-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FjQu01apgwTxqsIGFE/7mNBriIHOQT/QqCz50wujaV/cXPzqvSc6KneEkGu5CinV mkA/XOyXKKpy5TQo9YjJMQ== 0000758722-00-000045.txt : 20000516 0000758722-00-000045.hdr.sgml : 20000516 ACCESSION NUMBER: 0000758722-00-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARACELSUS HEALTHCARE CORP CENTRAL INDEX KEY: 0000758722 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 953565943 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12055 FILM NUMBER: 636207 BUSINESS ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 BUSINESS PHONE: 2817745100 MAIL ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 Commission file number 1-12055 PARACELSUS HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) California 95-3565943 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 515 W. Greens Road, Suite 500, Houston, Texas (Address of principal executive offices) 77067 (281) 774-5100 (Zip Code) (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, no stated value New York Stock Exchange - ----------------------------- ----------------------- (Title of Class) (Name of each exchange on which registered) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[X] No[ ] As of May 15, 2000, there were outstanding 58,967,721 shares of the Registrant's Common Stock, no stated value. ================================================================================ 1 PARACELSUS HEALTHCARE CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 INDEX
Page Reference Form 10-Q Forward-Looking Statements 3 - -------------------------- PART I. FINANCIAL INFORMATION - ------ Item 1. Financial Statements-- (Unaudited) Condensed Consolidated Balance Sheets-- March 31, 2000 and December 31, 1999 4 Consolidated Statements of Operations-- Three Months Ended March 31, 2000 and 1999 5 Condensed Consolidated Statements of Cash Flows-- Three Months Ended March 31, 2000 and 1999 6 Notes to Interim Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market 15 Risks PART II. OTHER INFORMATION 15 - ------- SIGNATURE 18
2 Forward-Looking Statements Certain statements in this Form 10-K are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. All statements regarding the Company's expected future financial position, results of operations, cash flows, liquidity, financing plans, business strategy, budgets, projected costs and capital expenditures, competitive position, growth opportunities, plans and objectives of management for future operations and words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "may" and other similar expressions are forward-looking statements. Such forward-looking statements are inherently uncertain, and stockholders must recognize that actual results may differ materially from the Company's expectations as a result of a variety of factors, including, without limitation, those discussed below. Factors which may cause the Company's actual results in future periods to differ materially from forecast results include, but are not limited to: o Competition and general economic, demographic and business conditions, both nationally and in the regions in which the Company operates; o Existing government regulations and changes in legislative proposals for healthcare reform, including changes in Medicare and Medicaid reimbursement levels; o The ability to enter into managed care provider arrangements on acceptable terms; o Liabilities and other claims asserted against the Company; o The loss of any significant customer, including but not limited to managed care contracts; o The ability to attract and retain qualified personnel, including physicians; o The continued listing of the Company's common stock on the New York Stock Exchange; o The Company's ability to develop and consummate an acceptable and sustainable alternative financial structure, considering the Company's liquidity and limited financial resources; o The Company's ability to consummate acceptable financial arrangements, under reasonable terms, to replace its existing interim credit facility and off-balance-sheet receivable financing arrangement; o The possibility that the Company may be forced to file for protection under Chapter 11 of the Federal Bankruptcy Code or that its creditors could file an involuntary petition seeking to place the Company in bankruptcy. The Company is generally not required to, and does not undertake to, update or revise its forward-looking statements. 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ($ in 000's)
March 31, December 31, 2000 1999 ---------------- -------------------- (Unaudited) (Note 1) Assets Current assets: Cash and cash equivalents.............................................. $ 13,650 $ 22,723 Restricted cash........................................................ 14,010 12,991 Accounts receivable, net............................................... 32,194 30,796 Supplies............................................................... 8,836 8,655 Income taxes receivable................................................ 6,867 6,152 Other current assets................................................... 17,492 14,212 ---------- ---------- Total current assets............................................... 93,049 95,529 Property and equipment..................................................... 341,043 339,528 Less: Accumulated depreciation and amortization............................ (118,320) (113,052) ---------- ---------- 222,723 226,476 Goodwill................................................................... 86,799 87,684 Other assets............................................................... 26,756 27,369 ---------- ---------- Total assets....................................................... $ 429,327 $ 437,058 ========== ========== Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable....................................................... $ 33,078 $ 35,563 Accrued interest payable............................................... 20,697 12,598 Accrued liabilities and other.......................................... 17,093 20,426 Long-term debt in default classified as current (Note 2)............... 335,445 335,445 Long-term debt due within one year..................................... 306 654 ---------- ---------- Total current liabilities.......................................... 406,619 404,686 Long-term debt............................................................. 3,634 3,685 Other long-term liabilities................................................ 22,380 23,490 Stockholders' equity (deficit): Common stock........................................................... 216,045 215,761 Additional paid-in capital............................................. 11,821 12,105 Accumulated deficit.................................................... (231,172) (222,669) ---------- ---------- Total stockholders' equity (deficit)............................... (3,306) 5,197 ---------- ---------- Total Liabilities and Stockholders' Equity (Deficit)....................... $ 429,327 $ 437,058 ======== ========== See accompanying notes.
4 PARACELSUS HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS ($ in 000's, except per share data) (Unaudited)
Three Months Ended March 31, ----------------- -- ------------------ 2000 1999 ----------------- ------------------ Net revenue................................................................ $ 95,084 $ 150,944 Costs and expenses: Salaries and benefits.................................................... 40,700 58,965 Other operating expenses................................................. 36,159 58,085 Provision for bad debts.................................................. 6,958 12,398 Interest................................................................. 9,010 13,104 Depreciation and amortization............................................ 8,213 9,815 Restructuring costs (Note 3)............................................. 2,547 - Unusual charges.......................................................... 1,123 ----------- ---------- Total costs and expenses........................................... 103,587 153,490 ----------- ---------- Loss before minority interest and income taxes............................. (8,503) (2,546) Minority interests......................................................... - 63 ------------ ---------- Loss before income taxes................................................... (8,503) (2,483) Income tax benefit (Note 4)................................................ - (897) ------------ ---------- Net loss................................................................... $ (8,503) $ (1,586) =========== ========== Net loss per share - basic and assuming dilution........................... $ (0.15) $ (0.03) =========== ========== See accompanying notes.
5 PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in 000's) (Unaudited)
Three Months Ended March 31, -------------------------------------- 2000 1999 ------------------ ------------------ Cash Flows from Operating Activities: Net loss........................................................ $ (8,503) $ (1,586) Non-cash expenses and changes in operating assets and liabilities............................................... 2,791 (3,824) ---------- ---------- Net cash used in operating activities............................ (5,712) (5,410) ---------- ---------- Cash Flows from Investing Activities: Additions to property and equipment, net......................... (1,733) (5,610) Increase in other assets, net.................................... (591) (2,644) ---------- ---------- Net cash used in investing activities............................ (2,324) (8,254) ---------- ---------- Cash Flows from Financing Activities: Borrowings under credit facilities .............................. - 10,000 Repayments under credit facilities............................... - (1,100) Repayments of debt, net......................................... (399) (1,535) Deferred financing costs......................................... (638) - ---------- ---------- Net cash provided by (used in) financing activities.............. (1,037) 7,365 ---------- ---------- Decrease in cash and cash equivalents............................ (9,073) (6,299) Cash and cash equivalents at beginning of period................. 22,723 11,944 ---------- ---------- Cash and cash equivalents at end of period....................... $ 13,650 $ 5,645 ========== ========== Supplemental Cash Flow Information: Interest paid................................................. $ 911 $ 20,461 Income taxes paid............................................. $ 715 $ - Noncash Investing Activities: Notes receivable from sale of hospital........................ $ - $ 2,269 See accompanying notes.
6 PARACELSUS HEALTHCARE CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2000 NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Organization - Paracelsus Healthcare Corporation ("PHC") was incorporated in November 1980 for the principal purpose of owning and operating acute care and related healthcare businesses in selected markets. PHC and its subsidiaries (the "Company") presently operate 10 acute care hospitals with 1,287 licensed beds in seven states, of which eight are owned and two are leased. Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for a complete set of financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The Company's business is seasonal in nature and subject to general economic conditions and other factors. Accordingly, operating results for the three months ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1999, included in the Company's 1999 Form 10-K. The Company incurred operating losses in the first quarter of 2000 and the year ended December 31, 1999, and had a working capital deficit at March 31, 2000 and December 31, 1999. These matters and certain liquidity issues described in Note 2 have raised substantial doubt as to the Company's ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and contemplate the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not include further adjustments, if any, reflecting the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of uncertainties discussed herein. 7 Earnings Per Share - The following table sets forth the computation of basic and diluted net loss per share (dollars in thousands, except per share amounts).
Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 ----------------------- ------------------------ Numerator (a): Net loss................................................. $ (8,503) $ (1,586) ====== ====== Denominator: Weighted average shares used for basic earnings per share.................................... 57,668 55,118 Effect of dilutive securities: Employee stock options................................. - - ------ ------ Dilutive potential common shares.......................... - - ------ ------ Shares used for diluted earnings per share................. 57,668 55,118 ====== ====== Net loss per share - basic assuming dilution............. $ (0.15) $ (0.03) ====== ======
- ---------------------- (a) Amount is used for both basic and diluted earnings per share computations since there is no earnings effect related to the dilutive securities. Options to purchase 2.1 million shares of the Company's common stock at a weighted average exercise price of $4.05 per share and warrants to purchase 414,906 shares at a weighted average exercise price of $9.00 per share were outstanding during the quarter ended March 31, 2000, but were not included in the computation of diluted EPS because the exercise price was greater than the average market price of the common shares. Comprehensive Loss - Comprehensive loss for the quarter ended March 31, 2000, of $8.8 million included $284,000 of deferred compensation costs related to the issuance of restricted stock grants under an employment agreement. Comprehensive loss for the quarter ended March 31, 1999 equaled reported net loss. Restricted Cash - The Company had restricted cash of $14.0 million and $13.0 million at March 31, 2000 and December 31, 1999, respectively, as collateral for outstanding letters of credit and for payment of fees and interest related to the commercial paper financing program and other commitments. NOTE 2 . ISSUES AFFECTING LIQUIDITY As previously reported in the Company's 1999 Form 10-K, on February 15, 2000, the Company did not make the interest payment of approximately $16.3 million due on the Company's $325.0 million 10% Senior Subordinated Notes (the "Notes") due 2006, which upon the expiration of a 30-day grace period on March 16, 2000, constituted an event of default under the Note indenture. 8 The Company has retained an investment banking firm and legal counsel to review its strategic alternatives and is in discussion with the holders of the majority of the Notes. Few holders hold the majority of the Notes, and the Company believes the concentration will facilitate the restructuring process. Considering the Company's limited financial resources, there can be no assurance that the Company and the Note holders will succeed in formulating an acceptable alternative capital structure, in which case the Note holders are entitled, at their discretion, to accelerate all principal and interest due on the Notes. Either as a result of successful negotiations with the Note holders or as the result of the failure of such negotiations, the Company could file for protection under Chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") or be subject to an involuntary petition. A reorganization would likely result in a significant dilution of the ownership interest of the existing holders of the Company's common stock. There can be no assurance that a bankruptcy proceeding would result in a reorganization of the Company rather than a liquidation. If a liquidation or a protracted reorganization were to occur, there is a substantial risk that there would be insufficient cash or property available for distribution to the Company's creditors and/or the holders of the Company's common stock. Relating to the matters discussed above, on March 15, 2000, a wholly-owned, second-tier subsidiary of PHC, PHC Finance, Inc., filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas in Houston. The subsidiary, whose principal assets are several medical office buildings, does not own or operate any hospital facilities, and neither PHC nor any of the Company's hospital operating subsidiaries is a guarantor for any obligations of PHC Finance, Inc. Given the Company's default on the Notes and the uncertainty surrounding the ultimate resolution of the Company's negotiations with its Note holders, the principal amount of the Notes and certain other debt obligations have been presented as current liabilities in the Company's condensed consolidated balance sheet at March 31, 2000, which has resulted in a working capital deficit of $313.6 million. As the result of the default of interest payment on the Notes, the Company was also in default under its interim credit facility, under which the Company had $11.6 million in outstanding letters of credit, all of which were fully secured by cash collateral held by the lender, and no outstanding borrowings. Additionally, the Company was in default with certain provisions of its off-balance sheet commercial paper financing program, under which a wholly-owned subsidiary of the Company had sold $32.3 million of eligible receivables as of March 31, 2000. As a result of this default, the subsidiary is unable to sell additional receivables under the commercial paper program. The lender of the Company's commercial paper financing program has extended the program until May 17, 2000. As of May 15, 2000, the Company has substantially finalized negotiations of and expects to shortly enter into a new credit agreement with a lending group, which will provide for a $62.0 million revolving credit and letter of credit guaranty facility (the "Credit Facility"), expiring May 15, 2003. The Credit Facility will be used primarily to fund normal working capital and certain capital expenditures of the Company's hospitals. The Credit Facility will be an obligation of certain of the Company's subsidiaries and will be secured by all patient accounts receivable and certain other assets of the Company's hospitals and a first lien on two of its hospitals. Accordingly, the Credit Facility will not be not an obligation of PHC. The Credit Facility will replace the letters of credit outstanding under the interim facility and the Company's commercial paper financing program. The outstanding letters of credit under the Credit Facility will be secured by cash collateral held by the lenders. Borrowings under the Credit Facility will bear interest at prime plus 1.5% or LIBOR plus 3.75% per annum and will be limited to hospitals' eligible receivables and certain operating measurements, as defined. The Company recorded deferred financing costs of $638,000 in connection with the Credit Facility as of March 31, 2000. 9 The Company is in a highly leveraged financial position. The lending group's commitment to enter into the Credit Facility expires May 16, 2000. Should the lending group's commitment expire prior to the consummation of the Credit Facility, the Company would be required to seek an extension of such commitment from the lending group. The Company expects it will be able to obtain such an extension; however, there can be no assurance that the lending group would grant such an extension. Should the Company fail to receive an extension of the commitment for the Credit Facility from the lending group or fail to consummate the Credit Facility, the Company would have no available credit lines and therefore would be required to finance its cash needs from operations. Additionally, the Company would be required to seek an extension from its lender under its commercial paper program, which expires May 16, 2000. In the event the commercial paper program is not extended beyond May 16, 2000, a wind down of the program may commence with the Company's current lender retaining a significant portion of the Company's operating cash flows until all amounts outstanding under the commercial paper program are repaid in full. In the event of a wind down, operating cash flows would likely be insufficient to meet the Company's operational and capital expenditure needs. NOTE 3 . RESTRUCTURING COSTS AND UNUSUAL CHARGES In the three months ended March 31, 2000, the Company recorded $2.5 million of restructuring costs for professional fees incurred in connection with its efforts to restructure the Notes. In the three months ended March 31, 1999, the Company recorded a net unusual charge of $1.1 million related to an executive agreement with certain of its former senior executives. NOTE 4 . INCOME TAXES During the fourth quarter of 1999, the Company recorded a deferred tax valuation allowance aggregating $26.8 million to reserve the full amount of the Company's net deferred tax assets at December 31, 1999, due to issues affecting liquidity and related uncertainties discussed in Note 2, which, if unfavorably resolved, would adversely affect the Company's future operations. The Company recorded no income tax benefit in the first quarter of 2000, as the result of recording an additional valuation allowance of $3.2 million to reserve all net deferred tax assets generated during the current quarter. The deferred tax valuation allowance as of March 31, 2000 totaled $78.3 million. NOTE 5 . OPERATING SEGMENTS There has been no material change in the Company's reportable segments as previously reported in the Company's 1999 Form 10-K. "Same Hospitals," as a reportable segment, consist of acute care hospitals currently owned and operated by the Company. "All Other" is comprised of closed/sold facilities and overhead costs. Selected segment information for the quarters ended March 31, 2000 and 1999, were as follows:
Three Months ended March 31, 2000 --------------------------------------- Same Hospitals All Other Total ---------- ---------- --------- Net revenue................................. $ 94,157 $ 927 $ 95,084 Adjusted EBITDA (a).......................... $ 13,818 $ (2,551) $ 11,267
Three Months ended March 31, 1999 --------------------------------------- Same Hospitals All Other Total ---------- ---------- --------- Net revenue.................................. $ 95,904 $ 55,040 $ 150,944 Adjusted EBITDA (a).......................... $ 17,013 $ 4,546 $ 21,559 - -------------------------------------
10 (a) Earnings before extraordinary charge, interest, taxes, depreciation, amortization, restructuring costs and unusual charges ("Adjusted EBITDA") has been included because it is a widely used measure of internally generated cash flow and is frequently used in evaluating a company's performance. Adjusted EBITDA is not an acceptable measure of liquidity, cash flow or operating income under generally accepted accounting principles and may not be comparable to similarly titled measures of other companies. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company incurred operating losses in the first quarter of 2000 and the year ended December 31, 1999, and had a working capital deficit at March 31, 2000 and December 31, 1999. These matters and certain liquidity issues described below have raised substantial doubt as to the Company's ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and contemplate the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not include further adjustments, if any, reflecting the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of uncertainties discussed herein. ISSUES AFFECTING LIQUIDITY As previously reported in the Company's 1999 Form 10-K, on February 15, 2000, the Company did not make the interest payment of approximately $16.3 million due on the Notes, which upon the expiration of a 30-day grace period on March 16, 2000, constituted an event of default under the Note indenture. The Company has retained an investment banking firm and legal counsel to review its strategic alternatives and is in discussion with the holders of the majority of the Notes. Few holders hold the majority of the Notes, and the Company believes the concentration will facilitate the restructuring process. Considering the Company's limited financial resources, there can be no assurance that the Company and the Note holders will succeed in formulating an acceptable alternative capital structure, in which case the Note holders are entitled, at their discretion, to accelerate all principal and interest due on the Notes. Either as a result of successful negotiations with the Note holders or as the result of the failure of such negotiations, the Company could file for protection under Chapter 11 of the Bankruptcy Code or be subject to an involuntary petition. A reorganization would likely result in a significant dilution of the ownership interest of the existing holders of the Company's common stock. There can be no assurance that a bankruptcy proceeding would result in a reorganization of the Company rather than a liquidation. If a liquidation or a protracted reorganization were to occur, there is a substantial risk that there would be insufficient cash or property available for distribution to the Company's creditors and/or the holders of the Company's common stock. Relating to the matters discussed above, on March 15, 2000, a wholly-owned, second-tier subsidiary of PHC, PHC Finance, Inc., filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas in Houston. The subsidiary, whose principal assets are several medical office buildings, does not own or operate any hospital facilities, and neither PHC nor any of the Company's hospital operating subsidiaries is a guarantor for any obligations of PHC Finance, Inc. Given the Company's default on the Notes and the uncertainty surrounding the ultimate resolution of the Company's negotiations with its Note holders, the principal amount of the Notes and certain other debt obligations have been presented as current liabilities in the Company's condensed consolidated balance sheet at March 31, 2000, which has resulted in a working capital deficit of $313.6 million. 11 As the result of the default of interest payment on the Notes, the Company was also in default under its interim credit facility, under which the Company had $11.6 million in outstanding letters of credit, all of which were fully secured by cash collateral held by the lender, and no outstanding borrowings. Additionally, the Company was in default with certain provisions of its off-balance sheet commercial paper financing program, under which a wholly-owned subsidiary of the Company had sold $32.3 million of eligible receivables as of March 31, 2000. As a result of this default, the subsidiary is unable to sell additional receivables under the commercial paper program. The lender of the Company's commercial paper financing program has extended the program until May 17, 2000. As of May 15, 2000, the Company has substantially finalized negotiations of and expects to shortly enter into a new credit agreement with a lending group, which will provide for a $62.0 million revolving credit and letter of credit guaranty facility, expiring May 15, 2003. The Credit Facility will be used primarily to fund normal working capital and certain capital expenditures of the Company's hospitals. The Credit Facility will be an obligation of certain of the Company's subsidiaries and will be secured by all patient accounts receivable and certain other assets of the Company's hospitals and a first lien on two of its hospitals. Accordingly, the Credit Facility will not be not an obligation of PHC. The Credit Facility will replace the letters of credit outstanding under the interim facility and the Company's commercial paper financing program. The outstanding letters of credit under the Credit Facility will be secured by cash collateral held by the lenders. Borrowings under the Credit Facility will bear interest at prime plus 1.5% or LIBOR plus 3.75% per annum and will be limited to hospitals' eligible receivables and certain operating measurements, as defined. The Company recorded deferred financing costs of $638,000 in connection with the Credit Facility as of March 31, 2000. The Company is in a highly leveraged financial position. The lending group's commitment to enter into the Credit Facility expires May 16, 2000. Should the lending group's commitment expire prior to the consummation of the Credit Facility, the Company would be required to seek an extension of such commitment from the lending group. The Company expects it will be able to obtain such an extension; however, there can be no assurance that the lending group would grant such an extension. Should the Company fail to receive an extension of the commitment for the Credit Facility from the lending group or fail to consummate the Credit Facility, the Company would have no available credit lines and therefore would be required to finance its cash needs from operations. Additionally, the Company would be required to seek an extension from its lender under its commercial paper program, which expires May 16, 2000. In the event the commercial paper program is not extended beyond May 16, 2000, a wind down of the program may commence with the Company's current lender retaining a significant portion of the Company's operating cash flows until all amounts outstanding under the commercial paper program are repaid in full. In the event of a wind down, operating cash flows would likely be insufficient to meet the Company's operational and capital expenditure needs. RESULTS OF OPERATIONS The comparison of operating results to prior years is difficult given the number of divestitures in 1999. "Same Hospitals" as used in the following discussion, where appropriate, consist of acute care hospitals owned throughout both periods for which comparative operating results are presented. Results of Operations - Quarter ended March 31, 2000 compared with Quarter ended March 31, 1999 Net revenue for the quarter ended March 31, 2000, was $95.1 million, a decrease of $55.8 million, or 37.0%, from $150.9 million for the same period in 1999. Net revenue declined by $54.0 million due to the sale of ten hospitals in 1999. The remaining decline in net revenue occurred at the Company's "Same Hospitals," as discussed below. 12 Net revenue at "Same Hospitals" for the quarter ended March 31, 2000 was $94.2 million compared to $95.9 million in 1999, a decrease of $1.7 million, or 1.8%. The decline in net revenue was due in part to a shift in payor mix from the traditional Medicare, Medicaid and indemnity plans to managed care, from which the Company generally receives lower reimbursements, and to a decline in admissions and patient days at certain hospitals as more fully discussed below. The Company's "Same Hospitals" experienced a 1.1% decrease in inpatient admissions from 10,305 in the quarter ended March 31, 1999 to 10,195 in the comparable period in 2000. Same hospital patient days decreased 4.4% from 52,824 in 1999 to 50,509 in 2000. Excluding home health visits, outpatient visits increased 3.6% from 76,846 in 1999 to 79,585 in 2000. The decrease in admissions and patient days was driven largely by the departure of physicians at the Richmond, Virginia facility as the result of a revision to the licensure standards of the hospital's medical staff. Home health visits decreased 14.4% from 74,352 in 1999 to 63,645 in 2000 primarily due to the closure of a home health office and the cancellation of certain home health contracts at the Richmond facility and a general slow down of home health operations in other markets. Excluding the Richmond facility, admissions and outpatient visits (excluding home health) increased 0.4% and 6.9%, respectively, and home health visits declined by 2.1%, compared to prior year quarter. Operating expenses decreased $45.6 million from $129.4 million in the quarter ended March 31, 1999 to $83.8 million in 2000 primarily from closed/sold facilities. Excluding sold/closed facilities, operating expenses at Same Hospitals increased by approximately $1.4 million from (i) an increase of $2.0 million in salaries and benefits from market driven increases in wages at several facilities and increased overtime and contract labor due to a shortage of nurses at certain hospitals, (ii) an increase of $700,000 in other operating costs primarily from increased volume and patient acuity at certain facilities, which resulted in higher supply costs, offset by (iii) a decrease in provision for bad debt of $1.3 million due to improved collections and accounts receivable management at selected hospitals and an increased emphasis on the segregation of charity care from the bad debt provision. Operating expenses (salaries and benefits, other operating expenses and provision for bad debts), expressed as a percentage of net revenue were 88.2% and 85.8% in 2000 and 1999, respectively. Operating expenses at "Same Hospitals" increased to 85.3% of net revenue in 2000 from 82.3% in 1999, and operating margins decreased to 14.7% from 17.7%, respectively. The deterioration in operating margins resulted from the aforementioned factors. Interest expense decreased $4.1 million from $13.1 million in the quarter ended March 31, 1999 to $9.0 million in 2000, primarily due to the repayment of amounts outstanding under the senior credit facility in October 1999. Depreciation and amortization expense decreased $1.6 from $9.8 million in the quarter ended March 31, 1999 to $8.2 million for the same period in 2000 primarily due to the sale of ten hospitals in 1999, partially offset by an increase from additions to property and equipment. Loss before income taxes of $8.5 million for the quarter ended March 31, 2000, included restructuring costs of $2.5 million for professional fees incurred in connection with the Company's efforts to restructure the Notes. Loss before income taxes of $2.5 million for the quarter ended March 31, 1999, included a net unusual charge of $1.1 million resulting from the executive agreement executed in November 1998. The Company recorded no income tax benefit in the quarter ended March 31, 2000 as the result of recording an additional valuation allowance to reserve all net deferred tax assets generated during the current quarter. Income tax benefit of $897,000 in 1999 differed from the statutory rate due to nondeductible goodwill amortization which was offset by a non-taxable gain related to an executive agreement with certain of the Company's former senior executives. 13 Net loss for the quarter ended March 31, 2000 was $8.5 million, or $0.15 per diluted share, compared to $1.6 million, or $0.03 per diluted share, for the same period of 1999. Weighted average common and common equivalent shares outstanding increased to 57.7 million in 2000 as compared to 55.1 million as the result of the issuance of common shares in connection with the settlement of litigation in September 1999. LIQUIDITY AND CAPITAL RESOURCES The introductory information to this Item as set forth in "Issues Affecting Liquidity" discusses the important issues affecting the Company's liquidity and capital resources. Net cash used in operating activities was $5.7 million in the quarter ended March 31, 2000, compared to $5.4 million for the same period of 1999, and included payments of $2.5 million for professional fees related to the Note restructuring activities, $1.0 million for the working capital settlement on the Utah hospitals sold in 1999, $1.0 million of cash collateral on certain letter of credit commitments, and a federal income tax payment. Net cash used in investing activities decreased to $2.3 million during 2000, as compared to $8.3 million during 1999, and reflected a decrease in capital expenditures related to the Year 2000 program and to facility expansion. Net cash used in financing activities during 2000 was $1.0 million, which reflected payments on capital lease obligations and deferred financing costs on the Credit Facility, compared to net cash provided by financing activities of $7.4 million during 1999, which resulted primarily from net borrowings under the senior credit facilities. In connection with its efforts to restructure the Notes, the Company paid $2.5 million of professional fees in the three months ended March 31, 2000. The Company expects that future restructuring costs will be paid as incurred from internally generated cash from operations and existing cash balances. The Company anticipates that internally generated cash from operations, existing cash balances and borrowings under the Credit Facility will be sufficient to fund the hospitals' routine capital expenditures and working capital requirements through 2000. Should the Company fail to consummate the Credit Facility, the Company would have no available credit lines and there can be no assurance that the Company will have sufficient resources to finance its capital expenditure program in 2000. LITIGATION The Company is subject to claims and legal actions by patients and others in the ordinary course of business. The Company believes that all such claims and actions are either adequately covered by insurance or will not have a material adverse effect on the Company's financial condition, results of operations or liquidity. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS There were no material changes to the information reported in the Company's 1999 Annual Report on Form 10-K. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no other material developments in the legal proceedings. 14 ITEM 2. CHANGE IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES As previously reported in the Company's 1999 Form 10-K, on February 15, 2000, the Company did not make the interest payment of approximately $16.3 million due on the Company's $325.0 million 10% Senior Subordinated Notes due 2006, which upon the expiration of a 30-day grace period on March 16, 2000, constituted an event of default under the Note indenture. The Company is currently engaged in negotiations with the majority of the Note holders to develop an alternative, sustainable capital structure for the Company. As the result of the default of interest payment on the Notes, the Company was also in default under its interim credit facility, under which the Company had $11.6 million in outstanding letters of credit, all of which were fully secured by cash collateral held by the lender, and no outstanding borrowings. Additionally, the Company was in default with certain provisions of its off-balance sheet commercial paper financing program, under which a wholly-owned subsidiary of the Company had sold $32.3 million of eligible receivables as of March 31, 2000. As a result of this default, the subsidiary is unable to sell additional receivables under the commercial paper program. The lender under the Company's commercial paper financing program extended the program until May 16, 2000. As of May 15, 2000, the Company has substantially finalized negotiations of and expects to shortly enter into a new credit agreement with a lending group, which will provide for a $62.0 million revolving credit and letter of credit guaranty facility, expiring May 15, 2003. The Credit Facility will replace the letters of credit outstanding under the interim facility and the Company's commercial paper financing program. The Company is in a highly leveraged financial position. The lending group's commitment to enter into the Credit Facility expires May 16, 2000. Should the lending group's commitment expire prior to the consummation of the Credit Facility, the Company would be required to seek an extension of such commitment from the lending group. The Company expects it will be able to obtain such an extension; however, there can be no assurance that the lending group would grant such an extension. Should the Company fail to receive an extension of the commitment for the Credit Facility from the lending group or fail to consummate the Credit Facility, the Company would have no available credit lines and therefore would be required to finance its cash needs from operations. Additionally, the Company would be required to seek an extension from its lender under its commercial paper program, which expires May 16, 2000. In the event the commercial paper program is not extended beyond May 16, 2000, a wind down of the program may commence with the Company's current lender retaining a significant portion of the Company's operating cash flows until all amounts outstanding under the commercial paper program are repaid in full. In the event of a wind down, operating cash flows would likely be insufficient to meet the Company's operational and capital expenditure needs. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION The New York Stock Exchange ("NYSE") recently notified the Company that it no longer meets the NYSE's minimum criteria for market capitalization of not less than $50 million and stockholders' equity of not less than $50 million. The NYSE has given the Company until June 2, 2000 to submit a plan for bringing the Company back into compliance with these requirements over an eighteen-month period that commenced on April 13, 2000. The Company intends to submit such a plan and to work with the NYSE to continue the Company's listing. The Company's plan most likely will involve pursuing alternatives that include negotiating with the Note holders to develop an alternative, sustainable capital structure that may enable the Company to regain compliance. Although the Company expects that the plan it will submit will bring the Company into compliance with the NYSE's criteria, there can be no assurance that the NYSE will accept the Company's plan. 15 The NYSE previously informed the Company that it remained below the NYSE's required minimum share price of $1 over a 30 trading-day period. The Company's share price remains below the $1 level over a 30 trading-day period. The Company has until its next annual meeting of shareholders to raise its share price above $1. There can be no assurance that the Company's common stock will continue to be listed on a national securities exchange. If the Company's securities were delisted, the delisting would have a material adverse effect on the liquidity and trading price of the Company's securities. ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K (a) Exhibit 10.83 Employment Agreement effective March 27, 2000 between Robert L. Smith and Paracelsus Healthcare Corporation. 27 Financial Data Schedule. (b) Report on Form 8-K None. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Paracelsus Healthcare Corporation (Registrant) /s/ LAWRENCE A. HUMPHREY Dated: May 15, 2000 By: ___________________________ Lawrence A. Humphrey Executive Vice President & Chief Financial Officer 17 EX-10.83 2 PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT To: Robert L. Smith This Agreement establishes the terms of your employment with Paracelsus Healthcare Corporation, a California corporation (the "Company") and reflects your employment as the Company's Chief Executive Officer ("CEO"). Employment and Duties You and the Company agree to your employment by the Company as the Company's CEO. In such position, you will report directly to the Company's Board of Directors (the "Board"). You agree to perform whatever duties the Board may assign you from time to time that are consistent with those of the CEO of a public company. During your employment, you agree to devote your full business time, attention, and energies to performing those duties (except as the Board otherwise agrees from time to time). On termination of your employment under this Agreement, you agree that you will promptly resign as an officer and director and from all other officer and director positions at the Company and its subsidiaries and affiliates which you hold at that time. You represent as a condition to your employment under this Agreement that you are not subject to any agreement or understanding with any other person which might adversely affect your ability to perform your work as the Company's CEO under this Agreement. Term of Employment Your employment under this Agreement shall begin no later than _________, 2000 (the "Effective Date") and, unless sooner terminated or extended, shall end on December 31, 2001. Your employment term under this Agreement will be automatically extended for the period of one additional year on December 31 of each year, beginning with December 31, 2001 absent notice on or before October 1 of that year from either you or the Company not to extend such term for an additional year. The period running from the Effective Date to December 31, 2001 or, if extended, to the last day of the calendar year of such extension shall be referred to in this Agreement as your "Term". Compensation Base Salary The Company will pay you a monthly base salary (the "Monthly Base Salary") while you are employed under this Agreement, and your initial Monthly Base Salary shall be $35,420 per month, payable in accordance with the Company's generally applicable payroll practices. Future adjustments to your Monthly Base Salary will be made in the discretion of the Company's Option and Compensation Committee. However, no future adjustments will reduce your Monthly Base Salary below $35,420 per month. Benefits While you are employed under this Agreement, you will be eligible to participate in the employee benefit and fringe benefit plans and programs generally available to the Company's executive officers and such additional benefits as the Board may from time to time provide. If a participant is required to make a contribution or pay a premium to participate in any such plan or program, the Company will reimburse you for up to $6,000 in such contributions and premiums which you make or pay each calendar year. In addition, you will be entitled while employed to the following life insurance and disability coverages and fringe benefits: Life Insurance. The Company will maintain (whether through individual or group coverage or both) for your benefit while you are employed life insurance coverage with a face amount equal to three times the amount of your annualized initial Monthly Base Salary, $1,000,000 or the face amount of coverage which can be purchased for a premium of no more than $6,000 a year, whichever is less. You will have the right to name and to change from time to time the beneficiary or beneficiaries under such life insurance coverage. Such life insurance coverage will be in addition to any death benefits that may be payable under any accidental death and dismemberment plan, any separate business travel accident coverage, or any qualified or nonqualified deferred compensation plan in which you may participate, and such coverage will also be in addition to any life insurance that you purchase for yourself. Health Insurance. You agree to elect COBRA coverage under your current employer's group health plan. The Company will reimburse you for your COBRA premiums while your COBRA coverage is in effect, and the Company will provide you, your wife and your children with a comprehensive medical insurance and dental insurance which shall be effective when your COBRA coverage terminates. Long-Term Disability. lf you become disabled (as defined in the long-term disability plan the Company presently maintains) while you are employed, you will be eligible to receive disability benefits in an amount equal to 60% of your then annualized Monthly Base Salary. Any amount payable under any salary continuation plan or disability or other plan maintained by the Company, and any amount payable to you or to your immediate family (if timely applied for) as a Social Security disability benefit or similar benefit will be counted towards the Company's fulfillment of such obligation. Disability benefits will be payable monthly beginning 30 days following your disability and will continue until you are no longer disabled or, if earlier, until you reach age 65 or die, whichever comes first. Liability Coverage. During your employment, you will be insured under the Company's general liability insurance policy for all acts done by you in good faith to the same extent as the Company insures other senior officers of the Company. Vacations and Holidays. You will be entitled to five (5) weeks paid vacation time each year, which will vest and accrue on a month pro rata basis without an accrual limit while you are employed and which can be taken as reasonably agreed upon by you and the Option and Compensation Committee. You will be entitled to all holidays as listed annually in the Company's official holiday schedule. Tax Return Preparation; Financial Advice. The Company while you are employed will provide you with the assistance of its regular auditors for the preparation of your federal and state tax returns without charge to you. In addition, the Company will reimburse you while you are employed up to $5,000 per year for the reasonable costs you actually incur for financial and estate planning services. Annual Physical. The Company while you are employed will reimburse you 100% of the reasonable costs you actually incur in obtaining an annual, comprehensive physical examination to be conducted by your choice of physician, clinic, or medical group located within a reasonable distance from your place of employment. Reimbursement for business expenses. Your reimbursement for business expenses, including travel and entertainment and monthly country club dues, will be limited to reasonable and necessary expenses you actually incur on the Company's behalf in connection with performing duties on the Company's behalf and subject to (i) timely submission of a properly executed Company expense report form accompanied by appropriate supporting documentation, and (ii) compliance with Company policies and procedures governing business expense reimbursement and reporting based upon principles and guidelines established from time to time by the Board's Audit Committee, including periodic audits by the Company's Internal Audit Department or the Board's Audit Committee. Annual Performance Bonus. You shall have the opportunity while you are employed to earn an annual performance bonus of up to 50% of your annualized Monthly Base Salary for each year if you achieve the specific performance goals mutually agreed upon by you and the Option and Compensation Committee. Your annual performance bonus will be paid no later than 30 days after the completion of the annual audit on which the bonus is based. However, if you fail to earn an annual performance bonus for year 2000 equal to at least 25% of your Monthly Base Salary actually payable for calendar year 2000, you nevertheless shall receive a minimum bonus for calendar year 2000, provided that your employment has not terminated before December 31, 2000, equal to 25% of your total Monthly Base Salary payable for the calendar year 2000. Long-term Incentive. When your employment begins you shall receive a restricted stock grant of 1,300,000 shares of the Company's common stock . This grant shall vest either under the general vesting rule or the special vesting rule, whichever is more favorable to you. Under the general vesting rule this grant shall vest 25% (or 325,000 shares) on January 1, 2001, 25% (or 325,000 shares) on January 1, 2002, 25% (or 325,000 shares) on January 1, 2003 and 25% (or 325,000 shares) on January 1, 2004. However, under either the general vesting rule or the special vesting rule you shall vest on a date only if you are still the Company's CEO on that date. Alternatively the option grant shall vest under the special vesting rule as follows: (i) If the stock price hits $ 3.50 at any time in the first eighteen (18) months of your employment and closes for at least ten (10) consecutive trading days at or above $ 3.50, 35% (or 455,000) of the shares shall become vested. (ii) If the stock price hits $ 4.50 at any time in the first twenty four (24) months of your employment and closes for at least ten (10) consecutive trading days at or above $ 4.50, a total of 66% (or 858,000) of the shares shall become vested. (iii) If the stock price hits $ 6.00 at any time in the first thirty-six (36) months of your employment and closes for at least ten (10) consecutive trading days at or above $ 6.00, 100% of the shares shall become vested. If your employment is terminated by the Company without Cause (as defined in this Agreement) and your right to your restricted stock is less than 50% vested, your right to such stock shall automatically increase to vest 50% (or 650,000 shares). If your employment is terminated for Cause (as defined in this Agreement), you will forfeit all your unvested restricted stock. If there is a change of control in the Company as a result of a change in ownership of thirty percent (30%) or more or a change of three (3) or more of the members of the Company's seven (7) member Board of Directors (or a proportionate number of members if the total number of members exceeds seven (7)) in any annual term (other than a change in such members which was approved by a majority of the members of the Board of Directors who were members at the beginning of such term or which results from the death, voluntary resignation or mandatory retirement of a member) and your employment terminates within the one (1) year period following such change of control, your right to your restricted stock will automatically vest 100%. All of the foregoing stock figures shall be adjusted up or down to reflect any stock split or reverse stock split. Finally, on each anniversary of this Agreement, beginning on January 1, 2001, you will be granted an additional stock option (if you are still the Company's CEO) to purchase 200,000 shares of the Company's common stock (or an equivalent of that figure if there is a stock split or reverse stock split which increases or decreases the current number of shares of the Company), no stated par value, at an exercise price at the fair market value of a share of such stock at that time, with a term of ten (10) years. These options become fully vested three years after grant (if you are still the Company's CEO). Excise Tax. If, as a result of a change of control, any option vesting or other payments trigger a "golden parachute excise tax" for you, such vesting may be delayed or such payments may be suspended or cut back to the extent required to avoid that tax. Car Allowance. You shall be entitled to receive an annual Car Allowance of $9,600, payable per the Company's generally applicable payroll practices. Termination Subject to the provisions of this section, you and the Company agree that the Company may terminate your employment, or you may resign, at any time with or without good reason before the end of your Term, except that, if you resign, you agree to provide the Company with 90 days' prior written notice (unless the Board has previously waived such notice in writing or authorized a shorter notice period). For Cause The Company may terminate your employment for "Cause" if you: (i) act with willful disregard for the Company's best interests; provided however, that such act or action was not approved by the Board; (ii) seize an opportunity to enhance or diversify the Company's business for yourself instead of offering such opportunity to the Company; (iii) are convicted of or plead guilty or no contest to a felony, or, with respect to your employment, commit either a material dishonest act or common law fraud or intentionally violate any federal or state securities or tax laws; or (iv) violate the Company's code of conduct or materially breach any provision of this Agreement. Your termination for Cause will be effective immediately upon the Company's mailing or transmission of notice of such termination. However, before terminating your employment for Cause for any reason (except for the reason described in clause (iii)), the Company will specify in writing to you the nature of the act, omission, refusal, or failure that it deems to constitute Cause and give you 60 days after you receive such notice to correct the situation (and thus avoid a termination for Cause), unless the Company agrees to extend the time for the correction. You agree that the Board will have the reasonable discretion to determine whether the situation is correctable and whether your correction is sufficient to eliminate the basis for a termination for Cause. If your employment is terminated for Cause, the Company shall have no further obligations to you under this Agreement. Without Cause The Company may terminate your employment under this Agreement at any time during your Term without Cause. The termination will take effect 60 days after the Company gives you written notice of such termination. If the Company terminates your employment without Cause during your Term, the Company shall pay you your then Monthly Base Salary for the month in which you terminate and shall pay you as severance pay an amount equal to twenty-four (24) months of your final Monthly Base Salary plus any Bonus earned but not yet paid in one lump sum. The Company thereafter shall have no further obligations to you under this Agreement. Finally, a failure by the Company to extend your Term, or a failure by the Company to renew or replace the surety bond described in the next paragraph within 30 days prior to its expiration (unless such deadline is extended in writing by Robert L. Smith), shall constitute a termination of your employment by the Company without Cause. The Company will establish a surety bond at a mutually agreeable insurance company for an amount of $850,000 upon execution of this agreement to satisfy in whole or in part the Company's obligations, if any, under this part of this Agreement. Resignation If you resign at any time during your Term, the Company shall have no further obligations to you under this Agreement. If your employment is terminated, you shall return within 3 business days any and all property to the Company which you have in your possession when your employment terminates and any copies of any such property. Noncompetition You have disclosed to the Board, in writing, and Secrecy all healthcare related interests, investments, and business activities, whether as proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, or in any other capacity or manner whatsoever. You shall promptly notify the Board, in writing, of any changes in or additions to such interests, activities or investments within 15 days of such change or addition. Without the written consent of the Board, you may not engage in any of the following actions during the period that is (a) prior to your termination of employment with the Company and (b) within two (2) years following the termination of your employment with the Company (the "Restricted Period"): (i) own, either directly or indirectly, any interest in any business that competes with the "Primary Business" in which the Company or any subsidiary or affiliate is engaged at the time your employment terminates, within a radius of 35 miles from any site, facility, or location which is owned, managed or operated by or affiliated with the Company or any of its subsidiaries or affiliates, including physician practices of any kind (except with respect to the Company's Baytown, Texas, facility, where such radius shall be 5 miles). For purposes of this Agreement, the term Primary Business shall mean the delivery of integrated healthcare services in markets where the Company or its subsidiaries or affiliates own hospitals and/ or skilled nursing facilities, with the hospital serving as the hub of the local delivery system in conjunction with its physical medical staff. In addition to inpatient acute care, these services can include (a) individual physician practices and/ or physician based organizations such as primary care and specialty clinics, physician-hospital organizations or medical service organizations, or physician medical groups and (b) ambulatory surgery, psychiatric services, occupational and sports medicine centers, psychiatric after-care and day care programs, and other diagnostic, rehabilitative and treatment services. The Board may modify, from time to time, the definition of Primary Business to include any additional business or service activity in which the Company may engage during your Term or to exclude any business or service in which the Company ceases to engage; (ii) participate or serve, either directly or indirectly, whether as a proprietor, stockholder, partner, co-venturer, director, officer, agent, or in any other capacity or manner whatsoever in any business or service activity that competes with the Primary Business; (iii) directly or indirectly, solicit or recruit any individual employed by the Company, its subsidiaries or affiliates for the purpose of being employed by you or by any competitor of the Company on whose behalf you are acting as an agent, representative or employee, or convey any confidential information or trade secrets regarding the Company, its subsidiaries or affiliates to any other person; or (iv) directly or indirectly, influence or attempt to influence customers of the Company or any of its subsidiaries or affiliates to direct their business to any competitor of the Company. In the event you violate any of these noncompetition and secrecy provision, you agree to repay any severance amount paid pursuant to this Agreement and agree that you shall forfeit all your outstanding stock options held by you, except for those stock options already vested. You further expressly agree that the Company will or would suffer irreparable injury if you were to compete with the Company or any subsidiary or affiliate in violation of this Agreement and that the Company would by reason of such competition be entitled to preliminary or permanent injunctive relief in a court of appropriate jurisdiction, and you further consent and stipulate to the entry of such preliminary or permanent injunctive relief in such a court prohibiting you from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement upon an appropriate finding by such court that you have violated this Agreement. You acknowledge and agree that in your employment under this Agreement you will occupy and will continue to occupy a position of trust and confidence. You shall not, except as may be required to perform your duties under this Agreement or as required by applicable law, until the expiration of the Restricted Period or until such information shall have become public other than by your unauthorized disclosure, disclose (or threaten to disclose) to others or use, whether directly or indirectly, and any trade secrets or confidential information regarding the Company, its subsidiaries and affiliates, and you agree that the Company would by reason of such disclose or threatened disclosure or other failure to comply, be entitled to preliminary or permanent injunctive relief in a court of appropriate jurisdiction, and you further consent and stipulate to the entry of such preliminary or permanent injunctive relief in such a court prohibiting you from disclosing any trade secrets or confidential information in violation of this Agreement upon an appropriate finding by such court that you have violated this Agreement. You agree never to copy, and to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of your employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information furnished by the Company, its subsidiaries or affiliates or prepared by you during the term of your employment by the Company, its subsidiaries and affiliates. You agree that you will hold in a fiduciary capacity for the benefit of the Company and any subsidiary and affiliate, and will not directly or indirectly use or disclose, any trade secret that you may have acquired during the term of your employment under this Agreement so long as such information remains a trade secret. The term "trade secret" shall mean information, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers that (a) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (b) is the subject to reasonable efforts by the Company and each subsidiary and affiliate to maintain its secrecy. This provision regarding trade secrets is intended to provide rights to the Company which are in addition to those rights the Company has under the common law or applicable statutes for the protection trade secrets. The term "confidential information" under this Agreement shall mean any secret, confidential or proprietary information that the Company or a subsidiary or an affiliate (not otherwise included in the definition of a trade secret under this Agreement) that has not become generally available to the public by the act of one who has the right to disclose such information without violating any right of the company or a subsidiary or an affiliate. You agree that your obligations under this section are obligations which will continue beyond the date your employment terminates. You agree that you were separately and adequately compensated for the obligations described in this section, and that they reasonably reflect the need for the Company to protect its business interests. Assignment The Company may assign or otherwise transfer this Agreement and any and all of its rights, duties, obligations, or interests under it to any subsidiary or affiliate of the Company. Upon such assignment or transfer, any such business entity will be deemed to be substituted for the Company for all purposes. You agree that assignment or transfer does not entitle you to Severance. This Agreement binds and benefits the Company and its assigns and your heirs and the personal representatives of your estate. Without the Board's prior written consent, you may not assign or delegate your obligations under this Agreement or any or all your rights, duties, or interests under it. Severability lf the final determination of an arbitrator or a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term or provision of this Agreement is invalid or unenforceable, the remaining terms and provisions will be unimpaired, and the invalid or unenforceable term or provision will be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. Amendment; Waiver Neither you nor the Company may modify, amend, or waive the terms of this Agreement other than by a written instrument signed by you and a director of the Company duly authorized by the Board. Either party's waiver of the other party's compliance with any provision of this Agreement is not a waiver of any other provision of this Agreement or of any subsequent breach by such party of a provision of this Agreement. No Other Agreements This Agreement supercedes and replaces any and all prior agreements and understandings regarding the terms and conditions of your employment, and this Agreement constitutes the entire agreement between you and the Company with respect to such terms and conditions. Withholding The Company will reduce its compensatory payments to you for withholding and FICA taxes and any other withholdings and contributions required by law or elected by you. Governing Law The laws of the State of Texas (other than its conflict of laws provisions) govern this Agreement. Notices Notices must be given in writing by personal delivery, by certified mail, return receipt requested, by telecopy, or by overnight delivery. You must send or deliver your notices to the Company's corporate headquarters. The Company will send or deliver any notice given to you at your address as reflected on the Company's personnel records. You and the Company may change the address for notice by like notice to the others. You and the Company agree that notice is received on the date it is personally delivered, the date it is received by certified mail, the date of guaranteed delivery by the overnight service, or the date the fax machine confirms effective transmission. lf you accept the terms of this Agreement, please sign in the space indicated below. We encourage you to consult before signing with any advisors you choose. PARACELSUS HEALTHCARE CORPORATION By:_______________________________________ Name:____________________________________ Title:_____________________________________ I accept and agree to the terms of employment set forth in this Agreement: - -------------------------------- Robert L. Smith Dated: December___, 1999 EX-27 3
5 1000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 13,650 0 65,882 33,688 8,836 93,049 341,043 118,320 429,327 406,619 3,634 0 0 216,045 (219,351) 429,327 0 95,084 0 40,700 46,919 6,958 9,010 (8,503) 0 (8,503) 0 0 0 (8,503) (0.15) (0.15)
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