 days of receipt of such notice, Provider shall comply with the
objections contained in the District's notice until such time as
Provider shall respond in writing to District setting forth in
detail the basis upon which Provider believes its determination or
method of determination of Indigent status is appropriate.
c. Right of Review. Any person who believes that he meets the
criteria hereunder as an Indigent but is not determined by
Provider to be an Indigent or any person who is determined by
Provider to be an Indigent but believes that he has been denied
Medically Necessary Health Care Services shall be afforded the
right by Provider to present to Provider for Provider's review and
consideration such evidence and testimony as such person believes
to be relevant to demonstrate that such person is an Indigent or
that such denied services are Medically Necessary Health Care
Services. Provider shall advise each person who is initially
determined not to be Indigent or is initially denied Medically
Necessary Health Care Services of his right to Provider's review
of such initial determination.
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7. TERM AND TERMINATION
a. Term. This Agreement is for a Term of twenty five (25) years, and
shall be in force from the date of this Agreement until
___________, 2021. Not less than six (6) months prior to the
expiration of the Term the parties shall commence discussions in
good faith regarding extension, modification or replacement of
this Agreement; provided, however, that neither party shall be
obligated to extend, modify or replace this Agreement. Provider
acknowledges and agrees that during and subsequent to the Term and
for so long thereafter as Provider operates the Hospital, Provider
shall be obligated to provide care and treatment to indigent
persons in compliance with all applicable state and federal laws
and regulations binding on Provider or the Hospital.
b. Any provision hereof to the contrary notwithstanding, Provider
shall have the option during the period commencing ___________,
2015 and ending on _____________, 2016 (being Year 20 of this
Agreement) to extend the Term of this Agreement by fifteen (15)
years to ______________, 2036 by written notice to District (the
"Extension Option"). If the Extension Option is exercised, the
additional fifteen (15) year period shall be included in the
definition of "Term" hereunder.
c. Termination. This Agreement may be terminated for cause at any
time during the Term upon ninety (90) calender days prior written
notice to the other party if the party to whom such notice is
given has materially breached or otherwise failed to fulfill its
obligations hereunder, including the failure to fulfill any
obligation which is found to be unenforceable. The party claiming
the right to terminate shall set forth in the notice the facts
underlying its claim that the other party is in material breach or
non-fulfillment of this Agreement and shall expressly state that
the notice constitutes a termination notice under this Section
7.b. Should the alleged breach or non- fulfillment be remedied
within said 90-day period (or, if such breach or non-fulfillment
cannot be cured within such 90-day period but remedial efforts
shall be commenced within such period and diligently pursued, the
cure period shall be extended for an additional period as may be
necessary to cure such breach or non-fulfillment; however, in no
event such breaching or non-fulfilling party have more than 120
days to cure such breach), the Agreement shall continue without
interruption for the remaining Term. If Provider shall breach this
Agreement by failure to provide Health Care Services to any one or
more Indigents, then District shall have the right to withhold
such portion of the payments due Provider under Section 4 as are
equal to the charges for the Health Care Services failed to be
provided by Provider.
d. Survival. All accrued but unperformed obligations of either party
shall survive termination or expiration of this Agreement. All
rights and obligations of either party for indemnification
hereunder arising out of or in connection with matters occurring
within the Term shall survive the termination or expiration of
this Agreement.
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8. RELATIONSHIP BETWEEN THE PARTIES
a. District and Provider. The relationship between District and
Provider is a contractual relationship between independent
contractors. Neither is an agent or employee of the other. Nothing
herein shall preclude District from contracting with any other
health care provider to provide health care services to Indigents.
b. Provider and Indigent. The relationship between Provider and any
Indigent is that of health care facility and patient. District
agrees that it shall not interfere with the independent
professional judgment of Provider and Provider's employees,
agents, affiliates, associates or independent contractors, nor
interfere with the relationships between any physician practicing
at the Hospital and any patient of any such physician, and between
any such physician and the Hospital.
c. Indemnification. Provider agrees to indemnify and hold District
harmless from and against all claims, actions and proceedings (i)
arising out of or in connection with any breach or nonperformance
of any representation, covenant or agreement by Provider
hereunder, (ii) made by any person alleging entitlement to Health
Care Services or that Health Care Services were denied or
improperly rendered, or (iii) by any Physician, Dentist, other
provider or payor alleging denial of payment for HealthCare
Services. The following procedure shall apply with respect to any
claims or proceedings covered by the foregoing agreement to
indemnify and hold harmless:
i. District shall give written notice to Provider promptly after
District learns of the claim or proceeding; provided that the
failure to give such notice shall not relieve Provider of its
obligations hereunder provided District uses its best efforts
to mitigate damages and except to the extent Provider is
actually damaged thereby;
ii. With respect to any third-party claims or proceedings as to
which District is entitled to indemnification, Provider shall
have the right to select and employ counsel of its own
choosing to defend against any such claim or proceeding, to
assume control of the defense of such claim or proceeding,
and to compromise, settle or otherwise dispose of the same,
if Provider deems it advisable to do so, all at the expense
of Provider; provided, however that District may employ
counsel, of its own choosing, at its sole expense. The
parties will fully cooperate in any such action, and shall
make available to each other any books or records useful for
the defense of any such claim or proceeding. District may
elect to participate in the defense of any such third- party
claim, and may, at its sole expense, retain separate counsel
in connection therewith. Subject to the foregoing District
shall not settle or compromise
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any such third-party claim without the prior consent of
Provider, which consent shall not be unreasonably withheld.
Indemnification shall be due only to the extent of the loss or
damage actually suffered (i.e. reduced by any offsetting or
related asset or service received and by any recovery from any
third party, such as an insurer).
9. MISCELLANEOUS
a. Duty to Cooperate. The parties acknowledge that the parties'
mutual cooperation is critical to the ability of Provider to
perform its duties hereunder. Without in any way limiting the
foregoing, District agrees that it will, subject to the
limitations hereinafter provided, use its reasonable best efforts
to assist Provider in receiving the benefit of any federal, state,
county or other public funds for the provision of care to
Indigents and others which may be available only to public
entities such as District and not directly to entities such as
Provider (other than funds that are received by District for
specific functions which are not provided by Provider), including
(i) entering into an arrangement to act as a conduit for funds to
be transferred between Provider and District and/or District and
any public funding entity or (ii) transferring any such funds
District may receive in the future for the provision of care to
Indigents and others in the District to Provider; provided, that
District shall not be obligated to undertake any such action if
(a) by reason thereof District is required to transfer to Provider
an amount greater than the amount received by District from any
public funding entity, or (b) such action in any manner would be
illegal or in breach of any empowerment or obligation of District
created by the Texas State Legislature or the Constitution of the
State of Texas. In the event that the Hospital, Provider or its
affiliates which provide services to or on behalf of the Hospital
("Affiliates") receives funds from any governmental source as a
direct consequence of payments made by District to others pursuant
to any law, contract or arrangement binding on District or
requested of District by Provider (without which payments Hospital
Provider or Affiliates would not have received such funds),
Provider will promptly reimburse District within thirty days of
Provider's receipt of such funds the amounts so paid by District,
not to exceed the amount of such funds so received by Provider.
b. Arms' Length Transaction. District and Provider acknowledge and
agree that all amounts payable to Provider under this Agreement
represent amounts negotiated between the parties in arms' length
negotiations.
c. Severability. Each provision of this Agreement is intended to be
severable. If any term or provision hereof shall be determined by
a court of competent jurisdiction to
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100
d. be illegal or invalid for any reason whatsoever, such provision
shall be severed from this Agreement and shall not affect the
validity of remainder of this Agreement.
e. Waiver: Consents. No consent or waiver, express or implied, by
either party hereto or of any breach or default by the other party
in the performance by the other of its obligations hereunder shall
be valid unless in writing, and no such consent or waiver shall be
deemed or construed to be a consent or waiver to or of any other
breach or default in the performance by such other party of the
same or any other obligations of such party hereunder. Failure on
the part of either party to complain of any act or failure to act
of the other party or to declare the other party in default,
irrespective of how long such failure continues, shall not
constitute a waiver by such party of its rights hereunder. The
granting of any consent or approval in any other instance by or on
behalf of any party hereto shall not be construed to waive or
limit the need for such consent in any other or subsequent
instance.
f. Governing Law. This Agreement shall be governed by the laws of the
State of Texas.
g. Force Majeure. Each party shall be excused for failures and delays
in performance of its respective obligations under this Agreement
due to any cause beyond the control and without the fault of such
party, including without limitation, any act of God, war, riot or
insurrection, law or regulation, strike, flood, fire, explosion or
inability due to any of the aforementioned causes to obtain
necessary labor, materials or facilities. This provision shall
not, however, release such party from using its best efforts to
avoid or remove such cause and such party shall continue
performance hereunder with the utmost dispatch whenever such
causes are removed. Upon claiming any such excuse or delay for
non-performance, such party shall give prompt written notice
thereof to the other party, provided that failure to give such
notice shall not in any way limit the operation of this provision.
h. Remedies. All rights, powers and remedies granted to either party
by any particular term of Agreement are in addition to, and not in
limitation of, any rights, powers or remedies which it has under
any other term of this Agreement, at common law, in equity, by
statute, or otherwise. All such rights, powers and remedies may be
exercised separately or concurrently, in such order and as often
as may be deemed expedient by either party. No delay or omission
by either party to exercise any right, power or remedy shall
impair such right, power or remedy or be construed to be a waiver
of or an acquiescence to any breach or default. A waiver by either
party of any breach or default hereunder shall not constitute a
waiver of any subsequent breach or default.
i. Law Change. Any provision hereof to the contrary notwithstanding,
if any constitutional provision, statute, rule, regulation or
order binding on the District shall at any time be adopted,
promulgated or issued that determines the health care services a
hospital district is required to render, the requirements a
resident must meet to qualify for services, or any other
provisions relating to the District's responsibility for
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the provision of healthcare to Indigents, then such constitutional
provision, statute, rule, regulation or order shall supplement
this Agreement and binding on the Provider, without thereby
relieving Provider of any contractual duty required of it
hereunder.
j. Government Access. Upon the written request of the Secretary of
Health and Human Services or the Comptroller General or any of
their duly authorized representatives, Provider will make
available those contracts, books, documents, and records necessary
to verify the nature and extent of the costs of providing services
under this Agreement. Such inspection shall be available up to
four (4) years after the rendering of such services. If Provider
carries out any of the duties of this Agreement through a
subcontract with a value of $10,000 or more over a 12-month period
with a related individual or organization, Provider agrees to
include this requirement in any such subcontract. This Section is
included pursuant to and is governed by the requirements of Public
Law 96-499, Sec. 952 (Sec. 1861(v) (1) (I) of the Social Security
Act) and the regulations promulgated thereunder. No
attorney-client, accountant-client or other legal privilege will
be deemed to have been waived by any party hereto by virtue of
this Agreement.
k. Assignment. No party hereto shall have the right to assign or
delegate this Agreement, or any portion hereof, without the prior
written approval of the other party; provided, however, that (i)
in the event of the dissolution of the District, the District may
assign and delegate all of its rights and duties hereunder to any
successor authorized by law or to the City of Amarillo or to the
County of Potter, without such prior written consent of Provider,
(ii) Provider may assign and delegate all of its rights and duties
hereunder to any entity which acquires the Hospital, whether by
purchase, lease, management agreement or otherwise, without the
prior written consent of District, if the acquiring entity is a
Qualified Transferee (as defined below), or performance of this
Agreement by the acquiring entity is unconditionally guaranteed by
a Qualified Transferee, whereupon Provider and UHS shall be
released from further obligation, duty or liability hereunder or
pursuant to the Guaranty Agreement, and (iii) Provider may assign
and delegate all its rights and duties hereunder to any entity as
part of a transaction by which such entity acquires all or
substantially all of the assets of UHS. The term "Qualified
Transferee" means an entity which either directly or through one
or more wholly-owned subsidiaries (i) has operating management
with experience for at least the five-year period immediately
preceding the assignment of this Agreement in the ownership and/or
leasing and management or operation of one or more hospitals
having in the aggregate not less than one thousand (1,000)
licensed acute care beds and (ii) having as of its most recent
fiscal year end prior to the assignment of this Agreement net
equity of not less than $25,000,000 according to its audited
financial statements, a copy of which shall be delivered by
Provider to District not less than thirty days prior to the
assignment of this Agreement. This Section shall not prohibit
Provider from entering into subcontracts with other health care
and health services providers for the provision of any services to
be provided by Provider hereunder.
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l. Successor in Interest. All of the rights, benefits, duties,
liabilities, and obligations of the parties hereto shall inure to
the benefit of and be binding upon the parties and all successors
and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this
Agreement or any provisions of this Agreement; this Agreement and
conditions and provisions hereof being intended to be and being
for the sole exclusive benefit of the parties hereto, their
permitted successors and assigns and for the benefit of no other
person.
m. Modification of Agreement. This Agreement constitutes the entire
agreement between the parties hereto relating to the subject
matter of this Agreement. To be effective any modification of this
Agreement must be in writing and signed by the party to be charged
thereby.
n. Headings. The headings of the Sections and Articles of this
Agreement are inserted for convenience of reference only and shall
not in any manner affect the construction or meaning of anything
herein contained or govern the rights or liabilities of the
parties hereto.
o. Notices. All notices, requests, and communications required or
permitted hereunder shall be in writing and shall be sufficiently
given and deemed to have been received upon personal delivery or
delivery by overnight courier or, if mailed, upon the first to
occur of actual receipt or seventy-two (72) hours after being
placed in the United States mail, postage prepaid, registered or
certified mail, receipt requested, addressed to the parties as
follows:
- 17 -
103
AHD:
Board of Managers
Amarillo Hospital District
c/o Northwest Texas Healthcare System
P.O. Box 1110
1501 S. Coulter
Amarillo, Texas 79175
Attention: Chairman of the Board
with a copy to:
Ruden, McClosky, Smith, Schuster & Russell, P.A.
701 Brickell Avenue, Suite 1900
Miami, Florida 3311
Attention: John S. Schwartz, Esq.
Purchaser:
UHS of Amarillo, Inc.
c/o Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: President
with a copy to:
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Notice of a change in address of one of the parties shall be given in writing to
the other party as provided above, but shall be effective only upon actual
receipt.
p. Nondiscrimination. District and Provider will not discriminate on
the basis of race, sex, age, religion, national origin, or
handicap in providing services under this Agreement or in the
selection of employees or independent contractors.
q. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be one and the same
instrument.
- 18 -
104
r. Non-Exclusive Arrangement. This Agreement shall not require
District to use the services and facilities provided by Provider
as the exclusive source of Health Care Services for Indigents, nor
shall Provider be prohibited hereunder from contracting with other
governmental entities for the provision of services and facilities
to persons for whom such governmental entities are responsible.
s. Expenses. If either party hereto fails to pay or perform its
obligations hereunder, and if the other party hereto obtains the
services of an attorney for enforcement of such obligations and
suit is filed to enforce such obligations, or if proceedings are
had in any bankruptcy, probate, receivership or other judicial
proceedings for the establishment or enforcement of such
obligations, or if any amount owing by either party hereunder is
collected through such proceedings, the parties agree that the
losing party shall pay the prevailing party's reasonable
attorneys' fees and expenses in connection with such matter.
IN WITNESS WHEREOF, the parties have hereunto set their hand as of the
day and year first above written.
PROVIDER:
UHS OF AMARILLO, INC.
By:_________________________________
Title:______________________________
DISTRICT:
AMARILLO HOSPITAL DISTRICT
By:_________________________________
Title: Chairman, Board of Managers
This Agreement shall not be effective until the date of the closing of the Asset
Purchase Agreement, the date of this Agreement shall be the date of the closing
of the Asset Purchase Agreement and the bracketed or undated references shall be
based on the date of closing of the Asset Purchase Agreement.
- 19 -
105
GUARANTY AGREEMENT
OF INDIGENT CARE AGREEMENT
This Guaranty Agreement ("Guaranty") dated as of ______________, 1996,
is made by Universal Health Services, Inc., a Delaware corporation ("Guarantor")
in favor of Amarillo Hospital District ("AHD").
WHEREAS, UHS of Amarillo, Inc. ("Purchaser") and AHD have entered into
that certain Asset Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") (all capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Purchase Agreement); and
WHEREAS, pursuant to the provisions of the Purchase Agreement,
Purchaser and AHD have entered into that certain Indigent Care Agreement dated
as of the date hereof (the "Indigent Care Agreement") for provision of medical
and hospital care for indigent and needy residents of AHD; and
WHEREAS, Guarantor is the ultimate parent entity of the Purchaser; and
WHEREAS, as inducement for AHD to enter into the Purchase Agreement and
as a condition of the Closing of the transactions thereunder, Guarantor has
agreed to guarantee to AHD the performance of Purchaser's agreements, covenants
and obligations, under the Indigent Care Agreement; and
WHEREAS, Guarantor desires to execute and deliver this Guaranty as an
inducement for AHD to execute, deliver and perform its obligations under the
Purchase Agreement and the Indigent Care Agreement.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged and confessed, Guarantor hereby agrees as follows:
1. Subject to the limitations herein set forth, Guarantor hereby
unconditionally guarantees all agreements, covenants and obligations of the
Purchaser under the Indigent Care Agreement (collectively, the "Guaranteed
Obligations").
2. This Guaranty is an absolute, present and continuing guaranty of
performance and is in no way conditioned or contingent upon any attempt to first
seek remedies from Purchaser for the Guaranteed Obligations. The obligation of
Guarantor hereunder is subject to the right of Guarantor to assert any defense
available to the Purchaser under the Indigent Care Agreement other than the
bankruptcy, insolvency or dissolution of the Purchaser but shall not be affected
or released by the merger or consolidation of Purchaser or Guarantor into or
with any other corporation or by any action, failure or omission on the part of
AHD to enforce any right or remedy which it may have hereunder, under the
Purchase Agreement or the Indigent Care Agreement or by any indulgence or
106
extension to, or waiver or acquiescence in any default by, Purchaser or any
corporation successor to it or any corporation which shall have assumed the
obligations of Purchaser under the Purchase Agreement and/or the Indigent Care
Agreement, or by any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceedings by Purchaser.
Without limiting the generality of the foregoing, this Guaranty shall not be
affected, modified or impaired upon the happening from time to time of any of
the following, whether or not with notice to or the consent of Guarantor:
(a) the failure to give notice to the Guarantor of the occurrence of
a default under the terms and provisions of this Guaranty, the Purchase
Agreement or the Indigent Care Agreement, except as otherwise provided therein;
(b) the waiver or the payment, performance or observance by AHD of
any of the obligations, covenants, or agreements of Purchaser contained in the
Purchase Agreement or the Indigent Care Agreement;
(c) the extension of the time for performance of any obligations,
covenants or agreements under or arising out of the Purchase Agreement, this
Guaranty or the Indigent Care Agreement, or the extension or the renewal of any
thereof;
(d) the modification or amendment (whether material or otherwise) of
any obligation, covenant or agreement set forth in the Purchase Agreement or the
Indigent Care Agreement;
(e) the taking or the omission of any of the actions referred to in
the Purchase Agreement, this Guaranty or the Indigent Care Agreement; or
(f) any failure, omission, delay or lack on the part of AHD to
enforce, assert or exercise any right, power or remedy conferred on AHD in this
Guaranty, the Purchase Agreement or the Indigent Care Agreement or any other act
or acts on the part of AHD.
3. Notwithstanding anything contained in this Guaranty to the contrary,
upon the occurrence of any of the following events, Guarantor shall be released
from the Guaranteed Obligations hereunder:
(a) Purchaser's assignment and delegation of all its rights and
duties under the Indigent Care Agreement to a "Qualified Transferee," as such
term is defined in the Indigent Care Agreement;
(b) Purchaser's assignment and delegation of all its rights and
duties under the Indigent Care Agreement, with the prior written approval of
AHD, to an entity who is not a Qualified Transferee (as that term is defined in
the Indigent Care Agreement); or
2
107
(c) Purchaser's determination to cease operations of the Hospital
(as that term is defined in the Indigent Care Agreement) which would entitle AHD
to re-take title to the Facilities pursuant its right of re-entry granted to AHD
under the Covenants and Restrictions dated as of the date hereof and recorded in
Official Records Book ______, Page _____ of the Official Records of Potter
County, Texas, a copy of which is attached hereto.
4. This Agreement shall bind the successors and assigns of Guarantor,
including any corporation with or into which Guarantor may be consolidated or
merged or any corporation or entity to which it may convey or otherwise transfer
substantially all of its assets and interests (provided that, unless otherwise
provided in this Guaranty, no such conveyance or transfer shall have the affect
of releasing Guarantor ), and shall inure to the benefit of AHD, its successors
and assigns.
5. Guarantor hereby represents and warrants that it has full power and
authority and has taken all necessary corporate action to enter into and be
bound by the terms and conditions of this Guaranty.
6. All notices, requests and other communications hereunder shall be in
writing and shall be given to the party to whom sent, addressed to it as
follows:
AHD: Board of Managers
Amarillo Hospital District
c/o Northwest Texas Healthcare System
1501 S. Coulter
Amarillo, Texas 79175
Attention: Chairman of the Board
with a copy to: Ruden, McClosky, Smith, Schuster & Russell, P.A.
701 Brickell Avenue, Suite 1900
Miami, Florida 33131
Attention: John S. Schwartz, Esq.
Guarantor: Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: President
3
108
with a copy to: Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: General Counsel
AHD and the Guarantor may designate a different address to which such notices
should be sent by giving the other written notice thereof. Each such notice,
request or communication shall be effective when received by telefax or other
electronic means or overnight courier, or by registered or certified mail,
return receipt requested, addressed as aforesaid or, if given by any other
means, when delivered at the address of the party to whom such notice is being
delivered.
7. The Guarantor agrees that any legal action or proceeding with
respect to this Guaranty or to enforce any judgment obtained against the
Guarantor in connection with this Guaranty may be brought by AHD in the court of
the State of Texas or in the United States District Courts which are located in
the County of Potter, Texas, or any other court to the jurisdiction of which the
Guarantor or any of their respective properties is or may be subject.
8. This Guaranty may be amended, and the Guarantor may take any action
herein prohibited, or omit to perform any act herein required to be performed,
only if the Guarantor shall first obtain the written consent of AHD thereto. No
course of dealing between the Guarantor and AHD nor any delay in exercising any
rights hereunder, shall operate as a waiver of any rights of AHD hereunder.
9. Any provision of this Guaranty which is prohibited, unenforceable or
not authorized shall be fully severable and this Guaranty shall be construed and
enforced as if such prohibited, unenforceable, or unauthorized provision had
never comprised a part hereof.
10. This Guaranty is intended to be performed in the State of Texas,
and shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Texas.
11. This Guaranty constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
4
109
IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this
Guaranty, or caused same to be duly executed and delivered as of the date first
set above.
UNIVERSAL HEALTH SERVICES, INC.
By:____________________________________
Name:__________________________________
Its:___________________________________
5
110
SCHEDULE A
===========================================================================
Annual Inflation Total Annual
Year Quarter Adjusted Payment Payment
- - ---------------------------------------------------------------------------
1996 Quarter 1 2,000,000
- - ---------------------------------------------------------------------------
1996 Quarter 2 2,000,000
- - ---------------------------------------------------------------------------
1996 Quarter 3 2,000,000
- - ---------------------------------------------------------------------------
1997 Quarter 4 2,000,000 8,000,000
- - ---------------------------------------------------------------------------
1997 Quarter 1 2,000,000
- - ---------------------------------------------------------------------------
1997 Quarter 2 2,000,000
- - ---------------------------------------------------------------------------
1997 Quarter 3 2,000,000
- - ---------------------------------------------------------------------------
1998 Quarter 4 2,000,000 8,000,000
- - ---------------------------------------------------------------------------
1998 Quarter 1 2,000,000
- - ---------------------------------------------------------------------------
1998 Quarter 2 2,000,000
- - ---------------------------------------------------------------------------
1998 Quarter 3 2,000,000
- - ---------------------------------------------------------------------------
1999 Quarter 4 2,000,000 8,000,000
- - ---------------------------------------------------------------------------
1999 Quarter 1 2,060,000
- - ---------------------------------------------------------------------------
1999 Quarter 2 2,060,000
- - ---------------------------------------------------------------------------
1999 Quarter 3 2,060,000
- - ---------------------------------------------------------------------------
2000 Quarter 4 2,060,000 8,240,000
- - ---------------------------------------------------------------------------
2000 Quarter 1 1,591,350
- - ---------------------------------------------------------------------------
2000 Quarter 2 1,591,350
- - ---------------------------------------------------------------------------
2000 Quarter 3 1,591,350
- - ---------------------------------------------------------------------------
2001 Quarter 4 1,591,350 6,365,400
- - ---------------------------------------------------------------------------
2001 Quarter 1 1,639,091
- - ---------------------------------------------------------------------------
2001 Quarter 2 1,639,091
- - ---------------------------------------------------------------------------
2001 Quarter 3 1,639,091
- - ---------------------------------------------------------------------------
2002 Quarter 4 1,639,091 6,556,362
- - ---------------------------------------------------------------------------
111
- - ---------------------------------------------------------------------------
2002 Quarter 1 1,688,263
- - ---------------------------------------------------------------------------
2002 Quarter 2 1,688,263
- - ---------------------------------------------------------------------------
2002 Quarter 3 1,688,263
- - ---------------------------------------------------------------------------
2003 Quarter 4 1,688,263 6,753,053
- - ---------------------------------------------------------------------------
2003 Quarter 1 1,738,911
- - ---------------------------------------------------------------------------
2003 Quarter 2 1,738,911
- - ---------------------------------------------------------------------------
2003 Quarter 3 1,738,911
- - ---------------------------------------------------------------------------
2004 Quarter 4 1,738,911 6,955,644
- - ---------------------------------------------------------------------------
2004 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2004 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2004 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2005 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2005 Quarter 1 1,862,722
- - ---------------------------------------------------------------------------
2005 Quarter 2 1,862,722
- - ---------------------------------------------------------------------------
2005 Quarter 3 1,862,722
- - ---------------------------------------------------------------------------
2006 Quarter 4 1,862,722 7,450,886
- - ---------------------------------------------------------------------------
2006 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2006 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2006 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2007 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2007 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2007 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2007 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2008 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2008 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2008 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2008 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
-2-
112
- - ---------------------------------------------------------------------------
2009 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2009 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2009 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2009 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2010 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2010 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2010 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2010 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2011 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2011 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2011 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2011 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2012 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2012 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2012 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2012 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2013 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2013 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2013 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2013 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2014 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2014 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2014 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2014 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2015 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2015 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2015 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
-3-
113
- - ---------------------------------------------------------------------------
2015 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2016 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2016 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2016 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2016 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2017 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2017 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2017 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2017 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2018 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2018 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2018 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2018 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2019 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2019 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2019 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2019 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2020 Quarter 4 1,791,078 7,164,314
- - ---------------------------------------------------------------------------
2020 Quarter 1 1,791,078
- - ---------------------------------------------------------------------------
2020 Quarter 2 1,791,078
- - ---------------------------------------------------------------------------
2020 Quarter 3 1,791,078
- - ---------------------------------------------------------------------------
2021 Quarter 4 1,791,078 7,164,314
===========================================================================
-4-
114
SCHEDULE B
===========================================================================
Annual Inflation Total Annual
Year Quarter Adjusted Payment Payment
- - ---------------------------------------------------------------------------
2017 Quarter 1 1,844,811
- - ---------------------------------------------------------------------------
2017 Quarter 2 1,844,811
- - ---------------------------------------------------------------------------
2017 Quarter 3 1,844,811
- - ---------------------------------------------------------------------------
2018 Quarter 4 1,844,811 7,379,243
- - ---------------------------------------------------------------------------
2018 Quarter 1 1,900,155
- - ---------------------------------------------------------------------------
2018 Quarter 2 1,900,155
- - ---------------------------------------------------------------------------
2018 Quarter 3 1,900,155
- - ---------------------------------------------------------------------------
2019 Quarter 4 1,900,155 7,600,621
- - ---------------------------------------------------------------------------
2019 Quarter 1 1,957,160
- - ---------------------------------------------------------------------------
2019 Quarter 2 1,957,160
- - ---------------------------------------------------------------------------
2019 Quarter 3 1,957,160
- - ---------------------------------------------------------------------------
2020 Quarter 4 1,957,160 7,828,639
- - ---------------------------------------------------------------------------
2020 Quarter 1 2,015,875
- - ---------------------------------------------------------------------------
2020 Quarter 2 2,015,875
- - ---------------------------------------------------------------------------
2020 Quarter 3 2,015,875
- - ---------------------------------------------------------------------------
2021 Quarter 4 2,015,875 8,063,499
- - ---------------------------------------------------------------------------
2021 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2021 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2021 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2022 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2022 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2022 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
115
- - ---------------------------------------------------------------------------
2022 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2023 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2023 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2023 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2023 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2024 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2024 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2024 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2024 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2025 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2025 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2025 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2025 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2026 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2026 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2026 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2026 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2027 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2027 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2027 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2027 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2028 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2028 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2028 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2028 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2029 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2029 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
116
- - ---------------------------------------------------------------------------
2029 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2029 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2030 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2030 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2030 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2030 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2031 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2031 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2031 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2031 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2032 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2032 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2032 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2032 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2033 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2033 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2033 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2033 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2034 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2034 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2034 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2034 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2035 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
2035 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2035 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2035 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2036 Quarter 4 2,076,351 8,305,403
- - ---------------------------------------------------------------------------
-3-
117
- - ---------------------------------------------------------------------------
2036 Quarter 1 2,076,351
- - ---------------------------------------------------------------------------
2036 Quarter 2 2,076,351
- - ---------------------------------------------------------------------------
2036 Quarter 3 2,076,351
- - ---------------------------------------------------------------------------
2037 Quarter 2,076,351 8,305,403
===========================================================================
-4-
118
COVENANTS AND RESTRICTIONS
These Covenants and Restrictions, dated as of the ___ day of
__________, 1996, are made and entered into by and between Amarillo Hospital
District, a body politic and corporate and a political subdivision of the State
of Texas, established and created pursuant to Article IX, Section 5(a) of the
Texas Constitution (1958) and Chapter 32, Page 59, Acts of the 56th Legislature
(1959)(as it has heretofore been and may be amended, the "Act")("District"),
and UHS of Amarillo, Inc. ("Provider"), a Texas corporation and wholly-owned
subsidiary of Universal Health Services, Inc., a Delaware corporation ("UHS").
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of February 6,
1996, among District, Provider and UHS ("Purchase Agreement"), District has
sold and Provider has purchased those assets and interests of District,
tangible and intangible, real and personal, constituting or employed in the
operation of the healthcare facilities commonly known as Northwest Texas
Healthcare System ("Hospital") located on that certain real property more
particularly described in Exhibit "A" attached hereto and made a part hereof
("Provider"), as set forth in the Purchase Agreement; and
WHEREAS, pursuant to the Purchase Agreement, the District and Provider
entered into the certain Indigent Care Agreement dated as of _________ __, 1996
("Indigent Care Agreement"), a copy of which is attached hereto and made a part
hereof, whereby Provider has agreed to provide or arrange for the provision of
healthcare services to qualified indigent persons residing in the District, as
set forth in the Indigent Care Agreement; and
WHEREAS, pursuant to that certain Guaranty Agreement dated as of
__________ __, 1996 ("Guaranty"), UHS has unconditionally guaranteed the
performance by Provider of its obligations under the Indigent Care Agreement,
as set forth in said Guaranty Agreement; and
WHEREAS, District and Provider have agreed that title to the Hospital and
Property is to be subject to the following covenants and restrictions which
shall operate as covenants running with the land and shall continue in full
force and effect and bind all subsequent owners and occupiers of the Property,
as more fully set forth below.
NOW, THEREFORE, in consideration of the recitals set forth above, and other
good and valuable consideration, the adequacy and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
I.
1.1. If Provider (i) violates Section 9j of the Indigent Care Agreement or
(ii) ceases operations of the Hospital (except pursuant to an assignment by
Provider permitted without the prior written approval of District under Section
9j of the Indigent Care Agreement), then the District may, upon written notice
to Provider, elect to terminate the conveyance of the Property
119
and re-enter the Property, with title thereto together with all improvements,
fixtures and personal property of Provider located thereon or associated
therewith, in its entirety, being reconveyed to the District upon such
re-entry.
1.2. Alternatively, and in addition to the foregoing right of re-entry, the
District shall have all other rights and remedies available to it at law or
equity. No implied waiver of any of the above-stated covenants and
restrictions, or failure for any length of time to enforce same, shall
constitute a bar to such legal or equitable enforcement by the District at any
time.
1.3. In the event the District elects to exercise its right of re-entry
pursuant to the provisions set forth herein. Provider covenants and agrees
that title to the Property shall be reconveyed to the District free and clear
of all liens, charges, claims, pledges, security interests, equities and
encumbrances of any nature whatsoever created or suffered by Provider.
II.
2.1. The District reserves the right to amend, modify, or cancel, with the
consent of the fee simple title owner of the Property, any or all of the
covenants and restrictions herein. No other person or party shall have the
right to amend or modify these convenants and restrictions, and no consent or
approval by any person or party other than the District and the fee title owner
of the Property shall be required.
2.2 The covenants and restrictions contained herein shall operate as
covenants running with the land and shall be binding on all subsequent owners
and occupiers of the Property and shall remain in full force and effect for the
term of the Indigent Care Agreement expiring on ______________, 2021 or, if
such term is extended as therein provided, on ______________, 2036, unless
sooner terminated in the manner set forth above or unless the Indigent Care
Agreement is soon terminated in the manner therein provided.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals upon
this instrument as of the day and year first above written.
Signed, sealed and delivered
in the presence of:
AMARILLO HOSPITAL DISTRICT
By:
- - ----------------------------- ------------------------------
Name:
Title:
- - -----------------------------
-2-
120
---------------------------------
By:
- - ----------------------------- ------------------------------
Name:
Title:
- - -----------------------------
STATE OF TEXAS )
)
COUNTY OF POTTER )
The foregoing instrument was acknowledged before me this __ day of
_______________, 1996, by ______________, on behalf of AMARILLO HOSPITAL
DISTRICT, who is personally known to me or who has produced _______________ as
identification.
---------------------------------
Notary Public, State of Texas
(NOTARIAL SEAL)
---------------------------------
(Print or Type Name)
My Commission Expires:
STATE OF TEXAS )
)
COUNTY OF POTTER )
The foregoing instrument was acknowledged before me this __ day of
_______________, 1996, by ______________, on behalf of _______________________,
who is personally known to me or who has produced _______________ as
identification.
---------------------------------
Notary Public, State of Texas
(NOTARIAL SEAL)
---------------------------------
(Print or Type Name)
My Commission Expires:
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121
EXHIBIT A
The description of the lands is as follows:
A. All of Lot 2-D, Block 2, of the Amended Plat of Amarillo Medical Center
Unit No. 2, City of Amarillo, Potter County, Texas.
B. A tract of land containing approximately 11.84 acres of land, out of
Section Twenty-Six (26), Block Nine (9), BS&F Survey, in Potter County,
Texas, described as follows:
BEGINNING at the most easterly southeast corner of a certain 22,485 acre
tract conveyed by the United States of America to Potter County, Texas and
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122
described in a Deed recorded in Volume 846, page 80, of the Deed Records
of Potter County, Texas. This corner is in the southeasterly line of the
tract acquired by the United States of America from Potter County, Texas
in 1939.
THENCE, north 44 degrees 20 minutes west, along the northeast line of this
22.4485 acre tract at 32.5 feet, more or less, pass the northwesterly
right-of-way line of present U.S. Highway No. 66,a 1-inch iron pipe,
continuing on the same course a total distance of 1,032.5 feet to a point
for the west corner of this tract;
THENCE, north 43 degrees 17 minutes east, 500.00 feet to a point for the
north corner of this tract;
THENCE, south 44 degrees 20 minutes east, at 1,000.0 feet, more or less,
past the northwesterly right-of-way line of present U.S. Highway No. 66,
continuing on the same course a total distance of 1,032.5 feet to a point
for the east corner of this tract, this corner being the intersection of
this line with the southeasterly line of the original tract acquired by
the United States of America from Potter County, Texas;
THENCE, south 43 degrees 17 minutes west, along the southeasterly line of
the tract acquired by the United States of America from Potter County,
Texas, 500.0 feet to the place of beginning.
C. A tract of land containing approximately 12.901 acres of land out of
Section 26, Block 9, BS&F Survey, Amarillo, Potter County, Texas,
described as follows:
Beginning at a point that is 528.8 feet South and 1322.38 feet East of the
northwest corner of Section 26, this point also being the beginning point
of a curve to the right whose radius is 800 feet;
THENCE, along the curve an arc distance of 335.1 feet;
THENCE, S 0 degrees 13 minutes W, 826.3 feet;
THENCE, S 26 degrees 3 minutes 26 seconds W 176.93 feet;
THENCE, N 68 degrees W, 488.5 feet;
THENCE, N 0 degrees 13 minutes E, 696.3 feet;
THENCE, N 38 degrees 38 minutes E, 448.78 feet;
THENCE, N 66 degrees 13 minutes E, 200.0 feet to the point of beginning.
Save and Except the land previously conveyed to Amarillo Hospital District
by correction deed dated January 12, 1966, recorded in Volume 1026, page
200 of the Deed Records of Potter County, Texas.
D. A tract of land containing approximately 0.155 acres of land out Section
26, Block 9, BS&F Survey in Potter County, Texas described as follows:
Beginning at a point 1,656.3 feet South and 856.5 feet East of the
Northwest corner of Section 26, being also the Southwest corner of a
12.901 acre tract shown in deed records in Volume 1009, page 406 of Potter
County, Texas;
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THENCE North 0 degrees 13 min East, 77 feet to a point;
THENCE Southeasterly 162.97 feet along a curve to right with radius
feet the beginning tangent of which bears South 89 degrees 47 min East to
a point;
THENCE North 68 degrees West 94.01 feet to place of beginning.
E. A tract of land containing approximately 0.051 acres of land out of
Section 26, Block 9, BS&F Survey, Amarillo, Potter County, Texas,
described as follows:
BEGINNING at a point from whence the intersection point of the West line
of Lot 4, Block 2, Amarillo Medical Center, an Addition to the City of
Amarillo, Texas and the Northerly right-of-way line of the cul-de-sac at
the Northwest end of Evans Street bears North 23 degrees 59 minutes 05
seconds East a distance of 72.44 feet;
THENCE Northerly along a curve to the right whose radius point bears North
25 degrees 04 minutes 24 seconds East a distance of 1.50 feet an arc
distance of 2.87 feet to a point of compound curvature and the
beginning point of a curve to the right whose radius point bears South 45
degrees 13 minutes 59 seconds East a distance of 41.47 feet;
THENCE Easterly and Southerly along said curve to the right an arc
distance of 122.03 feet to a point of compound curvature and the beginning
point of a curve to the right whose radius point bears North 56 degrees 33
minutes 15 seconds West a distance of 1.50 feet;
THENCE Westerly along said curve to the right an arc distance of 2.87 feet
to a point of reverse curvature and the beginning point of a curve to
the left whose radius point bears South 53 degrees 03 minutes 22 seconds
West a distance of 163.00 feet;
THENCE Northwesterly along said curve to the left an arc distance of 79.61
feet to the POINT OF BEGINNING.
F. All of Lot 3, Block 2, of the Amarillo Medical Center Unit No. 6,
Amarillo, Potter County, Texas, except for the west 380 feet, except for
1.1274 acres adjacent to the inner east line, and except for the southwest
566.05 feet.
G. The west 380 feet of Lot 3, Block 2, of the Amarillo Medical Center Unit
No. 6, Amarillo, Potter County, Texas, except for the South 566.05 feet.
H. All of Lot 4, Block 2, of the Amarillo Medical Center Unit No. 6,
Amarillo, Potter County, Texas, except for the North 5.5353 acres.
I. All of Lot 5, Block 2, of the Amarillo Medical Center Unit No. 14,
Amarillo, Potter County, Texas.
J. All of Lot 10-A, Block 194, of Glidden & Sanborn No. 5, Amarillo, Potter
County, Texas.
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K. All of Lot B, Block 3, Tract 1 of the Lawrence Place Replat, City of
Amarillo, Randall County, Texas.
L. All of Lot 2, Block 57, Northeast Clinic Unit No. 1, Amarillo, Potter
County, Texas.
M. All of Lot 1, Block 4, of the Ridgeview Medical Center No. 4, Amarillo,
Potter County, Texas.
N. A tract of land out of Section 43, Block 9, BS&F Survey, Potter County,
Texas, described as follows:
BEGINNING at a 1/2 inch iron rod in the West R.O.W. line of Coulter Road,
from whence the Northeast corner of Section 43 bears North 00 degrees 21
minutes 05 seconds West, 2477.22 feet and South 89 degrees 47 minutes
East, 500 feet, the BEGINNING CORNER of this tract;
THENCE South 00 degrees 21 minutes 05 seconds East, 330 feet to a point in
the West line of Coulter Road;
THENCE South 89 degrees 38 minutes 55 seconds West, 330 feet to a point;
THENCE South 00 degrees 21 minutes 05 seconds East, 330 feet to a point;
THENCE South 80 degrees 38 minutes 55 seconds West, 330 feet to a point;
THENCE North 00 degrees 21 minutes 05 seconds West, 330 feet to a point;
THENCE South 89 degrees 38 minutes 55 seconds West, 330 feet to a point;
THENCE North 00 degrees 21 minutes 05 seconds West, 330 feet to a point;
THENCE North 89 degrees 38 minutes 55 seconds East, 990 feet to the
BEGINNING CORNER of this tract, SAVE AND EXCEPT THEREFROM Lot 1, Block 4,
of Ridgeview Medical Center Unit No. 4, an addition to the City of
Amarillo in Potter County, Texas.
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125
Exhibit C
CONFIDENTIALITY OBLIGATIONS
Until the Closing Date, each party shall keep all information obtained
from any other party either before or after the date of this Agreement
confidential, and no party shall reveal such information to, nor produce copies
of any written information for, any person outside its management group or its
professional advisors without the prior written consent of the other parties,
unless such party is compelled to disclose such information by judicial or
administrative process or by any other requirements of Law. If the transactions
contemplated by this Agreement should fail to close for any reason, each party
shall return to the original provider as soon as practicable all originals and
copies of written information provided to such party by or on behalf of any
other party and none of such information shall be used by any party, or their
employees, agents or representatives in the business operations of any party.
Notwithstanding the foregoing, each party's obligations hereunder shall not
apply to any information or document which is or becomes available to the public
other than as a result of a disclosure by such party in violation of this
Agreement or other obligation of confidentiality under which such information
may be held or becomes available to the party on a non-confidential basis from a
source other than such other party or its officers, directors, employees,
representatives or agents. The parties' obligations hereunder shall survive the
termination of this Agreement.
126
GUARANTY AGREEMENT
OF ASSET PURCHASE AGREEMENT
This Guaranty Agreement dated as of February 6, 1996, is made by
Universal Health Services, Inc., a Delaware corporation ("Guarantor") in favor
of Amarillo Hospital District ("AHD").
WHEREAS UHS of Amarillo, Inc. ("Purchaser") and AHD have entered into
that certain Asset Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") (all capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Purchase Agreement); and
WHEREAS Guarantor is the ultimate parent entity of the Purchaser; and
WHEREAS as inducement for AHD to enter into the Purchase Agreement and
as a condition of the Closing of the transactions thereunder, the Purchaser has
agreed that the Guarantor will guarantee to AHD the payment and performance of
Purchaser's agreements, covenants and obligations, under the Purchase Agreement;
and
WHEREAS Guarantor desires to execute and deliver this Guaranty
Agreement as an inducement for AHD to execute, deliver and perform its
obligations under the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged and confessed, Guarantor hereby agrees as follows:
1. Subject to the limitations set forth herein, Guarantor hereby
unconditionally guarantees all agreements, covenants and obligations of the
Purchaser under the Purchase Agreement (collectively, the "Guaranteed
Obligations").
2. This Guaranty is an absolute, present and continuing guaranty of
performance and is in no way conditioned or contingent upon any attempt to first
seek remedies from Purchaser for the Guaranteed Obligations. The obligation of
Guarantor hereunder is subject to the right of Guarantor to assert any defense
available to Purchaser under the Purchase Agreement other than the bankruptcy,
insolvency or dissolution of Purchaser but shall not be affected or released by
the merger or consolidation of Purchaser or Guarantor into or with any other
corporation or by any action, failure or omission on the part of AHD to enforce
any right or remedy which it may have hereunder or under the Purchase Agreement
or by any indulgence or extension to, or waiver or acquiescence in any default
by, Purchaser or any corporation successor to it or any corporation which
1
127
shall have assumed the obligations of Purchaser under the Purchase Agreement, or
by any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or similar proceedings by Purchaser. Without limiting
the generality of the foregoing, this Guaranty shall not be affected, modified
or impaired upon the happening from time to time of any of the following,
whether or not with notice to or the consent of Guarantor:
(a) the failure to give notice to the Guarantor of the occurrence of
a default under the terms and provisions of this Guaranty Agreement or the
Purchase Agreement, except as otherwise provided in the Purchase Agreement;
(b) the waiver or the payment, performance or observance by AHD of
any of the obligations, covenants, or agreements of Purchaser contained in the
Purchase Agreement;
(c) the extension of the time for performance of any obligations,
covenants or agreements under or arising out of the Purchase Agreement or under
or arising out of this Guaranty Agreement, or the extension or the renewal of
any thereof;
(d) the modification or amendment (whether material or otherwise) of
any obligation, covenant or agreement set forth in the Purchase Agreement;
(e) the taking or the omission of any of the actions referred to in
the Purchase Agreement or this Guaranty Agreement; or
(f) any failure, omission, delay or lack on the part of AHD to
enforce, assert or exercise any right, power or remedy conferred on AHD in this
Guaranty Agreement or the Purchase Agreement, or any other act or acts on the
part of AHD.
3. This Agreement shall bind the successors and assigns of Guarantor,
including any corporation with or into which Guarantor may be consolidated or
merged or any corporation or entity to which it may convey or otherwise transfer
substantially all of its assets and interests (provided that no such conveyance
or transfer shall have the affect of releasing Guarantor), and shall inure to
the benefit of AHD, its successors and assigns.
4. Guarantor hereby represents and warrants that it has full power and
authority and has taken all necessary corporate action to enter into and be
bound by the terms and conditions of this Guaranty Agreement.
5. All notices, requests and other communications hereunder shall be in
writing and shall be given to the party to whom sent, addressed to it as
follows:
2
128
If directed to AHD:
Board or Managers
Amarillo Hospital District
c/o Northwest Texas Healthcare System
P.O. Box 1110
1501 S. Coulter
Amarillo, Texas 79175
Attention: Chairman of the Board
with a copy to:
Ruden, McClosky, Smith, Schuster & Russell, P.A.
701 Brickell Avenue, Suite 1900
Miami, Florida 3311
Attention: John S. Schwartz, Esq.
If directed to the Guarantor:
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: General Counsel
AHD and the Guarantor may designate a different address to which such notices
should be sent by giving the other written notice thereof. Each such notice,
request or communication shall be effective when received by telefax or other
electronic means or overnight courier, or by registered or certified mail,
return receipt requested, addressed as aforesaid or, if given by any other
means, when delivered at the address of the party to whom such notice is being
delivered.
6. The Guarantor agrees that any legal action or proceeding with
respect to this Guaranty Agreement or to enforce any judgment obtained against
the Guarantor in connection with this Guaranty Agreement may be brought by AHD
in the court of the State of Texas or in the United States District Courts which
are located in the County of Potter, Texas, or any other court to the
jurisdiction of which the Guarantor or any of their respective properties is or
may be subject.
7. This Guaranty Agreement may be amended, and the Guarantor may take
any action herein prohibited, or omit to perform any act herein required to be
performed, only if the Guarantor shall first obtain the written consent of AHD
thereto. No course of dealing between the Guarantor and AHD nor any delay in
exercising any rights hereunder, shall operate as a waiver of any rights of AHD
hereunder.
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129
8. Any provision of this Guaranty Agreement which is prohibited,
unenforceable or not authorized shall be fully severable and this Guaranty
Agreement shall be construed and enforced as if such prohibited, unenforceable,
or unauthorized provision had never comprised a part hereof.
9. This Guaranty Agreement is intended to be performed in the State of
Texas, and shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the State of Texas.
10. This Guaranty Agreement constitutes the entire agreement, and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and may be executed
simultaneously in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this
Guaranty Agreement, or caused same to be duly executed and delivered as of the
date first set above.
UNIVERSAL HEALTH SERVICES, INC.
By: /s/ Richard C. Wright
-----------------------------------
Name: Richard C. Wright
-----------------------------------
Its: Vice President
-----------------------------------
4
1
EXHIBIT 11
UNIVERSAL HEALTH SERVICES, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ------------ ------------
WEIGHTED AVERAGE SHARES:
Class A common 1,090,527 1,139,123 1,211,850
Class B common 12,591,854 12,171,454 12,276,146
Class C common 109,622 114,482 121,755
Class D common 22,769 26,223 28,648
----------- ------------ ------------
TOTAL 13,814,772 13,451,282 13,638,399
Less: Effect of shares repurchased - (103,510) (105,795)
Less: Incremental number of shares of restricted
stock excluded from EPS computation (35,825) (35,643) (46,893)
Effect of shares issued 31,737 641,984 10,250
----------- ------------ ------------
13,810,684 13,954,113 13,495,961
COMMON STOCK EQUIVALENTS:
Assumed conversion of 7 1/2 % convertible
debentures issued in April 1983 - 338,818 1,271,471
Assumed conversion of options
to purchase common stock 268,045 95,999 51,101
----------- ------------ ------------
WEIGHTED AVERAGE SHARES - FULLY DILUTED 14,078,729 14,388,930 14,818,533
=========== ============ ============
INCOME:
Net Income $35,484,436 $28,719,735 $24,010,645
Interest expense, net of tax effect, on assumed
conversion of 7 1/2% convertible debentures - $363,176 $1,392,404
----------- ------------ ------------
INCOME APPLICABLE TO COMMON STOCK - FULLY DILUTED $35,484,436 $29,082,911 $25,403,049
=========== ============ ============
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE: FULLY DILUTED $2.52 $2.02 $1.71
=========== ============ ============
1
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Aiken Regional Medical Centers, Inc. South Carolina
The Arbour, Inc. Massachusetts
ASC of Chicago, Inc. Illinois
ASC of Corona, Inc. California
ASC of Las Vegas, Inc. Nevada
ASC of Littleton, Inc. Colorado
ASC of Midwest City, Inc. Oklahoma
ASC of New Albany, Inc. Indiana
ASC of Palm Springs, Inc. California
ASC of Ponca City, Inc. Oklahoma
ASC of Springfield, Inc. Missouri
ASC of St. George, Inc. Utah
Auburn Regional Medical Center, Inc. Washington
The BridgeWay, Inc. Arkansas
Charleston Medical Properties, Limited Partnership Nevada
Children's Hospital of McAllen, Inc. Texas
Comprehensive Occupational and Clinical Health, Inc. Delaware
Del Amo Hospital, Inc. California
Doctors' General Hospital, Ltd. Florida
Doctors' Hospital of Shreveport, Inc. Louisiana
1
2
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Eye West Laser Vision, L.P. Delaware
Forest View Psychiatric Hospital, Inc. Michigan
Glen Oaks Hospital, Inc. Texas
Health Care Finance & Construction Corp. Delaware
HRI Clinics, Inc. Massachusetts
HRI Hospital, Inc. Massachusetts
Hope Square Surgical Center, L.P. Delaware
(d/b/a Surgery Centers of the Desert)
Inland Valley Regional Medical Center, Inc. California
Internal Medicine Associates of Doctors' Hospital, Inc. Louisiana
La Amistad Residential Treatment Center, Inc. Florida
Manatee Memorial Hospital, L.P. Delaware
McAllen Medical Center, Inc. Texas
(d/b/a Edinburg Regional Medical Center)
McAllen Medical Center Foundation (Non-Profit) Texas
Meridell Achievement Center, Inc. Texas
Merion Building Management, Inc. Delaware
New Albany Outpatient Surgery, L.P. Delaware
(d/b/a Surgical Center of New Albany)
Northern Nevada Medical Center, L.P. Delaware
(d/b/a Northern Nevada Medical Center)
The Pavilion Foundation Illinois
Pueblo Medical Center, Inc. Nevada
RCW of Edmond, Inc. Oklahoma
2
3
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Relational Therapy Clinic, Inc. Louisiana
River Crest Hospital, Inc. Texas
River Oaks, Inc. Louisiana
River Parishes Internal Medicine, Inc. Louisiana
Southwest Dallas Hospital, Inc. Texas
Sparks Family Hospital, Inc. Nevada
St. George Surgical Center, L.P. Delaware
(d/b/a St. George Surgery Center)
St. Louis Behavioral Medicine Institute, Inc. Missouri
Summerlin Medical Center, L.P. Delaware
Surgery Center of Chicago, L.P. Delaware
Surgery Center of Corona, L.P. Delaware
(d/b/a Surgery Center of Corona)
Surgery Center of Littleton, L.P. Delaware
(d/b/a Littleton Day Surgery Center)
Surgery Center of Midwest City, L.P. Delaware
(d/b/a MD Physicians Surgicenter of Midwest City)
Surgery Center of Odessa, L.P. Delaware
(d/b/a Surgery Center of Texas)
Surgery Center of Ponca City, L.P. Delaware
(d/b/a Outpatient Surgical Center of Ponca City)
Surgery Center of Springfield, L.P. Delaware
(d/b/a Surgery Center of Springfield)
Surgery Center of Waltham, Limited Partnership Massachusetts
(d/b/a Surgery Center of Waltham)
Tonopah Health Services, Inc. Nevada
3
4
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Turning Point Care Center, Inc. Georgia
(d/b/a Turning Point Hospital)
Two Rivers Psychiatric Hospital, Inc. Delaware
UHS of Amarillo, Inc. Texas
UHS of Belmont, Inc. Delaware
UHS of Bethesda, Inc. Delaware
UHS of Columbia, Inc. District of Columbia
UHS Croyden Limited United Kingdom
UHS of DeLaRonde, Inc. Louisiana
UHS of Delaware, Inc. Delaware
UHS of Fayetteville, Inc. Arkansas
UHS of Florida, Inc. Florida
UHS of Fuller, Inc. Massachusetts
UHS Holding Company, Inc. Nevada
UHS of Illinois, Inc. Illinois
UHS International, Inc. Delaware
UHS International Limited United Kingdom
UHS Las Vegas Properties, Inc. Nevada
UHS Leasing Company, Inc. Delaware
UHS Leasing Company, Limited United Kingdom
UHS of London, Inc. Delaware
UHS London Limited United Kingdom
4
5
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
UHS of Manatee, Inc. Florida
UHS of New Orleans, Inc. Louisiana
(d/b/a Chalmette Hospital and River Parishes Hospital)
UHS of Odessa, Inc. Texas
UHS of Plantation, Inc. Florida
UHSR Corporation Delaware
UHS Receivables Corp. Delaware
UHS Recovery Foundation, Inc. Pennsylvania
UHS of River Parishes, Inc. Louisiana
UHS of Riverton, Inc. Washington
UHS of Vermont, Inc. Vermont
UHS of Waltham, Inc. Massachusetts
Universal HMO, Inc. Nevada
Universal Health Network, Inc. Nevada
Universal Health Pennsylvania Properties, Inc. Pennsylvania
Universal Health Recovery Centers, Inc. Pennsylvania
(d/b/a UHS KeyStone Center)
Universal Health Services of Cedar Hill, Inc. Texas
Universal Health Services of Concord, Inc. California
Universal Treatment Centers, Inc. Delaware
Valley Hospital Medical Center, Inc. Nevada
5
6
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Valley Surgery Center, L.P. Delaware
(d/b/a Goldring Surgery Center)
Victoria Regional Medical Center, Inc. Texas
Wellington Regional Medical Center Incorporated Florida
Westlake Medical Center, Inc. California
6
1
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports, included in this Form 10-K, into the Company's previously filed
Registration Statements on Forms S-8 (No. 2-98913), (No. 33-43276), (No.
33-49426), (No. 33-49428), (No. 33-51671), (No. 33-56575), and (No. 33-63291).
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 22, 1996
5
0000352915
UNIVERSAL HEALTH SERVICES, INC.
1,000
U.S. DOLLARS
YEAR
DEC-31-1995
JAN-01-1995
DEC-31-1995
1
34
0
163,179
49,016
18,207
156,922
641,528
248,540
748,051
135,017
237,086
0
0
139
297,561
748,051
0
931,126
0
690,988
99,049
76,905
11,195
52,989
17,505
35,484
0
0
0
35,484
2.52
2.52
