-----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, ORMt0cugL0292HOLzRKLliXTeuQAgpon4kQKuOv6CfTDwk1+GEAp6VmfZYIPYZoj VhqFkikRDWwrdusTIUe+dg== 0000950129-96-003137.txt : 19961121 0000950129-96-003137.hdr.sgml : 19961121 ACCESSION NUMBER: 0000950129-96-003137 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 28 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961119 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-12055 FILM NUMBER: 96669431 BUSINESS ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 BUSINESS PHONE: 7138736623 MAIL ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 10-Q 1 PARACELSUS HEALTHCARE CORP. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO THE SECTION 13 OF 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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 800, Houston, Texas 77067 (Address of principal executive offices) (Zip Code) (281) 774-5100 (Registrant's telephone number, including area code) 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 September 30, 1996, there were 54,813,417 shares of the Registrant's Common Stock, no stated value, outstanding. ================================================================================ 2 On September 12, 1996, the Company elected to change its fiscal year end from September 30 to December 31. Accordingly, the Quarterly Report of the Form 10-Q for the three and nine months ended September 30, 1996 is hereby filed for the third quarter of the new calendar year ending on December 31, 1996. The Board of Directors has appointed a Special Committee consisting of non- management members, to supervise and direct the conduct of an inquiry by outside legal counsel regarding, among other things, the Company's accounting and financial reporting practices and procedures for the quarterly periods before the quarter ending September 30, 1996. As of the date of filing this report, such inquiry has not been completed. Accordingly, depending on the results of the Special Committee inquiry, the Quarterly Report on Form 10-Q hereby filed and other previously filed reports may have to be amended to reflect adjustments and items reported in the current financial period that may need to be reclassified or attributed to earlier periods. Such adjustments or reclassifications may involve amounts currently recorded as contractual allowance, which might require additional provision for bad debts or receivable adjustments. Certain statements in this Form 10-Q 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. Factors which may cause the Company's actual results in future periods to differ materially from forecasted results include, but are not limited to: the results of the Special Committee inquiry described herein, the outcome of litigation pending against the Company and certain affiliated person, changes in government or private payors' reimbursement practices for health care services, competition in the Company's markets, and such other factors as might reasonably affect a provider of health care services. 3 PARACELSUS HEALTHCARE CORPORATION FORM 10-Q Three and Nine Months Ended September 30, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements - (Unaudited) Condensed Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 4 Consolidated Statements of Income - Three and Nine months ended September 30, 1996 and 1995 5 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 1996 and 1995 6 Notes to Interim Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. OTHER INFORMATION 24
SIGNATURE 28 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
September 30, December 31, 1996 1995 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 14,611 $ 4,545 Marketable securities 16,713 12,643 Accounts receivable, net 93,159 85,988 Other current assets 31,126 27,732 Deferred income taxes 72,861 15,508 Current assets of discontinued operations, net 5,097 - -------- -------- Total current assets 233,567 146,416 Property and equipment 442,894 273,730 Less: Accumulated depreciation and amortization (64,647) (106,328) -------- -------- 378,247 167,402 Long-term assets of discontinued operations, net 28,398 - Assets held for sale, net 24,527 - Marketable securities 9,950 10,066 Investment in Dakota Heartland Health System 48,586 - Goodwill 113,531 2,398 Other assets 31,008 27,190 -------- -------- Total Assets $867,814 $353,472 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and other current liabilities $109,833 $ 62,276 Current maturities of long-term debt 2,245 5,132 -------- -------- Total current liabilities 112,078 67,408 Long-term debt 490,202 130,250 Other long-term liabilities 37,715 25,498 Deferred income taxes 24,263 23,320 Stockholders' equity Common Stock 213,465 4,500 Additional paid-in capital 390 390 Unrealized gains on marketable securities 62 212 Retained earnings (Accumulated deficit) (10,361) 101,894 -------- -------- Total stockholders' equity 203,556 106,996 -------- -------- Total Liabilities and Stockholders' Equity $867,814 $353,472 ======== ========
See notes to interim condensed consolidated financial statements. 5 PARACELSUS HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Net revenue $109,855 $111,056 $350,200 $332,836 Costs and expenses: Salaries and benefits 58,718 45,596 165,223 143,129 Provision for bad debts 10,489 7,700 24,453 19,758 Other operating expenses 47,334 48,303 137,937 133,976 Interest 9,383 4,142 18,433 12,002 Depreciation and amortization 7,416 4,111 15,529 12,092 Impairment charge 13,349 - 13,349 - Merger costs 46,818 - 46,818 - Unusual charges - 4,177 2,438 4,177 -------- -------- -------- -------- Total costs and expenses 193,507 114,029 424,180 325,134 Gain from sale of a hospital - 9,026 - 9,026 Income (loss) from continuing operations before minority interests and income taxes (83,652) 6,053 (73,980) 16,728 Minority interests 52 (131) (1,595) (1,234) -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and extraordinary losses (83,600) 5,922 (75,575) 15,494 Provision for income taxes(benefit) (33,355) 2,429 (30,066) 6,351 -------- -------- -------- -------- Income (loss) from continuing operations before extraordinary losses (50,245) 3,493 (45,509) 9,143 Discontinued operations: Income (loss) from operations of discontinued psychiatric hospitals, net (10,419) (170) (21,896) 1,362 Loss on disposal of discontinued psychiatric hospitals, net (14,902) - (14,902) - -------- -------- -------- -------- Income (loss) before extraordinary losses (75,566) 3,323 (82,307) 10,505 Extraordinary losses from early extinguishment of debt, net (4,557) - (4,557) - -------- -------- -------- -------- Net Income (Loss) (80,123) $ 3,323 $(86,864) $ 10,505 ======== ======== ======== ======== Income (loss) per share: Continuing operations $ (1.19) $ 0.12 $ (1.34) $ 0.31 Discontinued operations (0.60) (0.01) (1.08) 0.04 Extraordinary losses (0.10) - (0.14) - -------- -------- -------- -------- Income (loss) per share $ (1.89) $ 0.11 $ (2.56) $ 0.35 ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding 42,290 29,772 33,975 29,772
See notes to interim condensed consolidated financial statements. 6 PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)(Unaudited)
Nine Months Ended September 30, ------------------- 1996 1995 --------- -------- Operating Activities: Net income (loss) $(86,864) $ 10,505 Non-cash expenses and changes in operating assets and liabilities, excluding acquisitions 56,652 7,662 -------- -------- Net cash (used in) provided by operating activities (30,212) 18,167 -------- -------- Investing Activities: Purchase of marketable securities (4,104) (4,392) Acquisitions, net of cash acquired (123,072) (3,010) Proceeds from disposal of facilities - 18,564 Purchase of property and equipment, net (3,260) (14,165) Decrease in minority interests (2,747) (1,315) (Increase)decrease in other assets 712 (2,062) -------- -------- Net cash used in investing activities (132,471) (6,380) -------- -------- Financing Activities: Net proceeds from issuance of common stock 40,081 - Borrowings under Credit Facility 441,500 33,000 Repayments under Credit Facility (342,000) (37,500) Net proceeds from issuance of debt 320,342 - Repayment of long-term debt (262,193) (1,064) Dividends to stockholder (24,981) (5,278) -------- -------- Net cash provided by (used in) financing activities 172,749 (10,842) -------- -------- Increase in cash and cash equivalents 10,066 945 Cash and cash equivalents at beginning of period 4,545 2,004 ------ ------- Cash and cash equivalents at end of period $14,611 $ 2,949 ======== ======== Supplementary cash flow information: Cash paid during the period for: Income taxes $ 100 $11,484 Interest 15,713 10,438 Purchase of businesses, net: Working capital, other than cash $(24,030) $ (616) Property, plant and equipment (288,810) (67) Other assets (165,333) (2,327) Long-term debt 182,492 - Noncurrent liabilities 25,367 - Value of stock issued 147,242 -
See notes to interim condensed consolidated financial statements. 7 PARACELSUS HEALTHCARE CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1996 Note 1. Organization and Basis of Presentation Organization Paracelsus Healthcare Corporation (the "Company") was incorporated in November 1980 for the principal purpose of owning and operating acute care and related healthcare businesses in selected markets. On August 16, 1996, the Company acquired Champion Healthcare Corporation ("Champion") (the "Merger")and completed an initial public equity offering . The results of Champion have been included in the operations of the Company since August 16, 1996. As of September 30, 1996, the Company operated 31 hospitals with 3,245 licensed beds in 11 states (including five psychiatric hospitals with 437 licensed beds (see Note 4)). 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 annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (see Note 2). The Company's business is seasonal in nature and subject to general economic conditions and other factors. Accordingly, operating results for the three and nine months ended September 30, 1996 are not indicative of the results that may be expected for the year ending December 31, 1996. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended September 30, 1995 included in the Company's Annual Report on Form 10-K for such period. On September 12, 1996, the Company changed its fiscal year end from September 30 to December 31. Accordingly, this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 1996 is hereby filed for the third quarter of the new calendar year ending on December 31, 1996. Concurrent with the change in fiscal year end, the Company has adopted 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," effective for the third quarter of the calendar year ending December 31, 1996 (see Note 5). 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. Certain account balances for the three and nine months ended September 30, 1995 have been reclassified to conform to the Company's current presentation. 8 Net Income (Loss) Per Share Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding. Fully diluted net income (loss) per share is not presented since it equals primary net income (loss) per share. Weighted average number of common and common equivalent shares outstanding for the quarter and nine months ended September 30, 1995 have been adjusted to reflect the 66,159.426-for-one stock split in conjunction with the Merger. Note 2. Significant Adjustments In September 1996, the Company recorded adjustments to increase the after- tax loss from continuing operations by $10.4 million and from discontinued operations by $8.8 million for the quarter and nine months ended September 30, 1996. The impact of these adjustments on loss per share from continuing operations for the quarter and nine months ended September 30, 1996 were $(0.25) and $(0.31), respectively. The impact of these adjustments on loss per share from discontinued operations for the same periods were $(0.21) and $(0.26), respectively. The adjustments to continuing operations related to a change in recording estimated amounts due from government programs of $23.6 million and charges related to bad debts and closure costs at certain exchanged or closed facilities of $2.4 million, reduced by related tax benefits and the reversal of certain excess liabilities of $15.6 million. The adjustments to discontinued operations also related to revised estimates of government program receivables of $10.1 million and charges for bad debts and closure costs at certain psychiatric hospitals of $4.8 million, reduced by related tax benefits of $6.1 million. Presently, a Special Committee of the Board of Directors is supervising and directing an investigation regarding, among other things, certain accounting and financial reporting practices of the Company for the quarterly periods prior to the quarter ended September 30, 1996. The results of that investigation may require the Company to amend this Form 10-Q for the quarter ended September 30, 1996 hereby filed and other previously filed reports to reflect adjustments and items reported in the current financial period that may need to be reclassified or attributed to earlier periods. Such adjustments or reclassfications may involve amounts currently recorded as contractual allowance, which might require additional provision for bad debts or receivable adjustments. Note 3. Marketable Securities On November 15, 1995, the Financial Accounting Standards Board staff issued a Special Report, A Guide to Implementation of SFAS No. 115 on Accounting for Certain Investments in Debt and Equity Securities. In accordance with the provisions in that Special Report, the Company chose to reclassify securities from held-to-maturity to available-for-sale (or trading). The amortized cost of those securities when transferred was $2.0 million and the unrealized loss on those securities was $13,000, which was included in stockholders' equity in December 1995. The Company's wholly owned insurance subsidiary maintains the marketable securities for statutory purposes. Note 4. Discontinued Operations In September 1996, the Company approved a plan to exit the psychiatric hospital business through the disposition of all of its five psychiatric hospitals (the "discontinued operations"). Management anticipates that the sale or closure of all such operations will be completed on or before September 30, 1997. The Company recorded an estimated net loss on disposal of the discontinued operations of $14.9 million (net of tax benefit of $10.4 million) to reduce the related assets to estimated realizable value and for estimated after-tax operating losses of approximately $1.5 million during the phase out period. 9 Current and long-term net assets of $5.1 million and $28.4 million, respectively, of the discontinued operations have been segregated in the Condensed Consolidated Balance Sheet at September 30, 1996 under the captions "Current assets of discontinued operations, net" and "Long-term assets of discontinued operations, net", respectively. During the quarter ended March 31, 1996, the Company recognized a charge for settlement costs totaling $22.4 million regarding two lawsuits, of which $20.0 million ($11.8 million net of tax) was related to a case involving the operation of its psychiatric programs. Such charge consisted primarily of legal fees, settlement payments and the write off of certain psychiatric accounts receivable. The Company did not admit liability in either case but resolved its dispute through the settlements in order to facilitate the Champion acquisition, re-establish a business relationship and/or avoid further legal costs in connection with the disputes. Operating results of the discontinued operations through the 1996 third quarter, including the after-tax settlement charge of $11.8 million but excluding the estimated disposal loss, have been reported separately as "Discontinued operations - Loss from operations of discontinued psychiatric hospitals" in the Consolidated Statements of Income and are as follows:
Three months ended Nine months ended September 30 September 30 ------------------ ----------------- 1996 1995 1996 1995 -------- ------- -------- ------- (Dollars in thousands) Net revenue (a) $ (4,866) $ 13,746 $ 19,841 $ 45,721 Operating expenses 12,794 14,034 56,952 43,412 (Loss) income before income taxes (a) (17,660) (288) (37,111) 2,309 Income tax (benefit) (7,241) (118) (15,215) 947 Net (loss) income from discontinued operations (a) (10,419) (170) (21,896) 1,362
_________________ (a) Includes pretax and after-tax charges in 1996 amounts of $14.9 million ($10.1 million as a reduction of net revenue) and $8.8 million, respectively, for items discussed at Note 2. Note 5 - Facilities Held for Disposition / Impairment Charge - ------------------------------------------------------------ In September 1996, the Company approved a plan to dispose of certain of its remaining hospitals in the Los Angeles metropolitan ("LA metro") area. At September 30, 1996, net assets of $ 24.5 million related to these facilities were segregated from the remaining assets of the Company and classified in the Condensed Consolidated Balance Sheet as "Assets held for sale, net." Operating results of the LA metro hospitals included in the Consolidated Statements of Income are as follows: 10
Three months ended Nine months ended September 30 September 30 ------------------ ----------------- 1996 1995 1996 1995 -------- ------- -------- ------- (Dollars in thousands) Net revenue (a) $ 19,177 $26,259 $ 68,890 $76,333 Operating Income (loss)(a)(b) (5,070) 2,412 (1,986) 7,469
____________________ (a) Includes charges in 1996 amounts of $4.3 million for items discussed at Note 2. (b) Operating income (loss) was derived by subtracting from net revenue, salaries and benefits, provision for bad debts and other operating expenses. In conjunction with the disposition plan of these hospitals and the Company's adoption of SFAS No. 121, in the third quarter of 1996, the Company recorded an after-tax impairment charge of $ 7.9 million, or $(0.19) and $(0.23) per share, for the three and nine months ended September 30, 1996, respectively, to reduce the net assets of these facilities to their estimated fair value. The estimated impairment loss may be subject to further adjustments following completion of valuations by independent appraisers and ultimate disposition of the hospitals. In the opinion of management, there were no other events or circumstances which warrant impairment assessment for the Company's other assets. Note 6. Acquisitions / Closures / Merger Costs On August 16, 1996, the Company acquired Champion, through the merger of a wholly owned subsidiary of the Company with and into Champion. The Company issued approximately 19.7 million shares of its common stock in exchange for all of the issued and outstanding shares of Champion's common stock and preferred stock, and assumed all of Champion's outstanding liabilities totaling approximately $236.2 million. Additionally, outstanding options, subscription rights, warrants and convertible notes to acquire Champion's common stock were converted to similar rights to acquire approximately 1.9 million shares of the Company's common stock. The total purchase price, including all costs associated with the transaction and liabilities assumed, was approximately $399.8 million. The Merger was accounted for using the purchase method of accounting. The Company has allocated the purchase price to the estimated fair value of the assets acquired and liabilities assumed. The excess of purchase price over the net assets acquired of approximately $83.0 million has been recorded as goodwill and is being amortized over an estimated composite useful life of 25 years. The purchase price allocation is preliminary, and management is presently evaluating fair values assigned to assets acquired and liabilities assumed. Management is awaiting appraisals from third party consultants on values assigned to fixed assets and certain intangible assets. The Company incurred approximately $63.2 million in Merger-related costs, of which $46.8 million was expensed in the quarter ended September 30, 1996 and $16.4 million was capitalized as part of the purchase price of Champion. 11 On May 17, 1996, the Company acquired the 125-bed PHC Salt Lake Regional Hospital (the "PHC Hospital") in Salt Lake City, Utah, including certain current assets, for approximately $71.0 million. The Company financed the acquisition with amounts borrowed under the then existing Credit Facility. The Company recorded goodwill of $16.0 million, which is being amortized on a straight line basis over an estimated useful life of 20 years. On May 17, 1996, the Company acquired the 139-bed Pioneer Valley Hospital in West Valley City, Utah, the 120-bed Davis Hospital and Medical Center in Laydon, Utah and the 129-bed Santa Rosa Medical Center in Milton, Florida from Columbia/HCA Healthcare Corporation ("Columbia")(the "Columbia Hospitals"). In exchange, Columbia received the Company's 119-bed Peninsula Medical Center in Ormond Beach, Florida, the 135-bed Elmwood Medical Center in Jefferson, Louisiana, the 190-bed Halstead Hospital in Halstead, Kansas (the "Exchanged Hospitals")and $38.5 million in cash, net of a working capital differential, which is subject to final agreement of the parties. The Company also purchased the real property of Elmwood and Halstead from a real estate investment trust ("REIT"), exchanged the Elmwood and Halstead real property for Pioneer real property and then sold the Pioneer real property to the REIT. The acquisition of the Columbia Hospitals was accounted for as a purchase transaction. The Company financed the cash portion of the acquisition from borrowings under the then existing Credit Facility. The Company recorded goodwill of $12.3 million, which is being amortized on a straight line basis over an estimated useful life of 20 years. On March 15, 1996, the Company closed Desert Palms Community Hospital, an acute care hospital located in Palmdale, California. The following unaudited pro forma consolidated results of operations for the nine months ended September 30, 1996 and 1995, assume that the following transactions were consummated on January 1, 1995: (i) the acquisition of Champion (ii) the acquisition and disposition of the Columbia Hospitals and the Exchanged Hospitals, (iii) the completion of a public debt offering and the redemption of the $75 million Senior Subordinated Notes (see Note 7) and (iv) the completion of an equity offering (see Note 8). In addition, the operating results of the five psychiatric hospitals (see Note 4), have been restated for all periods presented to reflect as a loss from operations of discontinued operations. PHC Hospital has not been included in the pro formas because the predecessor owner operated the hospital as a captive cost center; accordingly, the inclusion of its historical operations would not be meaningful. The pro forma financial information does not reflect nonrecurring expenses of $46.8 million related to the Merger. It does not purport to be indicative of the results that would have been attained had the transactions described above occurred on January 1, 1995. 12
Nine months ended September 30 ------------------ 1996(a) 1995 -------- ------- (Dollars in thousands, except per share data) Net revenue $551,433 $417,845 ======== ======== Income(loss) from continuing operations $(8,477) $4,718 Income(loss) from discontinued operations, net (36,798) 1,362 -------- ------- Income (loss) before extraordinary losses (45,275) 6,080 Extraordinary losses, net (4,557) - -------- ------- Net income (loss) $(49,832) $6,080 ========= ======== Income (loss) per common share: Continuing operations $(0.15) $0.08 Discontinued operations (0.68) 0.02 Extraordinary losses (0.08) - -------- ------ Net income (loss) per common share $(0.91) $0.10 ========= ======== Weighted average common and common equivalent shares outstanding 54,813 57,981 - -------------------
(a) Results for the nine months ended September 30, 1996, include, among others, after-tax impairment charge of $7.9 million and adjustments to increase after-tax loss from continuing operations by $10.4 million and from discontinued operations by $8.8 million (see Note 2). Note 7 - Long Term Debt Credit Facility On August 16, 1996, the Company entered into a new $400.0 million Reduced Revolving Credit Facility (the "Credit Facility"), which provides for a $400.0 million five-year reducing revolving line of credit. The Credit Facility is available for (i) general corporate purposes, including funding working capital needs, acquisitions and capital expenditures, (ii) issuance of letters of credit up to $40.0 million, (iii) refinancing of existing indebtedness including the previous $230.0 million revolving line of credit and (iv) funding of Merger expenses. The Credit Facility is subject to mandatory reductions of $50.0 million on August 15, 1999 and an additional $50.0 million on August 15, 2000. Borrowings under the Credit Facility bear interest at the Company's option, at (i) LIBOR plus a margin ranging from .875% to 2.0% or (ii) the prime rate plus a margin ranging from zero to .75%. The Company is required to pay annual commitment fees ranging from .25% to .50% of the unused portion of the Credit Facility. Letters of credit issued under the Credit Facility require annual fees ranging from .875% to 2.0% of the outstanding amount of the letters of credit. 13 The Company recognized an extraordinary loss for the write-off of deferred loan costs relating to the previous line of credit of $1.0 million (net of income tax benefit of $.7 million). As of September 30, 1996, the Company had outstanding borrowings of $141.0 million and outstanding letters of credit of $9.7 million under the Credit Facility. The Credit Facility is secured by a first priority interest in the capital stock of substantially all of the Company's present and future subsidiaries and upstream guarantees of these subsidiaries. Senior Subordinated Notes On August 16, 1996, the Company completed a $325.0 million registered offering of 10% Senior Subordinated Notes (the "Notes"). Of the $315.3 million net proceeds received from the offering, $81.6 million was used to repay the 9.875% Senior Subordinated Notes, including $3.9 million in tender and consent fees, $172.6 million to repay certain Champion existing debt assumed upon the consummation of the merger, and the remaining $61.1 million to repay amounts outstanding under the Company's previous revolving line of credit. The Company recognized an extraordinary loss for the tender and consent fees and the write off of deferred financing costs relating to the 9.875% Senior Subordinated Notes of $3.6 million (net of income tax benefit of $2.5 million). The Notes are general unsecured senior subordinated obligations of the Company and will mature on August 15, 2006. The Notes are not subject to any mandatory redemption and may not be redeemed prior to August 15, 2001. Other Debt Pursuant to the terms of the Merger, the Company assumed approximately $179.1 million of Champion existing indebtedness, of which $172.6 million was repaid on August 16, 1996, using net proceeds from the Notes offering. The remaining assumed liabilities consisted primarily of capital lease obligations and miscellaneous notes payable. Pursuant to an agreement in conjunction with the Merger, Dr. Manfred G. Krukemeyer, the Company's Chairman of the Board, received a $7.2 million 6.51% subordinated note from the Company. The note provides for payments of principal and interest in an aggregate annual amount of $1.0 million over a term of 10 years. The terms of the various debt agreements include certain restrictive covenants. Among other restrictions, the covenants include limitations on investments, borrowings, liens, acquisitions and dispositions of assets and transactions with affiliates, and require maintenance of certain ratios regarding interest coverage and leverage. As of September 30, 1996, the Company was in compliance with all covenants contained within its debt agreements. Note 8 - Stockholders' Equity Pursuant to the Amended and Restated Articles of Incorporation adopted on August 13, 1996, the Company has 150.0 million authorized shares of common stock no stated value per share. Each share is entitled to one vote and does not have any cumulative voting rights. The Company is also authorized to issue 25.0 million shares of preferred stock at $.01 par value per share, which may be issued in such series and have such rights, preferences and other provisions as may be determined by the Board of Directors without approval by the holders of common stock. 14 In connection with the adoption of a Shareholder Protection Rights Agreement on August 16, 1996, the Company designated 1.5 million of its 25.0 million authorized preferred shares as Participating Preferred Stock ("Preferred Share") and paid a dividend of one Preferred Share purchase right ("Right") for each outstanding share of the Company's common stock to stockholders of record as of August 15, 1996. Similar rights will be issued in respect of common stock subsequently issued. Each Preferred Share will be entitled to an aggregate quarterly dividend equal to the greater of 25% of each Right's exercise price or 100 times the quarterly dividend declared on the Company's common stock. In the event of liquidation, the holder of each Preferred Share will be entitled to receive a liquidation payment of $100 per share plus any accrued but unpaid dividends. Each Preferred Share will have 100 votes, voting together with the common stock. No Preferred Shares are currently outstanding. Each Right entitles the registered holder to purchase from the Company, one one-hundredth of a Preferred Share at a price of $42.50, subject to adjustment. The Rights currently are not exercisable and will be exercisable only if a person or group acquires beneficial ownership of 25% or more of the Company's outstanding shares of common stock (i.e. becomes an "Acquiring Person" as defined in the related Rights Agreement). The Rights, which expire on August 16, 2006, are redeemable in whole, but not in part, at the Company's option at any time prior to such time as any person or group becomes an Acquiring Person, at a price of $.01 per Right. In connection with the Merger, in August 1996, all 450 outstanding shares of the Company's common stock, which were solely owned by Dr. Krukemeyer, were split into an aggregate of 29.8 million shares as a result of a 66,159.426- for-one stock split. Upon the consummation of the Merger, each share of Champion common and preferred stock was exchanged for one and two shares of the Company's common stock, respectively. Accordingly, the Company issued 19.7 million shares of its common stock in connection with such exchange. On August 16, 1996, the Company's common stock began trading on the New York Stock Exchange under the symbol "PLS." Prior to the Merger, the Company declared a dividend of $21.2 million, which was paid on August 30, 1996 to its former sole shareholder, Dr. Krukemeyer. After receipt of the dividend and pursuant to a related agreement, Dr. Krukemeyer paid approximately $3.0 million plus accrued interest in full satisfaction of a note payable to the Company. Additionally, Dr. Krukemeyer loaned the Company $7.2 million and received a $7.2 million 6.51% subordinated note from the Company (see Note 7) . On August 16, 1996, the Company completed a sale of 5.2 million shares of its common stock at $8.50 per share. Net proceeds of $40.1 million were used along with proceeds from the Notes offering (see Note 7) to repay existing and acquired indebtedness as well as pay for Merger related costs (see Note 6). On July 15, 1996, the Company adopted the 1996 Stock Incentive Plan (the "Incentive Plan") to provide stock-based incentive awards, including incentive stock options, non-qualified stock options, restricted stock, performance shares, stock appreciation rights and deferred stock, to key employees, consultants and advisors. A total of 8.7 million shares has been reserved for 15 issuance under the Incentive Plan. Pursuant to the termination of the Company's Phantom Equity Long-Term Incentive Plan in connection with the Merger, options to purchase 1.6 million shares of the Company's common stock at an exercise price of $.01 per share ("Value Options") were granted to certain directors and officers of the Company in addition to aggregated cash payments of $20.5 million, which if combined, approximated the accrued value of the canceled phantom stock appreciation rights and/or preferred stock units thereunder. Additionally, pursuant to the various employment agreements, Value Options to purchase 1.2 million shares and options to purchase 2.8 million shares of the Company's common stock at an exercise price of $8.50 per share were granted to certain senior executive officers. The Company recognized merger expenses totaling $36.9 million related to the cancellation of the Phantom Equity Long-Term Incentive Plan and the issuance of certain Value Options. In connection with the Merger, the Company also assumed and converted all Champion outstanding options, subscription rights, warrants and convertible notes to similar rights to acquire approximately 1.9 million shares of the Company's common stock, of which none is available for reissuance once canceled. Note 9 - Supplemental Executive Retirement Plan ("SERP") As a result of a change in control from the Merger, officers and employees of the Company who were participants in the SERP prior to the Merger became fully vested in all benefits thereunder. The Company recognized Merger expenses of $5.1 million related to the vesting of such benefits. Pursuant to their respective employment agreements, certain Champion executives became participants in the SERP and received retroactive benefits for their years of service with Champion. The Company capitalized approximately $1.9 million of such non-cash charges as part of the purchase price of Champion. Note 10 - Contingencies The Company is a party to pending litigation in connection with several stockholder related matters. See "Item 1. Legal Proceedings" in Part II of this report for a description of such litigation. Due to the recent nature of such litigation, management is unable to determine the ultimate outcome of such lawsuits. The Company maintains insurance policies related to Directors and Officers liability which it believes to be adequate. The Company is subject to claims and suits in the ordinary course of business, including those arising from care and treatment afforded at its facilities. The Company maintains insurance and, where appropriate, reserves with respect to the possible liability arising from such claims. The Company believes that its insurance and loss reserves are adequate to cover potential claims that may be asserted and that the outcome of such claims will not have a material effect on the Company's financial position, results of operations or cash flows. 16 PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Result of Operations Paracelsus has made numerous acquisitions and divestitures during the three and nine months ended September 30, 1996. Accordingly, the Company's portfolio of operating hospitals during 1996 is substantively different from that which the Company operated during the three and nine months ended September 30, 1995. To more fully understand the comparability of the results of operations, management has included a discussion of same hospital results. Same hospitals as used in the following discussion consisted of hospitals owned throughout both quarters and nine months ended September 30, 1996 and 1995. "Same hospitals" exclude (i) Bellwood Health Center, Womans Hospital and Desert Palms Community Hospital which were closed or disposed in April 1995, September 1995 and March 1996, respectively, (ii) PHC Salt Lake Hospital which was acquired in May 1996, (iii) the "Exchanged Hospitals" and the "Columbia Hospitals" which were part of the exchange transaction completed in May 1996 and (iv) the Champion hospitals acquired in August 1996 pursuant to the Merger. Operating results of the Company's five psychiatric hospitals, including two of which were acquired through the Merger with Champion, for the periods prior to September 30, 1996 have been reclassified and presented under the caption " Discontinued Operations - Loss from operations of psychiatric hospitals" in the Consolidated Statements of Income. 17 Quarter ended September 30, 1996 Compared with Quarter ended September 30, 1995 Net revenue for the three months ended September 30, 1996 was $ 109.9 million, a decrease of $1.2 million , or 1.1%, from $111.1 million for the same period of 1995. The $1.2 million decrease was primarily attributable to (i) an adjustment of $23.6 million to amounts due from government programs (see Note 2), offset by (ii) an increase of $20.3 million contributed by hospitals acquired since October 1995, net of disposed hospitals and (iii) an increase of $2.1 million from "same hospitals." The $2.1 million increase in "same hospital" net revenue was attributable to an increase of $5.0 million, or 9.1%, at hospitals located outside of the LA metro area, offset by a decrease of $2.9 million, or 11.1%, at hospitals located inside the LA metro area (the "LA metro hospitals"). The $5.0 million increase was due primarily to an increase in services offered, physician relationship development efforts, addition of new physicians through recruitment, acquisition of physician practices and clinics and an increase in home health agency business. The $2.9 million decrease was due mainly to the continued decline in net revenue as as result of a change in payer mix from private insurance to managed care and Medicare/Medicaid and a change in acuity level. Expressed as a percentage of net revenue, operating expenses (salaries and benefits, provision for bad debts and other operating expenses) increased from 91.5% in 1995 to 106.1% in 1996 and operating margin decreased from 8.5% to a negative margin of 6.1%. Excluding the adjustments in 1996 described at Note 2, operating margin was 8.6% in 1996, compared to 8.5% in 1995. "Same hospital" operating margin decreased from 15.6% in 1995 to 13.8% in 1996, primarily as a result of lower margins associated with the LA metro hospitals. Depreciation and amortization increased to $7.4 million in 1996 from $4.1 million for the same period of 1995. Of the $3.3 million increase, $2.4 million was attributable to the facilities acquired, net of those that were sold since October 1995, and the remaining increase of $.9 million from purchases of medical equipment, facility improvements, purchase of physician practices and clinics. Interest expense increased $5.2 million over the same period of 1995, primarily due an increase in outstanding indebtedness from the issuance of the Notes in August 1996 and additional borrowings under the Credit Facility to finance acquisitions and to fund Merger costs, working capital requirements and capital expenditures, net of the redemption of the $75.0 million 9.875% Senior Subordinated Notes. Loss from operations of the discontinued psychiatric hospitals for the three months ended September 30, 1996 was $10.4 million, compared to $.2 million for the same period in 1995. The $10.2 million increase in loss was attributable to (i) the deterioration in operating conditions at the psychiatric hospitals attributable to collection problems and a shift from inpatient business to less profitable outpatient business (ii) the closure of the inpatient unit at the Buena Park facility in July 1996 and (iii) an after-tax charge of $8.8 million in September 1996 relating to amounts due from third party intermediaries and the write off of certain uncollectible accounts (see Note 2). 18 Net loss for the three months ended September 30, 1996 was $80.1 million, or $(1.89) per share, compared to net income of $3.3 million, or $0.11 per share, for the same period in 1995. Included in 1996 income from continuing operations before income taxes, net income and net income per share were net aggregate adjustments (see Note 2) and nonrecurring charges of $77.7 million, $75.7 million and $(1.79) per share, respectively. Included in 1995 income from continuing operations before income taxes, net income and net income per share were net aggregate nonrecurring gains of $4.8 million, $2.7 million and $0.09 per share, respectively. Aggregate adjustments and nonrecurring gains (charges) for the three months ended September 30, 1995 and 1996 were comprised of the following items (in thousands, except per share amounts):
Three months ended September 30, ------------------------------------------------------------ 1996 1995 --------------------------- -------------------------------- Pre-Tax Net Income EPS Pre-Tax Net Income EPS ------- ---------- ------- ------- ---------- ----- Significant adjustments on continuing operations (see Note 2) $(17,566) $(10,364) $(0.25) $ - $ - $ - Impairment charge (13,349) (7,876) (0.19) - - - Merger costs (46,818) (27,623) (0.65) - - - Unusual charges - - - (4,177) (2,464) (0.08) Gain from sale of a hospital - - - 9,026 5,325 0.18 Discontinued operations - (25,321) (0.60) - (170) (0.01) Extraordinary losses - (4,557) (0.10) - - - -------- -------- ------ ------ ------- ------- Total impact of significant adjustments and nonrecurring items $(77,733) $(75,741) $(1.79) $4,849 $ 2,691 $ 0.09 -------- -------- ------ ------ ------- -------
19 Nine Months ended September 30, 1996 Compared with Nine Months ended September 30, 1995 Net revenue for the nine months ended September 30, 1996 was $350.2 million, an increase of $17.3 million, or 5.2%, from $ 332.8 million for the same period of 1995. The $17.3 million increase was primarily attributable to (i) an increase of $24.6 million contributed by hospitals acquired since October 1995, net of disposed hospitals and (ii) an increase of $16.3 million from "same hospital", offset by (iii) an adjustment of $23.6 million to amounts due from government programs (see Note 2). The $16.3 million increase in "same hospital" net revenue was attributable to an increase of $20.7 million, or 12.5%, at hospitals located outside of the LA metro area, offset by a decrease of $4.4 million, or 5.7%, at the LA metro hospitals. The $20.7 million increase was due primarily to an increase in services offered, physician relationship development efforts, addition of new physicians through recruitment, acquisition of physician practices and clinics and an increase in home health agency business. The $4.4 million decrease was due mainly to a continued decline in net revenue as a result of a change in payer mix from private insurance to managed care and Medicare/Medicaid and change in acuity level. Expressed as a percentage of net revenue, operating expenses (salaries and benefits, provision for bad debts and other operating expenses) increased from 89.2% in 1995 to 93.6% in 1996 and operating margin decreased from 10.8% to 6.4%. Excluding the adjustments in 1996 described at Note 2, operating margin was 10.7%, compared to 10.8% in 1995. "Same hospital" operating margin decreased slightly from 15.9% in 1995 to 15.7% in 1996, primarily as a result of an increase in provision for bad debts and the deterioration of operating margins at the LA metro hospitals during the nine-month period. Depreciation and amortization increased to $15.5 million in 1996 from $12.1 million for the same period of 1995. Of the $3.4 million increase, $ 2.7 million was attributable to the facilities acquired, net of those that were disposed since October 1995, and the remaining increase of $.7 million from purchases of medical equipment, facility improvements, purchase of physician practices and clinics. Interest expense increased $ 6.4 million over the same period of 1995, primarily due an increase in outstanding indebtedness from the issuance of the Notes in August 1996 and additional borrowings under the Credit Facility to finance acquisitions and to fund Merger costs, working capital requirements and capital expenditures, net of the redemption of the $75.0 million 9.875% Senior Subordinated Notes. Loss from operations of the discontinued psychiatric hospitals for the nine months ended September 30, 1996 was $21.9 million, compared to net income of $1.4 million for the same period in 1995. The $23.3 million decrease was attributable to (i) a deterioration in operating conditions at the psychiatric hospitals during the nine-month period, attributable to accounts receivable collection problems and a shift from inpatient business to less profitable outpatient business, (ii) an after-tax charge of $8.8 20 million in September 1996 relating to amounts due from third party intermediaries and the write off of certain uncollectible accounts (see Note 2) and (iii) an after-tax charge of $11.8 million relating to a lawsuit settled in March 1996 (see Note 4). Net loss for the nine months ended September 30, 1996 was $86.9 million, or $(2.56) per share, compared to net income of $10.5 million, or $0.35 per share, for the same period of 1995. Included in 1996 income from continuing operations before income taxes, net income and net income per share were net aggregate adjustments (see Note 2) and nonrecurring charges of $80.2 million, $88.7 million and $2.61 per share, respectively. Included in 1995 income from continuing operations before income taxes, net income and net income per share were net aggregate nonrecurring gains of $4.8 million, $4.2 million and $0.14 per share, respectively. Aggregate adjustments and nonrecurring gains (charges) for the nine months ended September 30, 1995 and 1996 were comprised of the following items (in thousands, except per share amounts):
Nine months ended September 30, --------------------------------------------------------- 1996 1995 --------------------------- ----------------------------- Pre-Tax Net Income EPS Pre-Tax Net Income EPS ------- ---------- ----- --------- ---------- ----- Significant adjustments on continuing operations (see Note 2) $(17,566) $(10,364) $(0.31) $ - $ - $ - Impairment charge (13,349) (7,876) (0.23) - - - Merger costs (46,818) (27,623) (0.81) - - - Unusual charges (2,438) (1,438) (0.04) (4,177) (2,464) (0.08) Gain from sale of a hospital - - - 9,026 5,325 0.18 Discontinued operations - (36,798) (1.08) - 1,362 0.04 Extraordinary losses - (4,557) (0.14) - - - -------- -------- ------ ------- --------- ------ Total impact of significant adjustments and nonrecurring items $(80,171) (88,656) $(2.61) $ 4,849 $ 4,223 $ 0.14 ======== ======== ====== ======= ========= ======
21 Liquidity and Capital Resources Net cash used in operating activities for the nine months ended September 30, 1996 was $30.2 million, compared to net cash provided by operating activities of $18.2 million for the same period of 1995. The $30.2 million decrease in cash was mainly attributable to cash used during 1996 to pay for Merger-related costs and settlement of certain lawsuits. Net cash used in investing activities increased $126.1 million to $132.5 million from $6.4 million during 1995, primarily from an increase in use of cash to finance acquisition of hospitals. Net cash provided by financing activities during 1996 was $172.8 million, compared to net cash used in financing activities of $10.8 million during 1995. The $183.6 million increase during 1996 was due to the issuance of the $325.0 million Notes, the issuance of the 5.2 million shares of the Company's common stock and net incremental borrowings under the Credit Facility, net of amounts used therefrom to repay the $75.0 million 9.875% Senior Subordinated Notes, certain indebtedness assumed from the purchase of Champion and amounts outstanding under the previous $230.0 million revolving line of credit. Net working capital was $121.5 million, an increase of $42.5 million from $79.0 million at December 31, 1995. The increase was mainly attributable to an increase in current portion of deferred income taxes and a reclassification to current assets of property and equipment and other long term assets relating to the LA metro hospitals which are being held for sale. The Company's long-term debt as a percentage of total capitalization was 70.7% at September 30, 1996, compared to 54.9% at December 31, 1995. The increase was primarily attributable to the issuance of the $325.0 million Notes, net incremental borrowings under the Credit Facility and a reduction in retained earnings for a net loss and dividend paid during 1996. Such increase was offset by the issuance of 19.7 million shares of the Company's common stock related to the Champion acquisition, the equity offering of 5.2 million shares of the Company's common stock and the repayment of certain indebtedness using the proceeds from the above financing activities. On August 16, 1996, the Company entered into a new Credit Agreement which provides for a revolving line of credit in the amount of $400.0 million. The Credit Facility is available for working capital purposes, to finance capital expenditures, to fund acquisitions and for the issuance of letters of credit. As of September 30, 1996, the Company had $249.3 million available under its Credit Facility. The Company anticipates that internally generated cash flows from earnings, proceeds from the sale of hospital accounts receivable under the Company's commercial paper program and borrowings under its Credit Facility will be sufficient to fund future acquisitions, capital expenditures and working capital requirements through fiscal year 1997. There can be no assurance that future developments in the hospital industry or general economic trends will not adversely affect the Company's operations or its ability to meet such funding requirements. Disposition of the psychiatric hospitals In September 1996, the Company approved a plan to exit the psychiatric hospital business through the disposition of all of its five psychiatric hospitals. This disposition will enable the Company to remain focused on operating its acute care hospitals. The Company experienced deterioration in operating 22 conditions at its three psychiatric hospitals located in the LA metro area during the nine months ended September 30, 1996. Such deterioration was caused, generally, as a result of insurance companies becoming more stringent in their payments to service providers of psychiatric care, and particularly, as a result of the dispute and settlement of the Aetna lawsuits. Additionally, managed care organizations recently have increased their requirement that members receive care on a less costly outpatient basis. Management expects that the deterioration of the psychiatric hospital business will continue although at a slower pace through the foreseeable future. To curtail further losses, the Company closed the inpatient unit at its Buena Park facility in July 1996 and may close other facilities. The Company recorded in September 1996 an estimated disposal loss of $14.9 million related to these facilities, including operating losses during the phase out period. It expects to complete the disposition of its psychiatric hospitals by September 30, 1997. Disposition of other LA metro hospitals In September 1996, the Company adopted a plan to dispose of certain of its remaining hospitals in the LA metro area. This disposition will allow the Company to exit a market that (i) is highly competitive and increasingly penetrated by managed care organizations and (ii) does not conform to the Company's business plan. Included in the Company's net income for the quarter and nine months ended September 30, 1996 was a loss of $3.9 million and $3.6 million, or $(0.09) and $(0.11) per share, respectively, associated with the LA metro hospitals, caused primarily by a change in payer mix from private insurance to managed care and Medicare/Medicaid and change in acuity level. Loss for each respective period included after-tax charges of $2.5 million for a change in the amounts due from government programs. In conjunction with the disposition of these hospitals, the Company will reevaluate by December 31, 1996, the realizability of the net book value of these operations based on final third party appraisals. Stockholders' litigations and Special Committee's investigation The Company is a party to pending litigations in connection with several stockholder related matters. Because these lawsuits are in their initial stages, the Company cannot predict these outcome or the length of time it will take to resolve these litigations. The Company maintains Directors and Officers liability insurance in amounts it believes to be adequate. 23 The Board of Directors has appointed a Special Committee consisting of non- management members, to supervise and direct the conduct of an inquiry by outside legal counsel regarding, among other things, the Company's accounting and financial reporting practices and procedures for quarterly periods before the quarter ending September 30, 1996. As of the date of filing this report, such inquiry has not been completed. Accordingly, depending on the results of the Special Committee inquiry, the Quarterly Report on Form 10-Q hereby filed and other previously filed reports may have to be amended to reflect adjustments and items reported in the current financial period that may need to be reclassified or attributed to earlier periods. Such adjustments or reclassfications may involve amounts currently recorded as contractual allowance, which might require additional provision for bad debts or receivable adjustments. Regulatory Matters Healthcare reform legislation has been proposed at both federal and state levels. The Company cannot predict the effect that such reforms may have on its business and there can be no assurance that any such reforms will not have a material adverse effect on the Company's future revenues or liquidity. 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS STOCKHOLDERS' LITIGATION On April 17, 1996, the Company and Champion were served with a lawsuit filed in the Court of Chancery of the State of Delaware in and for New Castle County by a Champion stockholder against certain directors and officers of Champion, Champion and the Company. This lawsuit, which among other things seeks class certification, alleges that the Merger and the consideration to be paid to Champion's stockholders are unfair and grossly inadequate and that the named defendants have violated their fiduciary duties to Champion and the stockholders of Champion. In this action, the plaintiff seeks to rescind the Merger transaction or award Champion stockholders rescissory damages, plus costs and attorneys' fees. The Company disputes the factual and legal premises upon which the plaintiff's lawsuit is based and denies that the plaintiff is entitled to any recovery on her claim. Because the lawsuit is in the initial stages, the Company cannot predict the outcome of this litigation, the length of time it will take to resolve this litigation or the effect of any such outcome on the Company's financial condition or results of operations. Since October 11, 1996, six complaints have been filed against the Company, of which four have been served, by current or former stockholders of the Company, allegedly on behalf of all persons who received the Company's common stock through the Merger with Champion and who purchased common stock or a portion of the Notes between August 13, 1996 and October 9, 1996. Two of these complaints were filed in the Superior Court of the State of California, County of Los Angeles, one in the District Court of Harris County, Texas and two in the United States District Court for the Southern District of Texas, Houston Division. The named defendants in these lawsuits are the Company and certain current and former officers and directors of the Company. In these lawsuits, the plaintiffs have alleged violations of federal, California and Texas securities laws . In this connection, the plaintiffs alleged that during the class period, the named defendants disseminated materially misleading statements and omitted disclosing material facts about the Company and its business, specifically in the reporting and disclosure of reserves, bad debt expenses, collection expenses and facility closure costs and that the price of the Company's common stock was artificially inflated. The plaintiffs also alleged that the named defendants failed to make a reasonable investigation and did not possess reasonable grounds for the belief that the statements contained in the various Registration Statements and Prospectuses filed during the class period were true, or that there was an omission of material facts necessary to make the statements contained therein not misleading. The plaintiffs seek damages in an unspecified amount and extraordinary, equitable or injunctive relief, plus costs and attorneys' fees. The Company is carefully considering the allegations made in these lawsuits and intends to respond to them at the appropriate time. 25 ITEM 2. CHANGE IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1 (a) Amended and Restated Agreement and Plan of Merger dated as of May 29, 1996, by and among Paracelsus, Champion and PC Merger Sub. Inc. 3.4 Amended and Restated Articles of Incorporation of Paracelsus. 3.5 Amended and Restated Bylaws of Paracelsus. 4.1 Indenture, dated August 16, 1996 between Paracelsus and AmSouth Bank of Alabama, as Trustee (including the form of certificate representing the 10% Senior Subordinated Notes due 2006). 4.2 (b) Shareholder Protection Rights Agreement between Paracelsus and ChaseMellon Shareholder Services, L.L.C, as Rights Agent. 4.5 (c) Form of Warrant issued pursuant to Champion Series E Note Purchase Agreement, dated May 1, 1995, as amended. 4.6 (d) Form of Warrant issued pursuant to Champion Series D Note and Stock Purchase Agreement dated December 31, 1993, as amended. 4.9 Certificate representing Common Stock. 10.1 $400 Million Reducing Revolving Credit Facility, dated as of August 16, 1996, among Paracelsus, Bank of America National Trust and Savings Association, as agent, and other lenders named therein. 10.16 (e) The Restated Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan. 10.17 Amendment No. 1 to the Supplemental Executive Retirement Plan. 10.28 (f) Amended and Restated Partnership Agreement of Dakota/Champion Partnership dated December 21, 1994. 10.29 (f) Operating Agreement between Dakota/Champion Partnership and Champion, dated December 21, 1994. 10.34 License Agreement between Dr. Manfred George Krukemeyer and Paracelsus. 10.36 Registration Rights Agreement between Paracelsus and Park Hospital GmbH. 10.37 Voting Agreement between Park Hospital GmbH and Messrs. Miller and VanDevender. 10.38 Services Agreement between Paracelsus and Dr. Manfred George Krukemeyer. 10.39 Insurance Agreement between Paracelsus and Dr. Manfred George Krukemeyer. 10.40 Non-Compete Agreement between Paracelsus and Dr. Manfred George Krukemeyer. 26 10.41 Shareholder Agreement between Paracelsus and Park Hospital GmbH, as guaranteed by Dr. Manfred George Krukemeyer. 10.42 Dividend and Note Agreement between Paracelsus and Park Hospital GmbH. 10.43 Employment Agreement between Charles R. Miller and Paracelsus including the Management Rights Agreement. 10.44 Employment Agreement between R.J. Messenger and Paracelsus, including the Management Rights Agreement. 10.45 Employment Agreement between James G. VanDevender and Paracelsus. 10.46 Employment Agreement between Ronald R. Patterson and Paracelsus. 10.47 Employment Agreement between Robert C. Joyner and Paracelsus. 10.48 Paracelsus 1996 Stock Incentive Plan. 10.49 Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan. 10.50 First Refusal Agreement among Park Hospital GmbH, Dr. Manfred George Krukemeyer and Messrs. Messenger, Miller, VanDevender and Patterson. 10.54 Registration Rights Agreement among Paracelsus and certain Champion Investors. 10.56 Indemnity and Insurance Coverage Agreement between Paracelsus and certain Champion and Paracelsus executive officers. 10.64 Paracelsus' 6.51% Subordinated Notes Due 2006. 11.1 Statement regarding computation of per share earnings of Paracelsus 27 Financial Data Schedule.
- -------------------------- (a) Incorporated by reference from Exhibit of the same number to the Company's Current Report on Form 8-K, dated May 29, 1996. (b) Incorporated by reference from Exhibit of the same number to the Company's Registration Statement on Form 8-A, filed on August 12, 1996. (c) Incorporated by reference from Exhibit 10.23(g) to Champion's Annual Report on Form 10-K for the year ended December 31, 1995. (d) Incorporated by reference from Exhibit 10.23(f) to Champion's Annual Report on Form 10-K for the year ended December 31, 1995. (e) Incorporated by reference from Exhibit of the same number to the Company's Registration Statement on Form S-4, Registration No. 333-8521. (f) Incorporated by reference from Exhibit 10 to Champion's Current Report on Form 8-K, dated December 21, 1994. (b) Reports on Form 8-K - The Company filed on September 13, 1996 a Current Report on Form 8-K, dated September 12, 1996, reporting pursuant to Item 8 thereof, that the Company had elected to change its fiscal year end from September 30 to December 31. - The Company filed on August 30, 1996 a Current Report on Form 8-K, dated August 16, 1996, reporting pursuant to Items 2, 5, and 7 thereof, the acquisition through merger of Champion, the completion of a public equity offering of 5.2 million shares (including 600,000 over-allotted shares ) of the Company's common stock at $8.50 per share and the completion of a public debt offering of $325.0 million of the Company's 10% Senior Subordinated Notes due 2006. In addition, the Company completed a tender offer to purchase all of the outstanding $75.0 million 9.875% Senior Subordinated Notes. Champion financial statements for the three years ended December 31, 1995 were incorporated by reference to the Company's Registration Statement on Form S-4 (Commission File No. 333-8521), with financial statements for period ending through June 30, 1996 filed therein. 27 - The Company filed on August 21, 1996 a Current Report on Form 8-K, dated August 14, 1996, reporting pursuant to Item 5 thereof, the declaration of a dividend of one right for each outstanding share of the Company's common stock, no stated value per share, held of record at the close of business on August 15, 1996, payable on August 16, 1996. - The Company filed on July 24, 1996 an Amendment No. 1 on Form 8-K/A to a Current Report on Form 8-K, dated May 17, 1996, reporting pursuant to Item 7 thereof, the historical financial statements for Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center and the Company's pro forma financial statements for the period through March 31, 1996. - The Company filed on July 24, 1996 a Current Report on Form 8-K, dated May 29, 1996, reporting pursuant to Item 5 thereof, the Amended and Restated Agreement and Plan of Merger, which amended and restated the Agreement and Plan of Merger, dated April 12, 1996, among the Company, Champion and Merger Sub. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Paracelsus Healthcare Corporation (Registrant) /s/ JAMES G. VANDEVENDER Dated: November 19, 1996 By: ____________________________ James G. VanDevender Executive Vice President, Chief Financial Officer & Director EX-3.4 2 AMENDED ARTICLES OF INCORPORATION OF PARACELSUS 1 EXHIBIT 3.4 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF PARACELSUS HEALTHCARE CORPORATION a California Corporation R.J. MESSENGER and ROBERT C. JOYNER certify that: 1. They are the duly elected and acting President and Assistant Secretary, respectively, of the corporation named above. 2. The articles of incorporation of the corporation shall be amended and restated to read in full as follows: FIRST. The name of the corporation is PARACELSUS HEALTHCARE CORPORATION. SECOND. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California ("GCLC") other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THIRD. The total number of shares of all classes of stock which the corporation shall have authority to issue is 175,000,000, of which 150,000,000 shares of no par value shall be designated as Common Stock and 25,000,000 shares of the par value of $0.01 per share shall be designated as Preferred Stock. Shares of Preferred Stock may be issued in series from time to time by the board of directors, and the board of directors is expressly authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each series of Preferred Stock, including without limitation the following: (a) the distinctive serial designation of such series which shall distinguish it from other series; (b) the number of shares included in such series, which number may be increased or decreased from time to time unless otherwise provided by the board of directors in the resolution or resolutions providing for the issue of such series; (c) the dividend rate (or method of determining such rate, which may be fixed or variable) payable to the holders of the shares of such series, any conditions upon which such dividends shall be paid and the date or dates upon which such dividends shall be payable; (d) whether dividends on the shares of such series shall be cumulative and, in the case of shares of any series having cumulative dividend rights, the date or 2 dates or method of determining the date or dates from which dividends on the shares of such series shall be cumulative; (e) the amount or amounts which shall be payable out of the assets of the corporation to the holders of the shares of such series upon voluntary or involuntary liquidation, dissolution or winding up the corporation; (f) the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series may be purchased or redeemed, in whole or in part, at the option of the corporation or at the option of the holder or holders thereof or upon the happening of a specified event or events; (g) the obligation, if any, of the corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (h) whether or not the shares of such series shall be convertible or exchangeable, at any time or times at the option of the holder or holders thereof or at the option of the corporation or upon the happening of a specified event or events, into shares of any other class or classes or any other series of the same or any other class or classes of stock or debt securities of the corporation or of any other entity, and the price or prices or rate or rates of exchange or conversion and any adjustments applicable thereto; and (i) the voting rights, if any, of the holders of the shares of such series. Upon this amendment and restatement becoming effective, each of the outstanding shares of Common Stock shall be split up and converted into 66,159.426 shares of Common Stock. FOURTH. The board of directors of the corporation is expressly authorized to adopt, amend or repeal the by-laws of the corporation. This Article Fourth and the by-laws of the corporation may not be amended, modified or repealed by the holders of the capital stock of the corporation except by the affirmative vote of the holders of not less than a majority of the Total Voting Power (as hereinafter defined) of the corporation and the affirmative vote of the holders of a majority of the voting power of all outstanding Public Shares (as hereinafter defined), each considered for purposes hereof as a single class. For the purposes of these Articles, the following terms shall have the following meanings: The term "Public Shares" shall mean shares of capital stock of the corporation not beneficially owned (as determined 3 pursuant to Rule 13d-3 or Rule 13d-5 of the Securities Exchange Act of 1934, as amended, as in effect on the date this Restated Certificate of Incorporation becomes effective (the "Exchange Act")) by any individual, partnership, corporation, limited liability company, trust or other entity (a "Controlling Person") that is a member of any group (as defined under Rule 13d-5 of the Exchange Act) that beneficially owns 25 percent or more of the Total Voting Power of the corporation; PROVIDED that the Independent Directors (as hereinafter defined) shall have the power and duty to construe and apply the provisions of this definition and to make all determinations necessary or desirable to implement such provisions. The term "Independent Directors" shall mean the directors of the corporation who are not employed by, affiliated with or nominees or representatives of any Controlling Person or employed by or affiliated with the corporation or any of their respective Subsidiaries (as hereinafter defined), excluding for the purpose of the foregoing any affiliation by reason of being a member on the Board of Directors (but not an officer) of the corporation or its Subsidiaries. The term "Subsidiary" with respect to any person shall mean any corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the voting power of all outstanding securities entitled by the terms thereof to vote generally in the election of directors, or others performing similar functions with respect to such corporation or other organization, is directly or indirectly beneficially owned by such person. The term "Total Voting Power" shall mean the non-diluted aggregate number of votes that may be cast by the holders of outstanding Voting Securities. The term "Voting Securities" shall mean securities entitled to vote in the ordinary course in the election of directors or of persons serving in a similar governing capacity, including the voting rights attached to such securities and rights or options to acquire such securities. FIFTH. The number of directors of the corporation shall be fixed from time to time pursuant to the by-laws of the corporation. The directors of the corporation shall be divided into three classes, as nearly equal in number as possible, as determined by the board of directors, with the initial term of office of Class I to expire at the first annual meeting of shareholders thereafter, the initial term of office of Class II to expire at the second annual meeting of shareholders thereafter and the initial term of office of Class III to expire at the third annual meeting of shareholders thereafter, with each class of directors to hold office until their successors have been duly elected and qualified. At each annual meeting of shareholders following such initial classification and election, directors elected to succeed the directors whose terms expire at such annual meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders in the third year following the year of their election and until their successors have been duly elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned 4 among the classes so as to maintain or attain a number of directors in each class as nearly equal as possible, but no decrease in the number of directors may shorten the term of any incumbent director. This provision shall become effective only when the corporation becomes a listed corporation within the meaning of Section 301.5 of the GCLC. Shareholders shall not be entitled to cumulate votes in the election of directors. This provision shall become effective only when the corporation becomes a listed corporation within the meaning of Section 301.5 of the GCLC. No director may be removed except for cause as set forth in Sections 302 and 304 of the GCLC, except as otherwise provided by Section 303 of the GCLC. In the event that the holders of any class or series of stock of the corporation shall be entitled, voting separately as a class, to elect any directors of the corporation, then the number of directors that may be elected by such holders shall be in addition to the number fixed pursuant to the by-laws and, except as otherwise expressly provided in the terms of such class or series, the terms of the directors elected by such holders shall expire at the annual meeting of shareholders next succeeding their election without regard to the classification of the remaining directors. This Article Fifth may not be amended, modified or repealed except by the affirmative vote of the holders of not less than eighty percent (80%) of the Total Voting Power and the affirmative vote of the holders of a majority of the voting power of all outstanding Public Shares, each considered for purposes hereof as a single class. SIXTH. No action required or permitted to be taken by the holders of any class or series of stock of the corporation, including but not limited to the election of directors, may be taken by written consent or consents and must be taken at a duly called annual meeting or at a special meeting of shareholders. This Article Sixth may not be amended, modified or repealed except by the affirmative vote of the holders of not less than seventy-five percent (75%) of the Total Voting Power of the corporation and the affirmative vote of the holders of a majority of the voting power of all outstanding Public Shares, each considered for purposes hereof as a single class. SEVENTH. (a) The Board of Directors may not alter, amend or repeal Sections 2.3, 2.4, 2.7, 2.11, 2.12, 2.14, 2.16, 3.2, 3.3, 3.4, 3.5, 3.8, 3.9, 4.1, 4.4, Article VI or Article IX of the By-laws, except upon the affirmative vote of not less than seventy-five percent (75%) of the entire Board of Directors. (b) In addition to any approval required by the GCLC or any 5 other provisions of these Articles, the approval of any contract or transaction between the Corporation or any of its subsidiaries and one or more of its directors or Controlling Persons (or any of their "affiliates" as such term is defined in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended), or between the corporation or any of its subsidiaries and any other corporation, partnership, association or other organization in which one or more of its directors or Controlling Persons have a material financial interest, shall require that (i) the material facts as to his or her relationship or interest and as to the contract or transaction be fully and fairly disclosed in good faith to the Board of Directors and (ii) the Board of Directors in good faith (having determined that the contract is just and reasonable) authorize the contract or transaction by the affirmative vote of a majority of the disinterested directors present at the meeting of the Board of Directors at which such contract or transaction is considered (or, if there is only one disinterested director, such disinterested director), even though such disinterested directors constitute less than a quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors which authorizes the contract or transaction. A mere common directorship does not constitute a material financial interest within the meaning of this Article Seventh. A director is not interested within the meaning of this subdivision in a resolution fixing the compensation of another director as a director, officer or employee of the corporation, notwithstanding the fact that the first director is also receiving compensation from the corporation. If the other provisions hereinabove are met, no such contract or other transaction contemplated above, or vote of a director, whether one or more, or the Board of Directors, shall be void or voidable solely because a director is not a disinterested director with respect to a matter and is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction to which such director is not a disinterested director or solely because his or her or their votes are counted for such approval for any purpose other than as provided above. (c) Dividends on the outstanding shares of the corporation, if any, shall not be declared except upon the affirmative vote of not less than seventy-five percent (75%) of the entire Board of Directors at any regular or special meeting. Dividends may be paid by the corporation in cash, in property, or in the corporation's own shares, but only as permitted under Chapter 5 of the GCLC. Subject to limitations upon the authority of the Board of Directors imposed by any law, the declaration of and provision for payment of dividends shall be at the discretion of the Board of Directors. (d) The Board of Directors may, by resolution passed by the affirmative vote of at least seventy-five percent (75%) of the entire 6 Board of Directors, appoint from its membership, annually, an Executive Committee of two or more directors, which shall include the Chief Executive Officer and the President of the corporation. The appointment or removal of any member (or alternate members) of the Executive Committee shall require the affirmative vote of not less than seventy-five percent (75%) of the entire Board of Directors. This Article Seventh may not be amended, modified or repealed by the holders of the capital stock of the corporation except by the affirmative vote of the holders of not less than a majority of the Total Voting Power of the corporation and the affirmative vote of the holders of a majority of the voting power of all outstanding Public Shares, each considered for purposes hereof as a single class. EIGHTH. The corporation shall not enter into or recommend any Acquisition Proposal except upon the affirmative vote of not less than seventy-five percent (75%) of the entire Board of Directors. For purposes of this Article Eighth, an Acquisition Proposal shall mean any bona fide offer or proposal for (i) a merger or other business combination (other than a Surviving Company Merger (as hereinafter defined)) involving the corporation, (ii) the acquisition of any Voting Securities representing more than 50% of the Total Voting Power of the corporation after giving effect to such Acquisition Proposal or (iii) the acquisition of all or substantially all of the assets of the corporation. For purposes of this Article Eighth, a "Surviving Company Merger" shall mean any merger or other business combination or reorganization (i) where the transaction has been approved by a unanimous vote of the entire Board of Directors or (ii) where the holders of Voting Securities of the corporation prior to such transaction will beneficially own (as determined pursuant to Rule 13d-3 or Rule 13d-5 of the Exchange Act) in the aggregate at least 60% of the surviving corporation's Total Voting Power immediately after giving effect to such transaction. This Article Eighth may not be amended, modified or repealed except by the affirmative vote of the holders of not less than a majority of the Total Voting Power of the corporation and the affirmative vote of the holders of a majority of the voting power of all outstanding Public Shares, each considered for purposes hereof as a single class. NINTH. The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. No amendment, modification or repeal of this Article Ninth shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal. This Article Ninth may not be amended, modified or repealed except 7 by the affirmative vote of the holders of not less than eighty percent (80%) of the Total Voting Power of the corporation and the affirmative vote of the holders of a majority of the voting power of all outstanding Public Shares, each considered for purposes hereof as a single class. TENTH. The corporation is authorized to indemnify the directors, officers, employees or other agents of the corporation to the fullest extent permissible under California law. ELEVENTH. The Board of Directors is expressly authorized to adopt, amend or repeal a shareholder protection rights plan, which plan (or the securities issued pursuant to the terms of such plan) may distinguish between shares of Common Stock or other securities of the same class or series and may distinguish between shareholders of Common Stock or other securities of the same class or series. This Article Eleventh may not be amended, modified or repealed except by the affirmative vote of the holders of not less than eighty percent (80%) of the Total Voting Power and the affirmative vote of the holders of a majority of the voting power of all outstanding Public Shares, each considered for purposes hereof as a single class. 3) The foregoing amendment and this certificate have been approved by the Board of Directors of the corporation. 4) The foregoing amendment was approved by the required vote of the shareholder of the corporation in accordance with Section 902 of the GCLC; the corporation has only one class of shares and the total number of outstanding shares of such class entitled to vote with respect to the foregoing amendment was 450 shares; and the total number of shares of such class voting in favor of the foregoing amendment equaled or exceeded the vote required, such required vote being a majority of the outstanding shares of such class. Each of the undersigned declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge. Dated: July 23, 1996 /s/ ROBERT C. JOYNER ---------------------- Robert C. Joyner Assistant Secretary /s/ R.J. MESSENGER ---------------------- R.J. Messenger President EX-3.5 3 AMENDED BYLAWS OF PARACELSUS 1 EXHIBIT 3.5 AMENDED AND RESTATED BYLAWS OF PARACELSUS HEALTHCARE CORPORATION ARTICLE I CORPORATE OFFICES 1.1 PRINCIPAL OFFICE The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside California and the corporation has one or more business offices in California, then the Board of Directors shall fix and designate a principal business office in California. Unless and until redesignated by the Board of Directors, the principal executive office of the corporation is 515 Greens Road, Suite 800, Houston, Texas 77067. 1.2 OTHER OFFICES The Board of Directors may at any time establish branch or subordinate offices at any place or places. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 PLACE OF MEETINGS Except as otherwise provided in these Bylaws, meetings of shareholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation or at any place consented to in writing by all persons entitled to vote at such meeting, given before or after the meeting and filed with the Secretary of the corporation. 2.2 ANNUAL MEETING The annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. At each annual meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETINGS Special meetings of the shareholders may be called at any time, subject to the provisions of Sections 2.4 and 2.5 of these Bylaws, by the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than ten percent (10%) of 2 the votes at that meeting; provided, that no special meeting shall be held during the period of sixty (60) days preceding or forty-five (45) days succeeding the date fixed for the annual meeting of shareholders. If a special meeting is called by anyone other than the Board of Directors or the President or the Chairman of the Board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by other written communication to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The officer receiving the request forthwith shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held. 2.4 NOTICE OF SHAREHOLDERS' MEETINGS All notices of meetings of shareholders shall be written and sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these Bylaws, not less than thirty (30)) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, and no business other than that specified in the notice may be transacted, or (ii) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of the next paragraph of this Section 2.4, any proper matter may be presented at the meeting for such action. The notice of any meeting at which Directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code (the "Code"), (ii) an amendment of the Restated Articles of Incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to 3 Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of any outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Notice of a shareholders' meeting shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, notice may be sent by third-class mail, or other means of written communication, addressed to the shareholder at the address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. If any notice (or any report referenced in Article VII of these Bylaws) addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice or report to all other shareholders. An affidavit of mailing or other means of giving any notice or report in accordance with the provisions of this Section 2.5, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report. Except as otherwise prescribed by the Board of Directors in particular instances and except as otherwise provided by subdivision (c) of Section 601 of the Code, the Secretary shall prepare and give, or cause to be prepared and given, the notice of meetings of shareholders. 2.6 ORGANIZATION OF MEETINGS The Chairman of the Board of Directors, if any, shall preside at each meeting of shareholders, or in the absence of the Chairman of the 4 Board of Directors the Vice-Chairman of the Board of Directors, if any, or in the absence of the Vice-Chairman the President, or in the absence of the President the Chief Financial Officer of the Company, or in the absence of the Chief Financial Officer, by a chairman designated by the Board of Directors, in the absence of such designation, by a chairman chosen at the meeting. The Secretary shall act as secretary of all meetings of shareholders and keep the records of such meetings, and in the absence of the Secretary, his or her duties shall be performed by any other officer authorized by the Board of Directors or in the absence of such authorization any officer authorized by these Bylaws or if no such officer is available or willing to so act, by any person appointed by resolution duly adopted at the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority, subject to applicable law and the provisions of the Restated Articles of Incorporation and these Bylaws, to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including without limitation, the establishment of procedures for the maintenance of order and safety, limitation on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meetings after the time prescribed for the commencement thereof and the opening and closing of the voting polls. 2.7 QUORUM Unless otherwise provided in the Restated Articles of Incorporation, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in the last sentence of the preceding paragraph. 2.8 ADJOURNED MEETING; NOTICE Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. 5 When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if its time and place are announced at the meeting at which the adjournment is taken. However, if the adjournment is for more than forty-five (45) days from the date set for the original meeting or if a new record date for the adjourned meeting is fixed, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 2.9 VOTING The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Chapter 7 of the Code. Elections for directors and voting on any other matter at a shareholders' meeting need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins. Except as provided in the last paragraph of this Section 2.9, or as may be otherwise provided in the Restated Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or may vote them against the proposal other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. The affirmative vote of the majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or percentage of voting shares is required by the Code or by the Restated Articles of Incorporation. Except as otherwise provided by law, no shareholder shall be entitled to cumulate votes for any candidate or candidates. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. 2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT 6 The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, are as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. Neither the business to be transacted at nor the purpose of any annual or special meeting of shareholders need be specified in any written waiver of notice or consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the Restated Articles of Incorporation or these Bylaws, and except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of such meeting but not so included, if such objection is expressly made at the meeting. 2.11 ACTION BY WRITTEN CONSENT Except as otherwise provided in the Restated Articles of Incorporation, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxyholders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxyholders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary, but may not do so thereafter. 7 If the consents of all shareholders entitled to vote have not been solicited in writing, the Secretary shall give prompt notice to those shareholders entitled to vote who have not consented in writing of the taking of any corporate action approved by shareholders without a meeting by less than unanimous written consent. Such notice shall be given in accordance with Section 2.5. In the case of approval of (i) contracts or transaction in which a director has a direct or indirect material financial interest, pursuant to Section 310 of the Code, (ii) indemnification of agents of the corporation, pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, such notice shall be given at least ten (10) days before the consummation of the action authorized by such approval, unless the consents of all shareholders entitled to vote have been solicited in writing. 2.12 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS Except as otherwise provided in the Restated Articles of Incorporation in order that the corporation may determine the shareholders entitled to notice of any meeting or to vote, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days before any other action. Shareholders at the close of business on the record date are entitled to notice and to vote, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Restated Articles of Incorporation or the Code. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. If the Board of Directors does not so fix a record date: (i) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (ii) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given. 8 The record date for any other purpose shall be as provided in Section 8.1 of these Bylaws. 2.13 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder's name or other authorization is placed on the proxy (whether by manual signature, typewriting, telegraphic or electronic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by attendance at such meeting and voting in person, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. 2.14 ADVANCE NOTICE (a) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the corporation, except as may be otherwise provided in the Restated Articles of Incorporation of the corporation with respect to the right of holders of certain classes of stock of the corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of shareholders, or at any special meeting of shareholders called for the purpose of electing directors, (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by the shareholder of the corporation (x) who is a shareholder of record on the date of the giving of the notice provided for in this Section 2.14 and on the record date for the determination of shareholders entitled to vote at such meeting and (y) who complies with the notice procedures set forth in this Section 2.14. In addition to any other applicable requirements, for a nomination to be made by a shareholder, such shareholder must have given timely 9 notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholders's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of the shareholders; provided, however, that (i) in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date notice by the shareholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed for such public disclosure of the date of the annual meeting was made, whichever first occurs; and (ii) in the case of a special meeting of shareholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a shareholder's notice to the Secretary must set forth (x) as to each person whom the shareholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (y) as to the shareholder giving the notice (i) the name and record address of such shareholder, (ii) the class or series and number of shares of capital stock of the corporation which are owned beneficially (as determined pursuant to Rule 13d-3 of the Exchange Act) or of record by such shareholder, (iii) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. 10 No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2.14. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. (b) No business may be transacted at an annual meeting of shareholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any shareholder of the corporation (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 2.14 and on the record date for the determination of shareholders entitled to vote at such annual meeting and (ii) who complied with the notice procedures set forth in this Section 2.14. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the corporation. To be timely, a shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the shareholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed for such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a shareholder's notice to the Secretary must set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such shareholder, (iii) the class or series and number of shares of capital stock of the corporation which are owned beneficially (as determined pursuant to Rule 13d-3 of the Exchange Act) or of record by such shareholders, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons 11 (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business and (v) a representation that such shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of shareholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.14, provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.14 shall be deemed to preclude discussion by any shareholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. (c) For so long as the Shareholder Agreement, dated , 1996, between the corporation and (the "Shareholder Agreement") shall be in effect, nothing in Sections 2.14(a) or 2.15(b) shall be deemed to limit the rights and other provisions under the Shareholder Agreement, including without limitation Sections 6, 7 and 9 thereof. 2.15 INSPECTORS OF ELECTION In advance of any meeting of shareholders, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed or designated or if any persons so appointed fail to appear or refuse to act, then the Chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail to appear) at the meeting. The number of inspectors shall be either one (1) or three (3). If appointed at a meeting on the request of one (1) or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity, and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, (if permitted by the Restated Articles of Incorporation), determine when the polls shall close, determine the result and do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. If there are three (3) inspectors or election the 12 decision, act or certificate of a majority is effective in all respects as to the decision, act or certificate or all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. 2.16 COUNTING CONSENTS. In the event of an amendment to the Restated Articles of Incorporation or these Bylaws to permit shareholders action by written consent and except as otherwise provided by the Restated Articles of Incorporation or by these Bylaws, within three business days of the receipt of the first dated consent delivered to the corporation in the manner provided by law and these Bylaws, the Secretary shall engage nationally recognized independent inspectors of elections for the purpose of performing a ministerial review of the validity of the consents and revocations. The cost of retaining inspectors of elections shall be borne by the corporation. Consents and revocations shall be delivered to the inspectors upon receipt by the corporation, the shareholder or shareholders soliciting consents or soliciting revocations in opposition to action by consent proposed by the corporation (the "Soliciting Shareholders") or their proxy solicitors or other designated agents. As soon as consent and revocations are received, the inspectors shall review the consents and revocations and shall maintain a count of the number of valid and unrevoked consents. The inspectors shall keep such count confidential and shall not reveal the count to the corporation, the Soliciting Shareholders or their representatives or any other person. As soon as practicable after the earlier of (i) sixty days after the date of the earliest dated consent delivered to the corporation in the manner provided by law and these Bylaws or (ii) a written request therefor by the corporation or the Soliciting Shareholders, whichever is soliciting consents (which request may be made no earlier than the commencement of the applicable solicitation or consents and notice of which request shall be given to the party opposing the solicitation of consents, if any), which request shall state that the corporation or the Soliciting Shareholders, as the case may be, have a good faith belief that the requisite number of valid and unrevoked consents to authorize or take the action specified in the consents has been received in accordance with these Bylaws, the inspectors shall issue a preliminary report to the corporation and the Soliciting Shareholders stating: (i) the number of valid consents; (ii) the number of valid revocations; (iii) the number of valid and unrevoked consents; (iv) the number of invalid consents; (v) the number of invalid revocations; and (vi) whether, based on their preliminary count, the requisite number of valid and unrevoked consents has been obtained to authorize or take the action specified in the consents. For purposes of this Bylaw, to the extent that a proxy statement or an information statement is required by law to be furnished to the corporation's shareholders, a consent solicitation shall be 13 deemed to have commenced when a proxy statement or information statement containing the information required by law is first furnished to the corporation's shareholders. Unless the corporation and the Soliciting Shareholders agree to a shorter or longer period, the corporation and Soliciting Shareholders shall have forty-eight hours to review the consents and revocations and to advise the inspectors and the opposing party in writing as to whether they intend to challenge the preliminary report of the inspectors. If no written notice of an intention to challenge the preliminary report is received within forty-eight hours after the inspectors' issuance of the preliminary report, the inspectors shall issue to the corporation and the Soliciting Shareholders their final report containing the information from the inspectors' determination with respect to whether the requisite number of valid and unrevoked consents was obtained to authorize and take the action specified in the consents. If the corporation or the Soliciting Shareholders issue written notice of an intention to challenge the inspectors' preliminary report, within forty-eight hours after the issuance of that report, a challenge session shall be scheduled by the inspectors as promptly as practicable. A transcript of the challenge session shall be recorded by a certified court reporter. Following completion of the challenge session, the inspectors shall as promptly as practicable issue their final report to the Soliciting Shareholders and the corporation, which report shall contain the information included in the preliminary report, plus all changes in the totals as a result of the challenge and a certification of whether the requisite number of valid and unrevoked consents was obtained to authorize or take the action specified in the consents. A copy of the final report of the inspectors shall be included in the book in which the proceedings of meetings of shareholders are recorded. The corporation shall give prompt notice to the shareholders of the results of any consent solicitation or the taking of corporate action without a meeting. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the Code and any limitations in the Restated Articles of Incorporation and these Bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the 14 corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. 3.2 NUMBER OF DIRECTORS The authorized number of directors of the corporation shall be not less than nine (9) nor more than twelve (12), and the exact number of directors shall be nine (9) until changed, within the limits specified above, by a resolution amending such exact number, duly adopted by at least seventy-five percent (75%) of the entire Board of Directors or by the shareholders, in accordance with the provisions set forth in the Restated Articles of Incorporation, these Bylaws and applicable laws. In accordance with the provisions set forth in the Restated Articles of Incorporation and subject to the limitations contained therein, the minimum and maximum number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Restated Articles of Incorporation or by an amendment to this Bylaw duly adopted by the vote or written consent, if permitted by the Restated Articles of Incorporation, of shareholders entitled to vote in such manner as set forth in the Restated Articles of Incorporation; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS AND REMOVAL At each annual meeting of shareholders, directors shall be elected to hold office until the next election of the class for which such directors were designated and until their successors have been elected and qualified, in accordance with the provisions set forth in the Restated Articles of Incorporation and in these Bylaws. Each director, including a director elected to fill a vacancy, shall hold office, in accordance with the provisions set forth in the Restated Articles of Incorporation and on these Bylaws, until the expiration of the term for which elected and until a successor has been elected and qualified, except in the case of the death, resignation, or removal of such a director. No director may be removed from office, except as provided by the Restated Articles of Incorporation or by law. 3.4 CLASS OR SERIES DIRECTORS 15 Whenever the holders of any class or series of stock are entitled to elect one or more directors by the articles of incorporation, the provisions of the last sentence of Section 3.3 shall apply, with respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Unless otherwise provided in the articles of incorporation or these Bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or from any other cause may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the articles of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by the sole remaining director so elected. Any director elected or appointed to fill a vacancy shall hold office until the next election of the class of directors of the director which such director replaced, and until and his or her successor is elected and qualified or until his or her earlier resignation or removal. 3.5 RESIGNATION AND VACANCIES (a) Any director may resign effective upon giving oral or written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. (b) Unless otherwise provided in the Restated Articles of Incorporation of these Bylaws, vacancies on the Board of Directors may be filled by a majority of the remaining directors, although less than a quorum, or a sole remaining director. (c) The shareholders may elect a director to fill any vacancy not filled by the directors in accordance with law and with the provisions of the Restated Articles of Incorporation and these Bylaws. (d) A vacancy or vacancies in the Board of Directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the Board of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased as provided in the Restated Articles of Incorporation, or (iv) if the shareholders fail, at any meeting of 16 shareholders at which any director or directors are elected, to elect the full authorized number of directors to be elected at that meeting, as provided in the Restated Articles of Incorporation. (e) Notwithstanding anything to the contrary in this Section 3.5, for so long as the Shareholder Agreement shall be in effect: (i) In the event that the size of the Board of Directors is increased in accordance with the provisions of the Shareholder Agreement, the nominees to the vacancies created by such increase shall be Independent Directors (as defined in the Shareholder Agreement) in accordance with the terms of the Shareholder Agreement); and (ii) Vacancies among the Shareholder Directors and the Transferee Directors (each as defined in the Shareholder Agreement) and among the Independent Directors shall be filled in accordance with the terms of the Shareholder Agreement. 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Members of the Board may participate in a meeting through the use of conference telephone or similar communications equipment, so long as all directors participating in such meeting can hear one another. Participation in a meeting pursuant to this paragraph constitutes presence in person at such meeting. 3.7 REGULAR MEETINGS Regular meetings of the Board of Directors may be held without notice if the time and place of such meetings are fixed by the Board of Directors or by these Bylaws. 3.8 SPECIAL MEETINGS; NOTICE Subject to the provisions of the following paragraph, special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary or any two (2) directors. 17 Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, telegram, charges prepaid, or by telecopier, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telecopier or telegram, it shall be delivered personally or by telephone or by telecopier or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting. 3.9 QUORUM (a) Except as set forth below, a majority of the authorized number of directors shall constitute a quorum for the transaction of business. Except as otherwise provided for in the Restated Articles of Incorporation or these Bylaws, every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section 317(e) of the Code (as to indemnification of directors), the Restated Articles of Incorporation, and other applicable law, and subject to any provisions in the Restated Articles of Incorporation or these Bylaws requiring a vote by more than a simple majority of directors. (b) A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. (c) For so long as the Shareholder Agreement shall be in effect, the quorum required for the transaction of business by the Board of Directors shall include at least one director who is a Shareholder Director or a Transferee Director and also one director who is an Independent Director, or their respective designees, attending in person or, if necessary, via teleconference call or other permitted means. 3.10 WAIVER OF NOTICE 18 Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. 3.11 ADJOURNMENT A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. 3.12 NOTICE OF ADJOURNMENT If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time and place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the Board of Directors under the provisions of the Restated Articles of Incorporation and these Bylaws or otherwise may be taken without a meeting, if all members of the Board individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. 3.14 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section 3.14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. ARTICLE IV COMMITTEES 4.1 EXECUTIVE COMMITTEE Executive Committee. In accordance with the provisions set forth in these Bylaws and the Restated Articles of Incorporation, the Board of 19 Directors may, by resolution passed by the affirmative vote of at least seventy-five percent (75%) of the whole Board of Directors, appoint from its membership, annually, an Executive Committee of two or more directors, which shall include the Chief Executive Officer and the President of the Corporation. The Board of Directors may designate in such resolution one or more directors as alternate members of the Executive Committee, who may replace any absent or disqualified member at any meeting of the Committee. The Executive Committee, during the intervals between meetings of the Board of Directors, shall have and there is hereby granted to it all of the authority and power of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation be affixed to papers which may require it, except that the Executive Committee shall have authority to act in the manner and to the extent provided in the resolution of the Board and may have all the authority of the Board, except with respect to: (a) The approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares. (b) The filling of vacancies on the Board of Directors or in any committee. (c) The fixing of compensation of the directors for serving on the Board or on any committee. (d) The amendment or repeal of these Bylaws or the adoption of new Bylaws. (e) The amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable. (f) A distribution to the shareholders of the corporation, except at a rate, in a periodic amount or within a price range set forth in the Restated Articles of Incorporation or determined by the Board of Directors. (g) The appointment of any other committees of the Board of Directors or the members thereof. The Executive Committee shall have no power or authority in reference to (i) amending the Restated Articles of Incorporation (except that the Executive Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the convention into, or the exchange of such shares for, shares of any other class or classes of stock of the Corporation or fix the number of shares 20 of any series of stock or authorizing the increase or decrease of the shares of any series), (ii) adopting a certificate of ownership or an agreement of merger or consolidation, (iii) recommending to the shareholders the sale, loans or exchange of all or substantially all of the Corporation's property and assets, (iv) recommending to the shareholders a dissolution of the Corporation or a revocation of a dissolution or (v) removing or indemnifying directors. The Executive Committee shall keep regular minutes of all business transacted at its meetings, and all action of the Executive Committee shall be reported to the Board of Directors at its next meeting. The minutes of the Executive Committee shall be placed in the minute book of the Corporation. Members of the Executive Committee shall receive such compensation as may be set forth in the resolution appointing such member and shall be reimbursed for reasonable expenses actually incurred by reason of membership on the Executive Committee. 4.2 OTHER COMMITTEES OF DIRECTORS (a) The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more other committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee shall have authority to act, in the manner and to the extent provided in the resolution of the Board of Directors and may have all the authority of the Board, except with respect to the limitations as set forth in Section 4.1. (b) The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, appoint from its membership an Audit Committee, a Compensation and Stock Option Committee and a Finance and Strategic Planning Committee. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporations shall be a Chief Executive Officer, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Vice Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance 21 with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the 5.2 APPOINTMENT OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws, shall be chosen by the Board and serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The Board of Directors may appoint, or may empower the chairman of the Board or the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, all officers serve at the pleasure of the Board of Directors and any officer may be removed, either with or without cause, by the Board of Directors at any regular or special meeting of the Board or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be 22 assigned by the Board of Directors or as may be prescribed by these Bylaws or by law. 5.7 CHIEF EXECUTIVE OFFICER Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the Chief Executive Officer shall have general supervision, direction, and control of the business and the officers of the corporation. The Chief Executive Officer shall preside at all meetings of the shareholders an, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors. The Chief Executive Officer shall have the general powers and duties of management usually vested in the office of Chief Executive Officer of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 PRESIDENT Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chief Executive Officer, if there be such an officer, the President shall have general supervision, direction and control of the business and the officers of the corporation. The President shall preside at all meetings of the shareholders and, in the absence or nonexistence of a Chief Executive Officer, at all meetings of the Board of Directors. The President shall have the general powers and duties of management usually vested in the office of the President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.9 VICE PRESIDENTS In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President or the Chairman of the Board. 5.10 SECRETARY The Secretary shall keep or cause to be kept at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees of directors and shareholders. The minutes 23 shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required to be given by law or by these Bylaws. The Secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 5.11 CHIEF FINANCIAL OFFICER The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his or her transactions as Chief Financial Officer and of the financial condition of the corporation and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. ARTICLE IV INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS 24 The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors against expenses (as defined in Section 317(a) of the code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317 (a) of the Code), arising by reason of the fact that such person is or was a director of the corporation. For purposes of this Article VI, a "director" of the corporation includes any person (i) who is or was a director of the corporation, (ii) who is or was serving at the request of the corporation as a director of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees, officers, and agents (other than directors) against expenses (as defined in Section 317(a) of the code), judgments, fines settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an employee, officer, or agent of the corporation. For purposes of this Article VI, an "employee" or "officer" or "agent" of the corporation (other than a director) includes any person (i) who is or was an employee, officer, or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee, officer, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee, officer, or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE Expenses and attorney's fees incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1, or if otherwise authorized by the Board of Directors, shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE 25 The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under by By-law agreement, vote of shareholders or directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person. 6.5 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of that person's status as such, whether or not the corporation would have the power to indemnify that person against such liability under the provisions of this Article VI. 6.6 CONFLICTS No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Restated Articles of Incorporation, these Bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. 6.7 RIGHT TO BRING SUIT If a claim under this Article VI is not paid in full by the corporation within 90 days after a written claim has been received by the corporation (either because the claim is denied or because no determination is made), the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Code for the corporation to indemnify the claimant for the claim. Neither the failure of the corporation (including its 26 Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met the applicable standard of conduct, if any, nor an actual determination by the corporation (including its Board of Directors independent legal counsel, or its shareholders) that the claimant has not met the applicable standard of conduct, shall be a defense to such action or create a presumption for the purposes of such action that the claimant has not met the applicable standard of conduct. 6.8 INDEMNITY AGREEMENTS The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, or any person who was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, providing for indemnification rights equivalent to or, if the Board of Directors so determines and to the extent permitted by applicable law, greater than those provided for in this Article VI. 6.9 AMENDMENT, REPEAL OR MODIFICATION Any amendment, repeal or modification of any provision of this Article VI shall not adversely affect any right or protection of a director or agent of the corporation existing at the time of such amendment, repeal or modification. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the Board of Directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of such voting shares and have filed a Schedule 14B with the United States Securities 27 and Exchange Commission relating to the election of directors, shall have an absolute right to do either or both of the following (i) inspect and copy the record of shareholders' names, addresses, and shareholdings during usual business hours upon five (5) days' prior written demand upon the corporation, or (ii) obtain from the transfer agent for the corporation, upon written demand and upon the tender of such transfer agent's usual charges for such list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to the holder's interests as a shareholder or holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California, the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then it shall, upon the written request of any shareholder, furnish to such shareholder a copy of these Bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS The accounting books and records and the minutes of proceedings of the shareholders and the Board of Directors, and committees of the Board of Directors shall be kept at such place or places as are designated by the Board of Directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. 28 The minutes and accounting books and records shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of a voting trust certificate. Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of ever kind and to inspect the physical properties of the corporation and each of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER The Board of Directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent to the shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five (35)) days prior to the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these Bylaws for giving notice to shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 7.6 FINANCIAL STATEMENTS If no annual report for the fiscal year has been sent to shareholders, than the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the 29 request, within thirty (3) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statements of changes in financial position for such fiscal year. A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three- month, six-month or nine-month period of the current fiscal year ended more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of that period. The statements shall be delivered or mailed to the person making the request within thirty (30) days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for twelve (12) months and it shall be exhibited at all reasonable times to any shareholder demanding an examination of the statements or a copy shall be mailed to the shareholder. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The Chairman of the Board, the Vice Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this corporation, or any other person authorized by the Board of Directors or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For the purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of 30 any rights or entitled to exercise any rights in respect of any other lawful action, other than with respect to notice or voting at a shareholders meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such action. Only shareholders of record at the close of business on the record date are entitled to receive the dividend, distribution or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Restated Articles of Incorporation or the Code. If the Board of Directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto or the sixtieth (60th) day prior to the date of that action, whichever is later. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATES FOR SHARES A certificate or certificates for shares of the corporation shall be issued to each shareholder when any such shares are fully paid. The Board of Directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the Chairman of the Board or the Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary, 31 certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be by facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation or its transfer agent or registrar and canceled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed (as evidenced by a written affidavit or affirmation of such fact), authorize the issuance of replacement certificates on such terms and conditions as the Board may require; the Board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS 9.1 AMENDMENT BY SHAREHOLDERS Except as otherwise provided in the Restated Articles of Incorporation or in these Bylaws new Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Restated Articles of Incorporation of the corporation set forth the number of authorized Directors of the 32 corporation, then the authorized number of Directors may be changed only by an amendment of the Restate Articles of Incorporation. 9.2 AMENDMENT BY DIRECTORS Except as otherwise provided in the Restated Articles of Incorporation or in these Bylaws, these Bylaws including amendments adopted by the shareholders may be altered, amended or repealed by a majority vote of the whole Board of Directors at any regular or special meeting of the Board of Directors provided that the shareholders may from time to time specify particular provisions of the Bylaws which shall not be amended by the Board of Directors. Notwithstanding the foregoing, any alteration, amendment or repeal of Sections 2.3, 2.4, 2.11, 2.12, 2.14, 2.16, 3.2, 3.3, 3.4, 3.5, 3.8, 3.9, 4.1, 4.4 Article VI or Article IX shall require the affirmative vote of not less than seventy- five percent (75%) of the whole Board of Directors. 9.3 RECORD OF AMENDMENTS Whenever an amendment or new Bylaw is adopted, it shall be copied in the book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted or written consent was filed, shall be stated in said book. ARTICLE X INTERPRETATION Reference in these Bylaws to any provision of the California Corporations Code shall be deemed to include all amendments thereof. EX-4.1 4 INDENTURE DATED 08/16/96 1 EXHIBIT 4.1 PARACELSUS HEALTHCARE CORPORATION AND AMSOUTH BANK OF ALABAMA Trustee Indenture Dated as of August 16, 1996 $325,000,000 10% Senior Subordinated Notes due 2006 2 Paracelsus Healthcare Corporation Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of August 16, 1996
Trust Indenture Indenture Act Section Section 310(a)(1) ................................... 609 (a)(2) ................................... 609 (a)(3) ................................... Not Applicable (a)(4) ................................... Not Applicable (a)(5) ................................... 609 (b) ................................... 608 ................................... 610 311(a) ................................... 613 (b) ................................... 613 312(a) ................................... 701 702(a) (b) ................................... 702(b) (c) ................................... 702(c) 313(a) ................................... 703(a) (b) ................................... 703(a) (c) ................................... 703(a) (d) ................................... 703(b) 314(a) ................................... 704 (b) ................................... Not Applicable (c)(1) ................................... 102 (c)(2) ................................... 102 (c)(3) ................................... Not Applicable (d) ................................... Not Applicable (e) ................................... 102 315(a) ................................... 601 603(a) (b) ................................... 602 (c) ................................... 601 (d) ................................... 601 (e) ................................... 514 316(a)(1)(A) ................................... 512 (a)(1)(B) ................................... 513 (a)(2) ................................... Not Applicable (b) ................................... 508 (c) ................................... 104 317(a)(1) ................................... 503 (a)(2) ................................... 504 (b) ................................... 1003 318(a) ................................... 107
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS
Page ---- Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Acquired Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Affiliate Transaction . . . . . . . . . . . . . . . . . . . . . . . 2 Asset Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Asset Sale Offer. . . . . . . . . . . . . . . . . . . . . . . . . . 2 Attributable Debt . . . . . . . . . . . . . . . . . . . . . . . . . 2 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . 3 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 3 Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Capital Lease Obligation . . . . . . . . . . . . . . . . . . . . . . 3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Champion Investors Registration Rights Agreement. . . . . . . . . . 3 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . 3 Change of Control Offer . . . . . . . . . . . . . . . . . . . . . . 4 Change of Control Payment . . . . . . . . . . . . . . . . . . . . . 4 Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Company Request; Company Order. . . . . . . . . . . . . . . . . . . 4 Consolidated Cash Flow . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Interest Expense. . . . . . . . . . . . . . . . . . . . 4 Consolidated Net Income . . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . 5 Continuing Directors . . . . . . . . . . . . . . . . . . . . . . . . 5 Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . 6 Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Designated Senior Indebtedness . . . . . . . . . . . . . . . . . . . 6 Disqualified Stock . . . . . . . . . . . . . . . . . . . . . . . . . 6 Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Dividend and Note Agreement . . . . . . . . . . . . . . . . . . . . 6 Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 6 Excess Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4 Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 7 Existing Paracelsus Credit Facility . . . . . . . . . . . . . . . . 7 Existing Senior Subordinated Notes. . . . . . . . . . . . . . . . . 7 Fixed Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Government Securities . . . . . . . . . . . . . . . . . . . . . . . 7 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . 7 Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Incur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Insurance Agreement . . . . . . . . . . . . . . . . . . . . . . . . 8 Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . 8 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Merger Related Agreement . . . . . . . . . . . . . . . . . . . . . . 9 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Net Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 New Credit Facility. . . . . . . . . . . . . . . . . . . . . . . . . 9 Non-Compete Agreement . . . . . . . . . . . . . . . . . . . . . . . 9 Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . 10 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 10 Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Paracelsus Shareholder . . . . . . . . . . . . . . . . . . . . . . . 10 Paracelsus Shareholder Registration Rights Agreement . . . . . . . . 11 Pari passu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Payment Blockage Period . . . . . . . . . . . . . . . . . . . . . . 11 Permitted Business . . . . . . . . . . . . . . . . . . . . . . . . . 11 Permitted Holder . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Permitted Joint Venture . . . . . . . . . . . . . . . . . . . . . . 11 Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Permitted Refinancing Indebtedness . . . . . . . . . . . . . . . . . 12 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Physician Support Obligation . . . . . . . . . . . . . . . . . . . . 12 Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . 12 Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Pro Forma Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . 12 Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Purchase Money Indebtedness . . . . . . . . . . . . . . . . . . . . 13 Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . 14 Related Business . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Related Party . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . 14 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Securities Payment . . . . . . . . . . . . . . . . . . . . . . . . . 14 Security Register, Security Registrar . . . . . . . . . . . . . . . 14 Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 14 Senior Nonmonetary Default . . . . . . . . . . . . . . . . . . . . . 15 Senior Payment Default . . . . . . . . . . . . . . . . . . . . . . . 15 Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 15 Settlement Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Shareholder Agreement . . . . . . . . . . . . . . . . . . . . . . . 15 Shareholder Subordinated Note . . . . . . . . . . . . . . . . . . . 15 Significant Subsidiary . . . . . . . . . . . . . . . . . . . . . . . 15 Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . 15 Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . 16 U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . 16 Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Weighted Average Life to Maturity . . . . . . . . . . . . . . . . . 16 Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 102 Compliance Certificates and Opinions . . . . . . . . . . . 16 SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . 17 SECTION 104. Acts of Holders; Record Date . . . . . . . . . . . . . . . 17 SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . 20 SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . 20 SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . 21 SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . 21 SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . . . 21 SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . 21 SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . 21 SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE TWO Security Forms SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . 22 SECTION 202. Form of Face of Security . . . . . . . . . . . . . . . . . 22 SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . 24 SECTION 204. Form of Trustee's Certificate of Authentication . . . . . 27 ARTICLE THREE The Securities SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . 28
6 SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . 29 SECTION 304. Temporary Securities . . . . . . . . . . . . . . . . . . . 29 SECTION 305. Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities . . . . . 31 SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . 31 SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . 33 SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . 33 ARTICLE FOUR Satisfaction and Discharge SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . 33 SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . 35 ARTICLE FIVE Remedies SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . 35 SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . . . 38 SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . 39 SECTION 505. Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 506. Application of Money Collected . . . . . . . . . . . . . . 40 SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . 40 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . . . . 41 SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . 41 SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . 41 SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . 42 SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . 42 SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . 42 SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . 43 SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . 43 ARTICLE SIX The Trustee SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . 44 SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . 44 SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . 44
7 SECTION 604. Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . 45 SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . 46 SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . 46 SECTION 608. Disqualification; Conflicting Interests . . . . . . . . . 46 SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . 46 SECTION 610. Resignation and Removal; Appointment of Successor . . . . 47 SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . 48 SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 613. Preferential Collection of Claims Against Company 49 SECTION 614. Appointment of Authenticating Agent . . . . . . . . . . . 49 ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 702. Preservation of Information; Communications to Holders . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . 52 SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . 52 ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. Company May Consolidate, Etc. and Purchases of Assets Only on Certain Terms . . . . . . . . . . . . . 52 SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . 53 ARTICLE NINE Supplemental Indentures SECTION 901. Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 902. Supplemental Indentures and Waivers with Consent of Holders . . . . . . . . . . . . . . . . . . . . 54 SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . 56 SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . 56 SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . 56 SECTION 906. Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . 56
8 ARTICLE TEN Covenants SECTION 1001. Payment of Principal, Premium and Interest . . . . . . . 57 SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . 57 SECTION 1003. Money for Security Payments to be Held in Trust . . . . . 57 SECTION 1004. Existence . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 1005. Maintenance of Properties . . . . . . . . . . . . . . . . 59 SECTION 1006. Payment of Taxes and Other Claims . . . . . . . . . . . . 59 SECTION 1007. Maintenance of Insurance . . . . . . . . . . . . . . . . 59 SECTION 1008. Limitations on Incurrence of Indebtedness . . . . . . . . 60 SECTION 1009. Limitations on Restricted Payments . . . . . . . . . . . 61 SECTION 1010. Limitations On Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . 64 SECTION 1011. Limitations on Liens . . . . . . . . . . . . . . . . . . 65 SECTION 1012. Limitations on Disposition of Assets . . . . . . . . . . 65 SECTION 1013. Limitations on Transactions with Affiliates . . . . . . . 67 SECTION 1014. Limitations on Other Subordinated Indebtedness . . . . . 68 SECTION 1015. Change of Control . . . . . . . . . . . . . . . . . . . . 68 SECTION 1016. Limitation on Conduct of Business . . . . . . . . . . . . 69 SECTION 1017. Reports . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 1018. Statement by Officers as to Default; Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 1019. Waiver of Certain Covenants . . . . . . . . . . . . . . . 70 ARTICLE ELEVEN Redemption of Securities SECTION 1101. Right of Redemption . . . . . . . . . . . . . . . . . . . 70 SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . . 71 SECTION 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . 71 SECTION 1104. Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . 72 SECTION 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . 73 SECTION 1107. Securities Payable on Redemption Date . . . . . . . . . . 73 SECTION 1108. Securities Redeemed in Part . . . . . . . . . . . . . . . 74 ARTICLE TWELVE Subordination of Securities SECTION 1201. Securities Subordinate to Senior Indebtedness . . . . . . 4 SECTION 1202. No Payment on Securities in Certain Circumstances . . . . 74 SECTION 1203. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization . . . . . . . . . . . . . . . . . . . . 75 SECTION 1204. Payment Permitted If No Default . . . . . . . . . . . . . 76
9 SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 1206. Provisions Solely to Define Relative Rights . . . . . . . 77 SECTION 1207. Trustee to Effectuate Subordination . . . . . . . . . . . 78 SECTION 1208. No Waiver of Subordination Provisions . . . . . . . . . . 78 SECTION 1209. Notice to Trustee . . . . . . . . . . . . . . . . . . . . 78 SECTION 1210. Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . . . . . . . . 79 SECTION 1211. Trustee Not Fiduciary for Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 1212. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights . . . . . 80 SECTION 1213. Article Applicable to Paying Agents . . . . . . . . . . . 80 SECTION 1214. Defeasance of this Article Twelve . . . . . . . . . . . . 80 SECTION 1215. This Article Not To Prevent Events of Default . . . . . . 80 SECTION 1216. Representative of Senior Indebtedness . . . . . . . . . . 81 ARTICLE THIRTEEN Defeasance and Covenant Defeasance SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . 81 SECTION 1302. Defeasance and Discharge . . . . . . . . . . . . . . . . 81 SECTION 1303. Covenant Defeasance . . . . . . . . . . . . . . . . . . . 81 SECTION 1304. Conditions to Defeasance or Covenant Defeasance . . . . . 82 SECTION 1305. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions . . . . 84 SECTION 1306. Reinstatement . . . . . . . . . . . . . . . . . . . . . . 84 TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SIGNATURES AND SEALS . . . . . . . . . . . . . . . . . . . . . . . . . . 86 ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
INDENTURE, dated as of August 16, 1996, between Paracelsus Healthcare Corporation, a corporation duly organized and existing under the laws of the State of California (herein called the "Company"), having its principal office at 515 W. Greens Road, Suite 800, Houston, Texas 77067, and AmSouth Bank of Alabama, a banking corporation duly organized and existing under the laws of the State of Alabama, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 10% Senior Subordinated Notes due 2006 of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. 10 All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles (whether or not such is indicated herein), and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted as consistently applied by the Company at the date of such computation and "pro forma", when used with reference to financial or accounting information, shall mean the application of the specified definitions and assumptions to the relevant historical financial information of the Company in accordance with the terms of this Indenture, generally accepted accounting principles and the rules and guidelines of the Commission (including, without limitation, Article 11 under Rule S-X of the rules and regulations of the Commission), as applicable; (4) unless otherwise specifically set forth herein, all calculations or determinations of a Person shall be performed or made on a consolidated basis in accordance with generally accepted accounting principles; and (5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Six, are defined in that Article. 11 "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person merges with or into or becomes a Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person; (ii) Indebtedness incurred or created by the Company or any of its Subsidiaries in connection with the transaction or series of transactions pursuant to which such Person became a Subsidiary of the Company; and (iii) Indebtedness incurred or created by the Company or any of its Subsidiaries in connection with the acquisition of substantially all of the assets of an operating unit or business of another person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Affiliate Transaction" has the meaning specified in Section 1013. "Asset Sale" has the meaning specified in Section 1012. "Asset Sale Offer" has the meaning specified in Section 1012. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the interest rate implicit in the lease, compounded, semiannually) of the obligation of the lessee of the property subject to such sale-leaseback transaction for rental payments during the remaining term of the lease included in such transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended or until the earliest date on which the lessee may terminate such lease without penalty or upon payment or penalty (in which case the rental payments shall include such penalty), after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and similar charges. "Authenticating Agent" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. 12 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York, New York are authorized or obligated by law or executive order to close. "Calculation Date" means, when used with respect to any calculation, the date of the transaction giving rise to the need to make such calculation. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the discounted present value of the rental obligations of any person under any lease of any property that would at such time be so required to be capitalized on the balance sheet of such person in accordance with GAAP. "Capital Stock" means, (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights (other than convertible or exchangeable Indebtedness) or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Champion Investors Registration Rights Agreement" means each of the registration rights agreements, dated August 16, 1996, by and among the Company and certain holders of shares of, or warrants to acquire shares of, the Company's common stock, no stated value per share. "Change of Control" means the occurrence of any of the following: (i) any sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation) in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as defined in Section 13(d)(3) of the Exchange Act) or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act); (ii) the adoption of a plan for the liquidation or dissolution of the Company; (iii) the acquisition by any person or group (as defined above) (other than a Permitted Holder) of a majority of the total voting power entitled to vote generally in the election of directors of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Change of Control Offer" has the meaning specified in Section 1015. "Change of Control Payment" has the meaning specified in Section 1015. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the Company's common stock, no stated value per share. "Company" means the Person named as the "Company" in the first paragraph 13 of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Chief Executive Officer, its President or a Vice President, and by its Chief Financial Officer, its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing Consolidated Net Income), plus (b) provision for taxes based on income or profits to the extent such provision for taxes was deducted in computing Consolidated Net Income, plus (c) Consolidated Interest Expense of such Person for such period, to the extent such expense was deducted in computing Consolidated Net Income, plus (d) depreciation and amortization (including amortization of goodwill and other intangibles and other non-cash charges of such Person for such period to the extent such depreciation and amortization were deducted in computing Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any Person for any period, the interest expense of such Person and its Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP (including amortization of original issue discount and deferred financing costs (other than deferred financing costs that are accelerated upon the redemption, repurchase or prepayment of any Indebtedness and except as set forth in the proviso to this definition)), non-cash interest payments, the interest component of all payments associated with all Capital Lease Obligations and net payments, if any, pursuant to Hedging Obligations; PROVIDED, HOWEVER,that in no event shall any amortization of deferred financing cost incurred in connection with the New Credit Facility or any amortization of deferred financing costs incurred in connection with the issuance of the Securities be included in Consolidated Interest Expense). "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, excluding expenses or any one-time charges incurred or recorded prior to December 31, 1996, to effect, or in connection with (i) the Merger (including Settlement Costs incurred by the Company), (ii) the public offerings of the Securities and the common stock of the Company consummated in August 1996, (iii) the refinancing and replacement of the Existing Credit Facility with the New Credit Facility; (iv) interest paid on the unpaid Dividend for up to 60 days; and (v) reflecting the refinancing and replacement of Existing Indebtedness with the Securities and/or common stock of the Company; PROVIDED, HOWEVER, that (a) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash (unless said Person has unilateral discretion to determine the amount of such dividends or distributions) to the referent Person or a 14 Subsidiary thereof; (b) except to the extent dividends or distributions actually paid were included pursuant to the foregoing clause (a), the Net Income of any person accrued prior to the date it becomes a Subsidiary of such person or any of its Subsidiaries or that person's assets are acquired by such person or any of its Subsidiaries shall be excluded; (c) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not, at the date of determination, permitted without any prior government approval (which has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; (d) the cumulative effect of a change in accounting principles shall be excluded; (e) any non-recurring, non-cash adjustments necessary to conform the accounting policies and procedures of Champion Healthcare Corporation and the Company shall be excluded; and (f) any non-cash charge recorded in connection with discontinuing, exiting, disposing of or otherwise ceasing to operate the psychiatric hospital business (whether in one or a series of transactions) shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock), less all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made in accordance with GAAP as a result of the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a Subsidiary of such Person, and excluding the cumulative effect of a change in accounting principles, all as determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors either pursuant to the Shareholder Agreement or with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office" means the principal office of the Trustee in Birmingham, Alabama at which at any particular time its corporate trust business shall be administered. "Corporation" means a corporation, association, company, joint-stock company, partnership or business trust. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Defaulted Interest" has the meaning specified in Section 307. "Designated Senior Indebtedness" means (i) so long as the Company has any Obligation under the New Credit Facility, the New Credit Facility and (ii) any other Senior Indebtedness of the Company permitted under the Indenture and which at the time of determination has an aggregate amount outstanding of at 15 least $10.0 million and is specifically designated in the instrument creating or evidencing such Senior Indebtedness as "Designated Senior Indebtedness." "Disqualified Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is required to be redeemed, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the final Stated Maturity of the Securities. "Dividend" means the dividend declared by the Board of Directors prior to the date of this Indenture in the amount of approximately $21.1 million, plus $3,574 for each day from and including July 31, 1996 to the date the dividend is paid, payable to the Paracelsus Shareholder. "Dividend and Note Agreement" means the dividend and note agreement to be entered into by and between the Paracelsus Shareholder and the Company at the time of the payment of the Dividend. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock or securities convertible into Capital Stock (but excluding any debt security that is convertible into, or exchangeable for Capital Stock). "Event of Default" has the meaning specified in Section 501. "Excess Proceeds" has the meaning specified in Section 1012. "Exchange Act" refers to the Securities Exchange Act of 1934 as it may be amended and any successor act thereto. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of original issuance of the Securities after giving effect to the application of the proceeds from the sale thereof as shown on Schedule I hereto until such amounts are repaid. "Existing Paracelsus Credit Facility" means the agreement dated as of December 8, 1995 by and among the Company, Bank of America National Trust and Savings Association, as Lead Agent, NationsBank of Texas, N.A., as Co-Agent, and the other lenders named therein. "Existing Senior Subordinated Notes" means the Company's 9-7/8% Senior Subordinated Notes due 2003 issued pursuant to the indenture, dated as of October 15, 1993, between the Company and The Bank of New York, as successor to NationsBank of Tennessee, N.A., as trustee. "Expiration Date" has the meaning specified in Section 104. "Fixed Charges" means, with respect to any Person for any period, the sum of (i) the Consolidated Interest Expense of such Person and its Subsidiaries for such period; (ii) any interest expense on Indebtedness of another Person that is Guaranteed by the referent Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its 16 Subsidiaries (whether or not such Guarantee or Lien is called upon); and (iii) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person (other than preferred stock which is considered Indebtedness), times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect from time to time. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements, interest rate floor agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such person against fluctuations in interest rates. "Holder" means a Person in whose name a Security is registered in the Security Register. "Hospital" means a hospital, outpatient clinic, long-term care facility, hospice, psychiatric facility or other facility that is used or useful in the provision of healthcare services or a Related Business. "Incur" has the meaning specified in Section 1008. "Indebtedness" of any Person means at any date, without duplication, (i) all obligations of such person for borrowed money; (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such person to pay the deferred price of property required to be accrued on the balance sheet of such person, except accounts payable arising in the ordinary course of business; (iv) all Capital Lease Obligations of such person; (v) all Indebtedness of others secured by a Lien on any asset of such person, whether or not such Indebtedness is assumed by such person (the amount of such obligation being deemed to be the lesser of the value of the property or assets or the amount of the obligation so secured); (vi) all Indebtedness of others Guaranteed by such person; (vii) all obligations of such person to reimburse the issuer of any letter of credit; (viii) Attributable Indebtedness of such person; (ix) preferred stock issued 17 by a Subsidiary of such person; (x) Disqualified Stock; and (xi) Hedging Obligations; PROVIDED, HOWEVER, that "Indebtedness" does not include any obligations pursuant to receivables financing which are not required under GAAP to be booked as liabilities on the balance sheet of such Person. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Insurance Agreement" means the insurance agreement, dated as of August 16, 1996, by and between the Company and Dr. Manfred George Krukemeyer. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees, made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Merger Related Agreement" means each of the Dividend and Note Agreement, the Shareholder Subordinated Note, the Shareholder Agreement, the Paracelsus Shareholder Registration Rights Agreement, the Champion Investors Registration Rights Agreement, the Services Agreement, the Insurance Agreement and the NonCompete Agreement. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP excluding, however, any amount representing the amortization of goodwill or other intangible assets arising from acquisitions subsequent to the date of the Indenture and excluding any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Assets Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions), and excluding any extraordinary or non-recurring gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). 18 "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, amounts required to be applied to the repayment of Indebtedness (other than Senior Indebtedness) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means the agreement dated as of August 16, 1996 by and among the Company, Bank of America National Trust and Savings Association, as Agent, Banque Paribas, as Documentation Agent, and NationsBank of Texas, N.A., as Managing Agent, Credit Lyonnais New York branch, as Co-Agent, and Toronto-Dominion (Texas), Incorporated, as Co-Agent, and the lenders from time to time parties thereto and the other documents and instruments entered into in favor of the Agent, the Documentation Agent, the Managing Agent and/or such lenders in connection therewith. "Non-Compete Agreement" means the non-compete agreement dated August 16, 1996 by and between the Company and the Principal. "Obligations" means any principal, interest, penalties, fees, expenses, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness, and shall include obligations of any kind payable in connection with the documentation, evidencing, governing, securing or otherwise relating to the New Credit Facility. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trustee or Company, including an employee of the Company, and who shall be reasonably acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, EXCEPT: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; PROVIDED that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this 19 Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paracelsus Shareholder" means Park Hospital GmbH. "Paracelsus Shareholder Registration Rights Agreement" means the registration rights agreement dated August 16, 1996 by and between the Paracelsus Shareholder and the Company. "Pari Passu", when used with respect to the ranking of any Indebtedness of any Person in relation to other Indebtedness of such Person, means that each such Indebtedness (a) either (i) is not subordinated in right of payment to any other Indebtedness of such Person or (ii) is subordinate in right of payment to the same Indebtedness of such Person as is the other and is so subordinate to the same extent and (b) is not subordinate in right of payment to the other or to any Indebtedness of such Person as to which the other is not so subordinate. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Payment Blockage Period" has the meaning specified in Section 1202. "Permitted Business" means the ownership, leasing, operation or management of Hospitals and Related Businesses. "Permitted Holder" means any of the Principal, a Related Party of the Principal and any person employed in the Company in a management capacity on the date of this Indenture. "Permitted Joint Venture" means a Person (i) which owns, leases, operates or services a Hospital or Related Business or manufactures or markets healthcare products and (ii) of which the Company or any Subsidiary of the 20 Company owns a 30% or greater equity interest. "Permitted Liens" means (i) Liens in favor of the Company; (ii) Liens on property of a Person existing at the time such Person either is merged into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company, PROVIDED, that such Liens (x) were not incurred in connection with, or in contemplation of, such merger, consolidation or becoming a Subsidiary and (y) do not extend to any assets other than those of the Person merged into or consolidated with the Company or such Subsidiary; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company; PROVIDED that such Liens were not incurred in connection with, or in contemplation of, such acquisition and do not extend to any assets of the Company or any of its Subsidiaries other than the property so acquired; (iv) Liens to secure Existing Indebtedness; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of like nature incurred in the ordinary course of business; and (vi) Liens securing Indebtedness incurred to refinance Indebtedness that has been secured by a Lien permitted under the Indenture; PROVIDED that (a) any such Lien shall not extend to or cover any assets or property not securing the Indebtedness so refinanced and (b) the refinancing Indebtedness secured by such Lien shall have been permitted to be incurred under Section 1008. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries; PROVIDED that: (i) the principal amount (or accrued value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accrued value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any prepayment premiums and any other reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date on or after the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Securities, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Securities on terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Physician Support Obligation" means any obligation or guarantee to, or on behalf of or for the benefit of any physician, pharmacist or other allied healthcare professional pursuant to a written agreement incurred in the ordinary course of business in connection with recruiting, redirecting or retaining such physician, pharmacist or other allied healthcare professional to provide service to patients in the service area of any Hospital or Related Business owned, leased or operated by the Company or any of its Subsidiaries 21 or any Permitted Joint Venture, but excluding actual compensation for services provided by such physician, pharmacist or other allied healthcare professional to any Hospital or Related Business owned, leased or operated by the Company or any of its Subsidiaries or any Permitted Joint Venture. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Principal" means Dr. Manfred George Krukemeyer. "Pro Forma Coverage Ratio" means with respect to any person for any period, the PRO FORMA ratio of the Consolidated Cash Flow of such person for such period to the Fixed Charges of such person for such period. The Pro Forma Coverage Ratio shall, as applicable, be calculated on the following basis: (i) notwithstanding clause (b) of the definition of Consolidated Net Income, if the Indebtedness which is being created, incurred or assumed is Acquired Debt, the Pro Forma Coverage Ratio shall be determined after giving effect to both the Fixed Charges related to the creation, incurrence or assumption of such Acquired Debt and the Consolidated Cash Flow (A) of the person becoming a Subsidiary of such person or (B) in the case of an acquisition of assets which constitute substantially all of an operating unit or business, relating to the assets being acquired by such person; (ii) notwithstanding the definition of Consolidated Net Income, in the event the Company or any of its Subsidiaries has acquired assets from a person during the four-quarter reference period and such assets have been owned and operated by the Company for more than one fiscal quarter, the Consolidated Cash Flow shall be computed on a pro forma basis assuming such assets were acquired on the first day of the four-quarter reference period based on actual performance of the assets during the period owned; (iii) there shall be excluded from Fixed Charges any Fixed Charges related to Indebtedness repaid during and subsequent to the four-quarter reference period and which is not outstanding on the Calculation Date; and (iv) the creation, incurrence or assumption of any Indebtedness during the four-quarter reference period or subsequent hereto and prior to the Calculation Date, and the application of the proceeds therefrom, shall be assumed to have occurred on the first day of the fourth quarter reference period. "Proceeding" has the meaning specified in Section 1203. "Purchase Money Indebtedness" means Indebtedness of the Company or its Subsidiaries secured by Liens (i) on property purchased, acquired or constructed after the date of original issuance of the Securities and used in the ordinary course of business by the Company and its Subsidiaries and (ii) 22 securing the payment of all or any part of the purchase price or construction cost of such assets and limited to the property so acquired and improvements thereof. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to Article Eleven of this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to Article Eleven of this Indenture, which shall include, without duplication, in each case, accrued and unpaid interest to the Redemption Date. "Regular Record Date" for the interest payable on any Interest Payment Date means the February 1 or August 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Related Business" means (i) a business affiliated with, or providing services or financing to, a Hospital or related or ancillary to the ownership, leasing, operation, financing or management of a Hospital or (ii) any business related or ancillary to the provision of healthcare services or products. "Related Party" with respect to the Principal means (A) any 80% (or more) owned Subsidiary, or spouse or immediate family member of such Principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A), or (C) any Person employed by the Company in a management capacity as of the date of this Indenture. "Restricted Payments" has the meaning specified in Section 1009. "Securities" means securities designated in the first paragraph of the RECITALS OF THE COMPANY. "Securities Act" refers to the Securities Act of 1933 as it may be amended and any successor act thereto. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Indebtedness" means (i) Obligations under the New Credit Facility; (ii) the principal of (and premium, if any) and accrued and unpaid interest, whether existing on the date of this Indenture or hereafter incurred, in respect of (A) indebtedness of the Company for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other instruments of indebtedness for which the Company is responsible or liable; (iii) all Capital Lease Obligations of the Company; (iv) all obligations of the Company (A) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (B) under interest rate swaps, caps, collars, options or similar arrangements and foreign currency hedges entered into in respect of any obligations described in clauses (i), (ii) and (iii) immediately above and (c) issued or assumed as the deferred purchase price of property or services and all conditional sale obligations and all obligations 23 under any title retention agreement; (v) all obligations of the type referred to in clauses (ii), (iii) and (iv) immediately above and all dividends of other persons for the payment of which, in either case, the Company is responsible or liable as obligor, guarantor or otherwise; (vi) all obligations consisting of modifications, renewals, extensions, replacements and refundings of any obligations described in clause (i), (ii), (iii), (iv) or (v) immediately above; and (vii) any other Indebtedness which by its terms or the terms of any instrument creating it is designated as "Senior Indebtedness" or senior in right of payment to the Securities. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include (1) any Indebtedness as to which the terms of the instrument creating or evidencing the same provide that such Indebtedness is not superior in right of payment to the Securities, (2) any Indebtedness which is subordinated in right of payment in any respect to any other Indebtedness of the Company, (3) Indebtedness evidenced by the Securities, the Existing Senior Subordinated Notes and the Shareholder Subordinated Note, (4) any Indebtedness owed to a Person when such Person is a Subsidiary or any other Affiliate of the Company, (5) that portion of any Indebtedness which is incurred in violation of the Indenture and (6) any liability for Federal, state, local or other taxes owed or owing by the Company. "Services Agreement" means the agreement, dated as of July 17, 1996, between the Company and Dr. Manfred George Krukemeyer. "Settlement Costs" means the amount of up to $22,356,000 in expenses incurred in connection with the settlement of two lawsuits, associated legal expenses and the related write-off of certain accounts receivable. "Shareholder Agreement" means the shareholder agreement dated August 16, 1996 by and between the Company and the Paracelsus Shareholder. "Shareholder Subordinated Note" means the 6.51% subordinated note due 2006 of the Company. "Significant Subsidiary" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation S-X is in effect on the date hereof. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole 24 general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. Government Obligations" has the meaning specified in Section 1304. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the then outstanding principal amount of such Indebtedness into (ii) the total of the product obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. "Wholly Owned Subsidiary" of any Person means a Subsidiary for which all of the Capital Stock (other than directors' qualifying shares) shall at the time be owned by such Person or one or more Wholly Owned Subsidiaries of such person. SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. 25 Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with; PROVIDED, HOWEVER, with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. ACTS OF HOLDERS; RECORD DATE. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially 26 similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by written notice to the Company or the Person designated by the Company as the Person to whom consents should be sent if such revocation is received by the Company or such Person before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities, PROVIDED that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such matter referred to in the foregoing sentence, the record date for any such matter shall be the 30th day (or, if later, the date of the most recent list 27 of Holders required to be provided pursuant to Section 701) prior to such first solicitation. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities in the manner set forth in Section 106. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 106. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; PROVIDED that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities in the manner set forth in Section 106, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with 28 respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Any party by notice to each other party may designate additional or different addresses as shall be furnished in writing by such party. Any notice or communication to any party shall be deemed to have been given or made as of the date so delivered, if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five Business days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee.) SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. 29 In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Trust Indenture Act to be part of and govern this Indenture, the Trust Indenture Act provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company and the Trustee shall bind its successors and assigns, whether so expressed or not. SECTION 110. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness (subject to Article Thirteen hereof) and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 113. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date, purchase date (pursuant to an Asset Sale Offer or a Change of Control Offer) or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but 30 may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or purchase date, or at the Stated Maturity, PROVIDED that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, purchase date or Stated Maturity, as the case may be. ARTICLE TWO Security Forms SECTION 201. FORMS GENERALLY. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 202. FORM OF FACE OF SECURITY. 10% Senior Subordinated Notes due 2006 No. __________ $________ Paracelsus Healthcare Corporation, a corporation duly organized and existing under the laws of California (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________________, or registered assigns, the principal sum of _____________________ Dollars on August 15, 2006, and to pay interest thereon from August 16, 1996 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 15 and August 15 in each year, commencing February 15, 1997, at the rate of 10% per annum, until the principal hereof is paid or made available for payment, and (to the extent that the payment of such interest shall be legally enforceable) at the rate of 12% per annum on any overdue principal and premium and on any overdue installment of interest until paid. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the February 1 or August 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security 31 (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, New York in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: Paracelsus Healthcare Corporation [Seal] By ----------------------------------- Title: Attest: - ---------------------------------- Title: SECTION 203. FORM OF REVERSE OF SECURITY. This Security is one of a duly authorized issue of Securities of the Company designated as its 10% Senior Subordinated Notes due 2006 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $325,000,000, issued and to be issued under an Indenture, dated as of August 16, 1996 (herein called the "Indenture"), between the Company and AmSouth Bank of Alabama, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of 32 the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after August 15, 2001, as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed during the 12-month period beginning August 15 of the years indicated,
Redemption Redemption Year Price Year Price ------ ---------- ------ ---------- 2001 105.00% 2003 102.50% 2002 103.75% 2004 101.25%
and thereafter at a Redemption Price equal to 100% of the principal amount, together in the case of any such redemption with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. In addition, the Securities are subject to redemption upon not less than 30 nor more than 60 days' notice by mail in the event that pursuant to any Change of Control Offer made by the Company there are properly tendered and accepted for payment by the Company and paid by the Company in accordance with the requirements of the Indenture and such Change of Control Offer Securities representing 80% or more of the Securities Outstanding at the commencement of such Change of Control Offer, in which case the Company may, at its option, within 90 days after the purchase date for such Change of Control Offer, redeem all, but not less than all, of the Securities remaining Outstanding after the purchase date for such Change of Control Offer at a Redemption Price equal to 101% of the principal amount of the Securities together with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. The Securities do not have the benefit of any sinking fund obligations. In the event of redemption or purchase pursuant to an Asset Sale Offer or Change of Control Offer of this Security in part only, a new Security or Securities for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take 33 such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture provides that, subject to certain conditions, if (i) certain Net Proceeds are available to the Company as a result of Asset Sales or (ii) a Change of Control occurs the Company shall be required to make an Asset Sale Offer or Change of Control Offer, respectively, for all or a specified portion of the Securities. The Indenture contains provisions for defeasance at any time of (i) the entire indebtedness of this Security or (ii) certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth therein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the 34 Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 1012 or 1015 of the Indenture, check the box: / / If you want to elect to have only a part of this Security purchased by the Company pursuant to Section 1012 or 1015 of the Indenture, state the amount: $ Dated: Your Signature: (Sign exactly as name appears on the other side of this Security) Signature Guarantee: (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities referred to in the within-mentioned Indenture. AmSouth Bank of Alabama, as Trustee By Authorized Officer 35 ARTICLE THREE The Securities SECTION 301. TITLE AND TERMS. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $325,000,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 906 or 1108 or in connection with an Asset Sale Offer or Change of Control Offer pursuant to Section 1012 or Section 1015, respectively. The Securities shall be known and designated as the "10% Senior Subordinated Notes due 2006" of the Company. Their Stated Maturity shall be August 15, 2006 and they shall bear interest at the rate of 10% per annum, from August 16, 1996 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on February 15 and August 15, commencing February 15, 1997, until the principal thereof is paid or made available for payment. The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Company in the Borough of Manhattan, the City of New York, New York maintained for such purpose and at any other office or agency maintained by the Company for such purpose; PROVIDED, HOWEVER, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. The Securities shall be subject to repurchase by the Company pursuant to an Asset Sale Offer or Change of Control Offer as provided in Sections 1012 and 1015, respectively. The Securities shall be redeemable as provided in Article Eleven. The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article Twelve. The Securities shall be subject to defeasance at the option of the Company as provided in Article Thirteen. SECTION 302. DENOMINATIONS. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, Chief Financial Officer or one of its Vice Presidents, under its corporate seal 36 reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers or the corporate seal on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 304. TEMPORARY SECURITIES. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes 37 collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1108 or in accordance with any Asset Sale Offer or Change of Control Offer pursuant to Section 1012 or Section 1015, respectively, not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. 38 If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed 39 payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this Clause. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. CANCELLATION. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any Asset Sale Offer or Change of Control Offer pursuant to Section 1012 or Section 1015, respectively, shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by 40 the Trustee shall be disposed of as directed by a Company Order. SECTION 310. COMPUTATION OF INTEREST. Interest on the Securities shall be computed on the basis of a year of twelve 30-day months. ARTICLE FOUR Satisfaction and Discharge SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture (including, but not limited to, Article Twelve hereof), when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein 41 provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article Four, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE Remedies SECTION 501. EVENTS OF DEFAULT. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Twelve or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment when due of principal (or premium, if any,) on the Securities at its Maturity; or (3) default, on the applicable purchase date, in the purchase of Securities required to be purchased by the Company pursuant to an Asset Sale Offer or Change of Control Offer; or (4) default in the performance, or breach, of any covenant or agreement of the Company under this Indenture, and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or 42 (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness or Guarantee now exists, or shall hereafter be created, which default results in the acceleration of the maturity of such Indebtedness having an outstanding principal amount of at least $15.0 million, or a failure to pay such Indebtedness having an outstanding principal amount of at least $15.0 million at its stated maturity, provided that such acceleration or failure to pay is not cured within 10 days after such acceleration or failure to pay; (6) failure by the Company or any of its Subsidiaries to pay final non-appealable judgments (to the extent not covered by insurance and as to which the insurer has not acknowledged coverage in writing) aggregating in excess of $15.0 million which are not stayed within 60 days after their entry; (7) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any such Significant Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any such Significant Subsidiary under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any such Significant Subsidiary or of any substantial part of the property of the Company or any such Significant Subsidiary, or ordering the winding up or liquidation of the affairs of the Company or any such Significant Subsidiary, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (8) the commencement by the Company or any Significant Subsidiary of the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any such Significant Subsidiary to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any Significant Subsidiary of the Company, or the filing by the Company or any such Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by the Company or any such Significant Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any Significant Subsidiary of the Company or of any substantial part of the property of the Company or any Significant Subsidiary of the Company, or the making by the Company or any Significant Subsidiary of the Company of an assignment for the benefit of creditors, or the admission by the Company or any such Significant Subsidiary 43 in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any such Significant Subsidiary in furtherance of any such action. Notwithstanding the 60-day period and notice requirement contained in Section 501(4) above, (i) with respect to a default under Section 1015, the 60-day period referred to in Section 501(4) shall be deemed to have begun as of the date notice of a Change of Control Offer is required to be sent to the Holders in the event that the Company has not complied with the provisions of Section 1015(a), and the Trustee or Holders of at least 25% in principal amount of the outstanding Securities thereafter give the notice of default referred to in Section 501(4) in respect of such compliance to the Company and, if applicable, the Trustee; PROVIDED, HOWEVER, that if the breach or default is a result of a default in the payment when due of the Change of Control Payment on the Purchase Date, such default shall be deemed, for purposes of this Section 501, to arise on the applicable Purchase Date; and (ii) with respect to a default under Section 1012 requiring the giving of such notice, the 60-day period referred to in Section 501(4) shall be deemed to have begun as of the date the notice of an Asset Sale Offer is required to be sent in the event that the Company has not complied with the provisions of Section 1012, and the Trustee or Holders of at least 25% in principal amount of the outstanding Securities thereafter give the notice of default referred to in Section 501(4) in respect of such compliance to the Company and, if applicable, the Trustee; PROVIDED, HOWEVER, that if the breach or default is a result of a default in the payment when due of the consideration for the Asset Sale Offer on the Purchase Date, such default shall be deemed, for purposes of this Section 501, to arise no later than on the Purchase Date. SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default (other than an Event of Default specified in Section 501(7) or (8)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal and any accrued interest shall become immediately due and payable. If an Event of Default specified in Section 501(7) or (8) occurs, the principal of and any accrued interest on the Securities then Outstanding shall IPSO FACTO become immediately due and payable without any declaration or other Act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities, 44 (B) the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration (including any Securities required to have been purchased on a purchase date pursuant to an Asset Sale Offer or Change of Control Offer made by the Company) and, to the extent that payment of such interest is lawful, interest thereon at the rate provided by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof or, with respect to any Security required to have been purchased pursuant to an Asset Sale Offer or Change of Control Offer made by the Company, at the purchase date thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate provided by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust in favor of the Holders, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor 45 upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust in favor of the Holders, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. APPLICATION OF MONEY COLLECTED. Subject to Article Twelve, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: 46 FIRST: To the payment of all amounts due the Trustee under Section 607; and SECOND: To the extent provided in Article Twelve, to the holders of Senior Indebtedness in accordance with Article Twelve; and THIRD: To the Holders in payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively. The Trustee may, but shall not be obligated to, fix a record date and payment date for any payment to the Holders under this Section 506. SECTION 507. LIMITATION ON SUITS. No Holder of any Security shall have any right to order or direct the Trustee to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. 47 SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, the Redemption Price on the applicable Redemption Date or, in the case of an Asset Sale Offer or Change of Control Offer made by the Company and required to be accepted as to such Security, on the purchase date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, PROVIDED that (1) such direction shall not be in conflict with any rule of law or with this Indenture, 48 (2) the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Holders not taking part in such direction, and (3) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Security (including any Security which is required to have been purchased pursuant to an Asset Sale Offer or Change of Control Offer which has been made by the Company), as specified in clauses (1), (2) and (3) of Section 501 and not yet cured, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs, including reasonable attorneys' fees, against any such party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant, in the manner and to the extent provided in the Trust Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company, any suit instituted by the Trustee, any suit instituted by the Holder, or group of Holders, holding in the aggregate more than 10% in aggregate principal amount of the Outstanding Securities, or any suit instituted by any Holder for enforcement of the payment of principal of, or premium (if any) or interest on, any Security on or after the respective Stated Maturity expressed in such Security (including, in the case of redemption, on or after the Redemption Date). 49 SECTION 515. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX The Trustee The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed, subject to the terms hereof. SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or to take or omit to take any action under this Indenture or at the request, order or direction of the Holders or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 602. NOTICE OF DEFAULTS. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of Section 601: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; 50 (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate (PROVIDED, HOWEVER, that in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture); (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. MAY HOLD SECURITIES. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to 51 Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 607. COMPENSATION AND REIMBURSEMENT. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $100,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. 52 SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) The Trustee may resign by so notifying the Company in writing. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611. (b) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holder or Holders of at least 10% in aggregate principal amount of the Outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or an order for relief is entered with respect to the Trustee under Federal or State bankruptcy laws or a receiver of the Trustee or of its property shall be appointed or a custodian or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder or Holders who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder or Holders who has been a bona fide Holder of at least 10% in principal amount of Outstanding Securities for at least six months may, 53 on behalf of such Holder of Holders and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). 54 SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time 55 reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities described in the within-mentioned Indenture. AmSouth Bank of Alabama, As Trustee By As Authenticating Agent By Authorized Officer ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. If the Trustee is not the Security Registrar, the Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee or any Paying Agent may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee or any Paying Agent may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; EXCLUDING from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. 56 (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities and the corresponding rights and duties of the Trustee, shall be provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. REPORTS BY TRUSTEE. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 704. REPORTS BY COMPANY. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to the Act; provided that any such information, documents, or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. COMPANY MAY CONSOLIDATE, ETC. AND PURCHASES OF ASSETS ONLY ON CERTAIN TERMS. The Company may not consolidate or merge with or into (whether or not the Company is the surviving entity), or directly or indirectly sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to another Person unless: (1) in the case the Company shall consolidate with or merge into another Person or shall directly or indirectly sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties and assets, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition all or substantially all of the properties and assets of the Company (for purposes of this Article Eight, a "Successor Company") shall be a 57 corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume by an indenture supplemental hereto executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately before and after giving effect to such transaction and treating any Indebtedness incurred by the Company or the Successor Company, if applicable, or any Subsidiary thereof as a result of such transaction as having been incurred by the Company, the Successor Company or such Subsidiary at the time of such transaction, no Default or Event of Default shall have happened and be continuing; thereof (3) immediately after giving effect to such transaction, and treating any Indebtedness incurred by the Company, the Successor Company or any Subsidiary thereof as a result of such transaction as having been incurred at the time of such transaction, the Company or the Successor Company could Incur at least $1.00 of additional Indebtedness pursuant to the first paragraph under Section 1008; (4) if, as a result of any such transaction, property and assets of the Company, the Successor Company or any Subsidiary thereof would become subject to a Lien which would not be permitted by Section 1011, the Company or, if applicable, the Successor Company, as the case may be, shall take such steps as shall be necessary effectively to secure the Securities equally and ratably with (or prior to) Indebtedness secured by such Lien; and (5) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, and, with respect to such Officer's Certificate, setting forth the manner of determination of the ability of the Company or, if applicable, the Successor Company to incur Debt in accordance with Clause (3) of this Section 801 as required pursuant to the foregoing. Notwithstanding the foregoing, Clause (3) of this Section 801 shall not prohibit a transaction, the principal purpose and effect of which is (as determined in good faith by the Board of Directors of the Company and evidenced by a Board Resolution) to change the state of incorporation of the Company, and such transaction does not have as one of its purposes the evasion of the restrictions of this covenant. SECTION 802. SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Company as an entirety in accordance with Section 801, the Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except 58 in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE NINE Supplemental Indentures SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities pursuant to the requirements of Section 1011 or otherwise; or (4) to comply with any requirements of the Commission in order to effect and maintain the qualification of this Indenture under the Trust Indenture Act; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, PROVIDED such action pursuant to this Clause (5) shall not adversely affect the interests of the Holders in any material respect; or (6) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities. SECTION 902. SUPPLEMENTAL INDENTURES AND WAIVERS WITH CONSENT OF HOLDERS. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture. Subject to Sections 508 and 513, the Holder or Holders of not less than a majority in aggregate principal amount of then Outstanding Securities may waive compliance by the Company with any provision of this Indenture or the Securities. Notwithstanding any of the above, however, no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, 59 (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable thereon, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of an Asset Sale Offer or Change of Control Offer which has been made, on or after the applicable Purchase Date), or (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 513 or Section 1019, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, or (4) modify any of the provisions of this Indenture relating to the subordination of the Securities in a manner adverse to the Holders, or (5) following the mailing of an Offer with respect to an Asset Sale Offer or Change of Control Offer pursuant to Sections 1012 or 1015, respectively, modify the provisions of this Indenture with respect to such Asset Sale Offer or Change of Control Offer in a manner adverse to such Holder. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture or waiver, but it shall be sufficient if such Act shall approve the substance thereof. After an amendment, supplement or waiver under this Section 902 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. After an amendment, supplement or waiver under this Section 902 or Section 513 becomes effective, it shall bind each Holder. In connection with any amendment, supplement or waiver under this Article Nine, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. 60 SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture or waiver is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. No such supplemental indenture shall directly or indirectly modify the provisions of Article Twelve in any manner which might terminate or impair the rights of the Senior Indebtedness pursuant to such subordination provisions. SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities authenticated and delivered after the execution of any supplemental indenture or waiver pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture or waiver. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture or waiver may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. Any failure to make the appropriate notation or to issue a new Security shall not affect the validity of such supplemental indenture or waiver. ARTICLE TEN Covenants SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. An installment of principal of or interest and premium, if applicable, on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of the Company) holds for the benefit of the Holders, on or before 10:00 a.m., New York City time, on that date, cash deposited and designated for and sufficient to pay the installment. 61 SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates Chase Manhattan Bank as such office. SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; 62 (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, New York notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. EXISTENCE. Subject to Article Eight, Section 1012 or elsewhere in this Indenture, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right or franchise if the Board of Directors in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1005. MAINTENANCE OF PROPERTIES. The Company will cause all material properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be 63 necessary so that the business carried on in connection therewith may be properly conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall (1) prohibit the Company from engaging in any transaction permitted under Article Eight or Section 1012, and (2) prevent the Company from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1006. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any of its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (i) whose amount, applicability or validity is being contested in good faith by appropriate proceedings or (ii) where the failure to effect such payment is not adverse in any material respect to the Holders. SECTION 1007. MAINTENANCE OF INSURANCE. The Company shall provide, or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance or maintenance of a captive insurance subsidiary) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company, is adequate and appropriate for the conduct of the business of the Company and its Subsidiaries. SECTION 1008. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (collectively, "incur") any Indebtedness (including Acquired Debt); PROVIDED, HOWEVER, that the Company may incur Indebtedness if, at the time such Indebtedness is incurred and after giving effect thereto and the application of the proceeds therefor, the Company's Pro Forma Coverage Ratio for the Company's most recently ended four full fiscal quarters for which financial statements are available immediately preceding the date on which such Indebtedness is incurred would not be less than (x) 2.0 to 1 for Indebtedness incurred on or prior to December 31, 1997 and (y) 2.25 to 1 for Indebtedness incurred thereafter. The foregoing provisions will not apply to: (i) the incurrence by the Company of Indebtedness pursuant to the New Credit Facility and any renewal, extension, refinancing or refunding thereof and Indebtedness of the Company or any of its Subsidiaries incurred for working capital purposes, together in an aggregate principal amount not to 64 exceed at any time outstanding $400.0 million LESS the aggregate amount of all Net Proceeds of Asset Sales applied to permanently reduce Indebtedness (and the commitments) thereunder pursuant to Section 1012; (ii) Capital Lease Obligations in an aggregate principal amount not to exceed 10% of the assets of the Company and its Subsidiaries taken as a whole at any time outstanding (any excess to be considered Indebtedness subject to the requirements described in the first paragraph of this Section 1008; (iii) the incurrence by the Company and its Subsidiaries of Existing Indebtedness; (iv) Indebtedness evidenced by letters of credit issued in the ordinary course of business of the Company to secure workers' compensation and other insurance coverages; (v) Guarantees by a Subsidiary of the Company of Indebtedness otherwise permitted to be incurred under the Indenture; (vi) Physician Support Obligations; (vii) Indebtedness incurred to purchase or finance any person's purchase of any person's ownership interest in a Permitted Joint Venture in accordance with the terms of the agreement under which any such interest was issued; (viii) Purchase Money Indebtedness incurred in the ordinary course of business; (ix) Indebtedness (including letters of credit) incurred in respect of performance bonds, standby letters of credit or surety or appeal bonds in the ordinary course of business; (x) the Shareholder Subordinated Note; (xi) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, (a) the Securities, (b) Existing Indebtedness, (c) Indebtedness incurred pursuant to clauses (vii) and (viii) of this paragraph, (d) the Shareholder Subordinated Note or (e) any Indebtedness that was incurred in compliance with the Pro Forma Coverage Ratio test contained in the first paragraph of this Section 1008; (xii) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Subsidiaries; PROVIDED, HOWEVER, that (a) such Indebtedness is expressly subordinate to the payment in full of the Securities and (b)(1) any subsequent issuance or transfer (other than for security purposes) of Equity Interests that result in any such Indebtedness being held by a Person other than the Company or a Subsidiary of the Company and (2) any sale or other transfer of any such Indebtedness (including for security purposes) to a Person that is neither the Company or a Subsidiary shall be deemed in each case, to 65 constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; and (xiii) the incurrence by the Company of Indebtedness not otherwise permitted to be incurred by any other clause of this paragraph in an aggregate principal amount at any time outstanding not to exceed the greater of (x) $30 million and (y) 10% of the Company's Consolidated Net Worth at the time of incurrence. SECTION 1009. LIMITATIONS ON RESTRICTED PAYMENTS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any Subsidiary of the Company (other than cash in lieu of fractional shares)) on account of any Equity Interests of the Company or any of its Subsidiaries (other than (x) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and (y) in the case of a Subsidiary, dividends or distributions payable to the Company or any Wholly Owned Subsidiary of the Company or pro rata dividends or distributions); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company and joint venture interests evidencing ownership interests in Permitted Joint Ventures); and (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that by its terms is subordinated in right of payment to the Securities, except in accordance with the scheduled mandatory redemption or payment provisions set forth in the original documentation governing such Indebtedness (but not pursuant to any mandatory offer to repurchase upon the occurrence of any events) (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as "Restricted Payments"), unless: (a) no Default or Event of Default shall have occurred under the Securities or this Indenture and be continuing or would occur as a consequence thereof; (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Pro Forma Coverage Ratio test set forth in the first paragraph of Section 1008; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries or other Affiliates after the date of this Indenture (excluding Restricted Payments permitted by clauses (i), (ii), (iv), (v) and (vi) of the next succeeding paragraph but including Restricted Payments permitted by clause (iii) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the 66 date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, minus 100% of such deficit), PLUS (ii) 100% of the aggregate net cash proceeds, including the fair market value of property other than cash (as determined in good faith by the Board), received by the Company from the issuance or sale other than to a subsidiary of the Company since the date of the Indenture of Equity Interests other than Disqualified Stock of the Company or of debt securities or Disqualified Stock of the Company that have been converted into such Equity Interests (other than Disqualified Stock) PLUS (iii) $5.0 million. The foregoing provision will not be violated by the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment would have complied with the provisions of this Indenture. In addition, notwithstanding the foregoing, so long as no Event of Default or Default shall have occurred or be continuing or would occur as a consequence thereof, the Company and any Subsidiary may: (i) purchase, redeem, or otherwise acquire or retire for value any Equity Interests of the Company in exchange for, or out of the net proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that are utilized for any such purchase, redemption or other acquisition or retirement shall be excluded from clause (c)(ii) of the preceding paragraph; (ii) defease, redeem or repurchase subordinated Indebtedness with the net proceeds from an incurrence of Permitted Refinancing Indebtedness or of or in exchange for the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that are utilized for any such purchase, redemption, repurchase, retirement or other acquisitions shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) redeem or repurchase any Equity Interests of the Company or any Subsidiary of the Company held by any officers, directors or employees of the Company (or any of its Subsidiaries) whose employment has been terminated or who have died or become disabled, so long as the aggregate amount of payments for all such redemptions or repurchases in any fiscal year do not exceed $5.0 million; (iv) pay scheduled dividends on or redeem any preferred stock issued by a Subsidiary of the Company permitted to be created or issued pursuant to the provisions of Section 1008; (v) pay the Dividend to the Paracelsus Shareholder; and (vi) redeem or repurchase Common Stock from holders thereof who beneficially own in the aggregate less than 1% of the outstanding Common Stock (other than officers, directors or employees of the Company or any of its Subsidiaries whose Equity Interests are redeemed or repurchased in accordance with clause (iii) of this paragraph) within two years from the date of this 67 Indenture so long as the aggregate amount of payments for all such redemptions or repurchases in such period do not exceed $1 million. Any payment made pursuant to clause (iii) of this paragraph shall be a Restricted Payment for purposes of calculating aggregate Restricted Payments pursuant to clause (c) of the preceding paragraph. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 1009 were computed, which calculations shall be based upon the Company's latest available financial statements. SECTION 1010. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Subsidiaries; (ii) make loans or advances to the Company or any of its Subsidiaries; (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries; or (iv) Guarantee any loans or advances to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reasons of: (a) Existing Indebtedness, as in effect on the date of this Indenture; (b) the New Credit Facility, as in effect on the date of this Indenture, and any amendments, modifications, restatements, extensions, renewals, increases, supplements, refundings, replacements or refinancings thereof, PROVIDED that such amendments, modifications, restatements, extensions, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive in the aggregate than those contained in the New Credit Facility, as in effect on the date of this Indenture; (c) this Indenture and the Securities; (d) applicable law; (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries, as in effect at the time of acquisition (except to the extent such Indebtedness was incurred in connection with, or in contemplation of, such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred; (f) by reason of customary non-assignment provisions in leases 68 entered into in the ordinary course of business and consistent with past practices; (g) restrictions contained in security agreements relating to Purchase Money Indebtedness to the extent such restrictions restrict the transfer of property subject to such security agreement; (h) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced; (i) any Permitted Joint Venture, PROVIDED that such restrictions apply only to the assets of such Permitted Joint Venture; or (j) any agreement which has been entered into for the sale or disposition of all of the assets or capital stock of a Subsidiary; PROVIDED, HOWEVER, that with respect to this Clause (j), such encumbrances or restrictions shall exist (A) only with respect to the Subsidiary being sold or disposed of and (B) only for a period of six months following the execution of such agreement. SECTION 1011. LIMITATIONS ON LIENS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien, other than Permitted Liens, on any property or asset now owned or hereafter acquired, or on any income or profits therefrom or assign or convey any right to receive income therefrom, to secure any Indebtedness that is PARI PASSU with or subordinate in right of payment to the Securities, unless the Securities are either (i) secured by a Lien on such property, assets, income or profits that is senior in priority to the Lien securing such other Indebtedness, if such other Indebtedness is subordinated in right of payment to the Securities or (ii) equally and ratably secured by a Lien on such property, assets, income or profits with the Lien securing such other Indebtedness, if such other Indebtedness is PARI PASSU in right of payment to the Securities. SECTION 1012. LIMITATIONS ON DISPOSITION OF ASSETS. (a) Subject to Section 801, the Company may not, and may not permit any of its Subsidiaries to, sell, transfer or otherwise dispose of any assets (including by way of sale and leaseback), other than in the ordinary course of business or the sale of accounts receivable in connection with a receivables financing that is not required under GAAP to be booked as liabilities on the balance sheet of the Company or its Subsidiaries, or all or substantially all of the Capital Stock of any Subsidiary directly or indirectly owned by the Company in each case whether in a single transaction or a series of related transactions that have an aggregate fair market value in excess of $15.0 million or for net proceeds in excess of $15 million (an "Asset Sale") unless the Net Proceeds from such Asset Sale are applied in accordance with the following provisions. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to permanently reduce Indebtedness (and, in the case of revolving 69 Indebtedness, to permanently reduce the commitments) under the New Credit Facility or to reduce other Senior Indebtedness of the Company, (b) to an Investment in a Permitted Business or a controlling interest in a person that owns a Permitted Business or the making of a capital expenditure or to acquire other tangible assets, in each case, engaged or used in a Permitted Business or any Permitted Joint Venture. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving Indebtedness under the New Credit Facility (or any renewal, extension, refinancing or refunding thereof) or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company will be required to make an offer to all Holders (an "Asset Sale Offer") to purchase the maximum principal amount of Securities and, on a pro rata basis, any other Indebtedness requiring to be so repurchased (including the Existing Senior Subordinated Notes that may be outstanding) that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Securities (and, if applicable, any Existing Senior Subordinated Securities that may be outstanding) tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Notwithstanding the foregoing (a) a transfer of assets by the Company or a Subsidiary, (b) any issuance of Equity Interests by a Subsidiary to the Company or another Subsidiary of the Company and (c) any Restricted Payment permitted by the covenant described under Section 1009, shall not be deemed to be an Asset Sale. (b) The Company will mail any Asset Sale Offer required pursuant to Section 1012(a) not more than 30 days after the aggregate amount of Excess Proceeds exceeds $15 million. Each Holder shall be entitled to tender all or any portion of the Securities owned by such Holder pursuant to the Asset Sale Offer, subject to the requirement that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount. The Company shall comply with the requirements of Rule 14e-1 (or any successor provision thereto) under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to the Asset Sale Offer. (c) Not later than the date of an Asset Sale Offer, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the assets involved in the Asset Sale(s) giving rise to such Asset Sale Offer including the consideration received therefor, the Net Proceeds therefrom and the amount of Excess Proceeds; (ii) the allocation of the Net Proceeds from the Asset Sale(s) pursuant to which such Asset Sale Offer is being made, including, if amounts are invested pursuant to Clause (b) of paragraph (a) of this Section 1012 or capital expenditures or acquisitions of tangible assets are made pursuant to Clause (b) of paragraph (a), the actual Investment(s), capital expenditure(s) or acquisition(s) made and a statement as to the compliance with the requirements of Clause (b) of paragraph (a); and (iii) the compliance of such allocation with the provisions of paragraph (a) of this Section 1012. 70 (d) The Company and the Trustee shall perform their respective obligations specified in the Asset Sale Offer. On or prior to the purchase date, the Company shall (i) accept for payment (on a pro rata basis, if necessary) Securities or portions thereof tendered pursuant to the Offer, (ii) deposit with the paying agent (or, if the Company is acting as its own paying agent, segregate and hold in trust as provided in Section 1003) money sufficient to pay the purchase price of all Securities or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee all Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. The paying agent (or the Company, if so acting) shall promptly mail or deliver to Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. Any Security not accepted for payment shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Offer on or as soon as practicable after the Purchase Date. SECTION 1013. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that in the aggregate are no less favorable to the Company or such Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5 million, the Board of Directors shall have obtained an opinion from an investment banking firm of national standing to the effect that such Affiliate Transaction is fair to the Company or such Subsidiary from a financial point of view; PROVIDED, HOWEVER, that (i) employment contracts, "know-how" agreements, compensation arrangements and loans to employees, in each case in the form existing as of the date of this Indenture or representing a continuation, extension, renewal, refinancing or replacement thereof on terms no less favorable to the Company than those contained in such contracts, agreements, arrangements or loans in the form existing as of the date of this Indenture, (ii) transactions between or among the Company, its Subsidiaries and/or Permitted Joint Ventures, (iii) the making of Physician Support Obligations, (iv) each Merger Related Agreement, in each case in the form existing as of the date of this Indenture or representing a continuation, extension, renewal, refinancing or replacement thereof on terms no less favorable to the Company than those contained in such Merger Related Agreement in the form existing as 71 of the date of this Indenture and (v) transactions permitted by Section 1009, in each case, shall not be deemed Affiliate Transactions. SECTION 1014. LIMITATIONS ON OTHER SUBORDINATED INDEBTEDNESS. The Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is both subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Securities. SECTION 1015. CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder of a Security will have the right to require the Company to repurchase such Holder's Security pursuant to the offer described below (the "Change of Control Offer") at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Payment") (PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the purchase date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307). Each Holder shall be entitled to tender all or any portion of the Securities owned by such Holder pursuant to the Change of Control Offer, subject to the requirement that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount. (b) Within 30 days following any Change of Control, the Company will mail the Change of Control Offer to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Securities pursuant to the procedures required by this covenant and described in such Change of Control Offer. The Company and the Trustee shall perform their respective obligations specified in the Change of Control Offer. The Company will comply with the requirements of Rule 14e-1 Exchange Act (and any succession provision thereto) and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Securities pursuant to the Change of Control Offer. On or prior to the purchase date for such Change of Control Offer, the Company shall, to the extent lawful, (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent or Trustee (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) money sufficient to pay the Change of Control Payment for all Securities or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee all Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. The Paying Agent or Trustee shall promptly mail or deliver to Holders of Securities so accepted payment in an amount equal to the Change of Control Payment, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security or Securities equal in principal amount to any unpurchased portion of the Security surrendered as requested by the Holder. Any Security not accepted for payment shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as 72 practicable after the purchase date for such Change of Control Offer. (c) Prior to the time required for the mailing of the Change of Control Offer, but in any event within 30 days following a Change of Control, the Company will to the extent required either (i) repay all outstanding Senior Indebtedness or (ii) obtain the requisite consents, if any, under all agreements governing outstanding Senior Indebtedness to permit the repurchase of Securities required by this covenant. The failure to obtain any such consents will not relieve the Company of its obligation to repurchase the Securities pursuant to a Change of Control Offer. (d) The Change of Control provisions described in this Section 1015 will be applicable whether or not any other provisions of this Indenture are applicable. SECTION 1016. LIMITATION ON CONDUCT OF BUSINESS. The Company shall not, and shall not permit any Subsidiary of the Company to, engage in any business other than a Permitted Business. SECTION 1017. REPORTS. Whether or not required by the rules and the regulations of the Commission, so long as any Securities are Outstanding, the Company will furnish to the Holders (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K (or on any successors forms thereto or pursuant to any successor requirement thereof) if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its Subsidiaries and, with respect to the annual information only, a report thereon by the Company's certified, independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K (or any successor form thereto or pursuant to any successor requirement thereof) if the Company were required to file such reports. SECTION 1018. STATEMENT BY OFFICERS AS TO DEFAULT; COMPLIANCE CERTIFICATES. (a) The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, and within 60 days after the end of each fiscal quarter (other than the fourth fiscal quarter), of the Company ending after the date hereof an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company has failed to comply with any conditions or covenants in Section 801 or Sections 1004 to 1017, inclusive, of this Indenture or any Event of Default or event which with notice or the passage of time would become an Event of Default which has occurred and is continuing and, if such signer does know of such a failure or default, the certificate shall describe such failure or default with particularity. The Officers' Certificate shall also notify the Trustee should the relevant fiscal year end on any date other than the current fiscal year end date. (b) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, as soon as possible and in any event 73 within 10 days after the Company becomes aware or should reasonably become aware of the occurrence of a Default or an Event of Default, an Officers' Certificate setting forth the details of such Default or Event of Default, and the action which the Company proposes to take with respect thereto. SECTION 1019. WAIVER OF CERTAIN COVENANTS. The Company may omit in any particular instance to comply with any covenant or condition set forth in Section 801 and Sections 1004 to 1017 if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect; PROVIDED, HOWEVER, with respect to an Asset Sale Offer or Change of Control Offer as to which an Offer has been mailed, no such waiver may be made or shall be effective against any Holder tendering Securities pursuant to such Offer, and the Company may not omit to comply with the terms of such Offer as to such Holder. ARTICLE ELEVEN Redemption of Securities SECTION 1101. RIGHT OF REDEMPTION. (a) The Securities may be redeemed at the election of the Company, as a whole or from time to time in part, at any time on or after August 15, 2001, at the Redemption Prices specified in the form of Security herein before set forth together with accrued and unpaid interest to the Redemption Date. (b) In the event that, pursuant to any Change of Control Offer, there are properly tendered and accepted for payment by the Company, and paid by the Company in accordance with the requirements of this Indenture and such Change of Control Offer Securities representing 80% or more of the Securities Outstanding at the commencement of such Change of Control Offer, then the Company shall have the right, at its option, to redeem within 90 days after the purchase date for such Change of Control Offer all, but not less than all, of the Securities remaining Outstanding after such Change of Control Offer at a Redemption Price equal to 101% of the principal amount thereof, together with accrued interest to the Redemption Date. SECTION 1102. APPLICABILITY OF ARTICLE. Redemption of Securities at the election of the Company, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem any Securities pursuant to Section 1101 shall be evidenced by a Board Resolution. In the case of redemption 74 pursuant to Section 1101(b), the Company shall also deliver to the Trustee an Officers' Certificate stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Company to so redeem have occurred and been satisfied. In case of any redemption at the election of the Company of less than all the Securities, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Securities of a denomination larger than $1,000. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1105. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, including the amount of accrued and unpaid interest to be paid upon such redemption, (3) whether the redemption is being made pursuant to Section 1101(a) or (b) and, if being made pursuant to either Section 1101(b), a brief statement setting forth the Company's right to effect such redemption and the Company's basis therefor, 75 (4) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, (5) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price, (7) the name, address and telephone number of the Paying agent, (8) that Securities called for redemption must be surrendered to the Paying Agent at the address specified in such notice to collect the Redemption Price, (9) that, unless the Company defaults in its obligation to deposit cash or U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in an amount to fund the Redemption Price with the Paying Agent in accordance with Section 1106 hereof or such redemption payment is otherwise prohibited, interest on Securities called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price, including accrued and unpaid interest to the Redemption Date, upon surrender to the Paying Agent of the Securities called for redemption and to be redeemed, (10) if any Security is being redeemed in part, the portion of the principal amount equal to $1,000 or an integral multiple thereof, of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued, (11) the CUSIP number of the Securities to be redeemed, and (12) disclaimer language regarding CUSIP numbers in the Trustee's standard form. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1106. DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of cash or U.S. Government Obligations sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued and unpaid interest on, all the Securities which are to be redeemed on that date (other than Securities or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation). The 76 Paying Agent shall promptly return to the Company any cash or U.S. Government Obligations so deposited which is not required for that purpose upon the written request of the Company. If the Company complies with the preceding paragraph and the other provisions of this Article Eleven and payment of the Securities called for redemption is not otherwise prohibited, interest on the Securities to be redeemed will cease to accrue on the applicable Redemption Date, whether or not such Securities are presented for payment. Notwithstanding anything herein to the contrary, if any Security surrendered for redemption in the manner provided in the Securities shall not be so paid surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall continue to accrue and be paid from the Redemption Date until such payment is made on the unpaid principal, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate and in the manner provided in Section 1001 hereof and the Security. SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (if the Company complies with Section 1106) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued and unpaid interest to the Redemption Date; PROVIDED, HOWEVER, that installment of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. SECTION 1108. SECURITIES REDEEMED IN PART. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE Subordination of Securities SECTION 1201. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in 77 the manner hereinafter set forth in this Article (subject to the provisions of Article Four and Article Thirteen), the payment of the principal of (and premium, if any) and interest on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. SECTION 1202. NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES. (a) No payment or distribution of cash or property (other than Capital Stock of the Company or other securities of the Company that are subordinated to Senior Indebtedness to at least the same extent as the Securities) of the Company will be made on account of principal of or interest on the Securities, or to defease or acquire any of the Securities, or on account of the redemption provisions of the Securities (i) upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all Senior Indebtedness shall first be paid in full in cash, or such payment duly made in a manner satisfactory to the holders of such Senior Indebtedness or (ii) in the event that the Company defaults in the payment of any principal of, premium, if any, or interest on or any other amounts payable on or due in connection with any Senior Indebtedness when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, unless and until such default has been cured or waived in writing or has ceased to exist. (b) If any default other than a default contemplated by Section 1202(a)(ii) shall have occurred and be continuing that would permit the holders of the Designated Senior Indebtedness to accelerate the maturity of Designated Senior Indebtedness, upon written notice (a "Payment Blockage Notice") of the default given to the Company and the Trustee by the holders of, or an agent, trustee or other representative for, such Designated Senior Indebtedness, then, unless and until such default has been cured or waived in writing, no payment or distribution of cash or property (other than Capital Stock of the Company or other securities of the Company that are subordinated to Senior Indebtedness to at least the same extent as the Securities) shall be made by the Company with respect to the principal of or interest on the Securities or on account of redemption of the Securities or to acquire or repurchase any of the Securities for cash or property other than Capital Stock of the Company. If such Designated Senior Indebtedness is not declared due and payable within 180 days after written notice of the event of default is given, promptly after the end of the 180-day period the Company will pay all sums due in respect of the Securities and not paid during the 180-day period. Payments on the Securities may and shall be resumed in the case of a payment default upon the date on which such default is cured or waived. During any 360-day consecutive period, only one such period during which payment with respect to the Securities may not be made pursuant to this Section 1202(b) may commence and the duration of such period may not exceed 180 days. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. (c) If any payment or distribution of assets of the Company is received by the Trustee or any Holder in respect of the Securities at a time when that payment or distribution should not have been made because of paragraph (a) or 78 (b) of this Section 1202, and provided that prior to the Trustee's disbursement of such distribution or payment, the Trustee shall have received a written notice as specified in Section 1209 from the Company or from an agent or representative for one or more holders of Senior Indebtedness, such payment or distribution will be received and held and will be paid over to the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) until all such Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. SECTION 1203. SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership or similar proceeding relating to the Company or its property or upon an assignment for the benefit of creditors or any marshalling of the Company's assets or liabilities or otherwise)(each such event, if any, herein sometimes referred to as a "Proceeding"): (a) the holders of all Senior Indebtedness will first be entitled to receive payment in full of the principal of and interest due on Senior Indebtedness (including interest accruing after the commencement of a bankruptcy or insolvency at the rate specified in the applicable Senior Indebtedness and including, without limitation, in respect of premiums, indemnities or otherwise, and all indebtedness under the New Credit Facility which is disallowed, avoided or subordinated pursuant to Section 548 of Title 11, United States Code or any applicable state fraudulent conveyance law) before the Holders are entitled to receive any payment or distribution on account of the principal of or interest on the Securities; (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (except that Holders may receive securities that are subordinated at least to the same extent as the Securities to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness), to which Holders or the Trustee would be entitled except for the provisions of this Section 1203 will be paid by the liquidating trustee or agent or other persons making such a payment or distribution directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives to the extent necessary to make or provide for payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness or provision for that payment or distribution; and (c) if, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (except that Holders may receive securities that are subordinated at least to the same extent as the Securities to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness) is received by the Trustee or the Holders on account of the principal of or interest on the Securities before all Senior Indebtedness is paid in full such payment or distribution will be received and held in trust for and will be forthwith paid 79 over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their representatives for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for the payment of such Senior Indebtedness until all such Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. The Company will give prompt written notice to the Trustee of any dissolution, winding up, liquidation or reorganization of it or any assignment for the benefit of its creditors. SECTION 1204. PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except or under the conditions described in Section 1202 or during the pendency of any proceeding referred to in Section 1203, from making payments or distributions on the Securities or (b) the application by the Trustee of any money deposited with it hereunder to payments or distributions on the Securities or the retention of such payments or distributions on the Securities by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment or distribution on the Securities would have been prohibited by the provisions of this Article. SECTION 1205. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject to the payment in full of all Senior Indebtedness, the Holders shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full; and, for the purposes of such subrogation: (a) no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee on their behalf would be entitled except for the provisions of this Article Twelve and no payment pursuant to the provisions of this Article Twelve to the holders of Senior Indebtedness by Holders or the Trustee on their behalf shall, as between the Company, its creditors (other than holders of Senior Indebtedness) and the Holders, be deemed to be a payment by the Company to or on account of the Senior Indebtedness; and (b) no payment or distributions of cash, property or securities to or for the benefit of the Holders pursuant to the subrogation provision of this Article Twelve, which would otherwise have been paid to the holders of Senior Indebtedness, shall be deemed to be a payment by the Company to or for the account of the Securities. SECTION 1206. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of 80 Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder upon the exercise of any such remedy. SECTION 1207. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company or the filing of a claim for the unpaid balance of his Securities in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding at least 30 days before the expiration of the time to file such claim or claims, then the holders of Senior Indebtedness and their agents, trustees, or other representatives (including, without limitation, any agent under the New Credit Facility) are hereby authorized to have the right to file, and are hereby authorized to file, an appropriate claim for and on behalf of the Holders. SECTION 1208. NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release 81 or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 1209. NOTICE TO TRUSTEE. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 601, shall be entitled in all respects to assume that no such facts exist; PROVIDED, HOWEVER, that if the Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 601, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor or representative thereof) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor or representative thereof). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness (or a trustee therefor or representative thereof) to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 1210. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 601, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other 82 Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 1211. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 1212. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. SECTION 1213. ARTICLE APPLICABLE TO PAYING AGENTS. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; PROVIDED, HOWEVER, that Section 1212 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 1214. DEFEASANCE OF THIS ARTICLE TWELVE. The subordination of the Securities provided by this Article Twelve is expressly made subject to the provisions for defeasance or covenant defeasance in Article Thirteen hereof and, anything herein to the contrary notwithstanding, upon the effectiveness of any such defeasance or covenant defeasance, the Securities then outstanding shall thereupon cease to be subordinated pursuant to this Article Twelve. SECTION 1215. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment on account of the principal of or interest on the Securities by reason of any provision of this Article Twelve will not be construed as preventing the occurrence of an Event of Default. 83 SECTION 1216. REPRESENTATIVE OF SENIOR INDEBTEDNESS. Subject to Section 1209, any notices to be given or payments to be made to any holders of Senior Indebtedness pursuant to this Indenture may be made or given to their authorized representative. ARTICLE THIRTEEN Defeasance and Covenant Defeasance SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. The Company may at its option by Board Resolution, at any time, elect to have either Section 1302 or Section 1303 applied to the Outstanding Securities upon compliance with the conditions set forth below in this Article Thirteen. SECTION 1302. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of the option provided in Section 1301 applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities, and the provisions of Article Twelve hereof shall cease to be effective, on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Thirteen. Upon defeasance as provided herein, the Trustee shall promptly execute and deliver to the Company any documents reasonably requested by the Company to evidence or effect the foregoing. Subject to compliance with this Article Thirteen, the Company may exercise its option under this Section 1302 notwithstanding the prior exercise of its option under Section 1303. SECTION 1303. COVENANT DEFEASANCE. Upon the Company's exercise of the option provided in Section 1301 applicable to this Section, (i) the Company shall be released from its obligations under Sections 1005 through 1017, inclusive, and Clauses (2), (3) and (4) of Section 801, (ii) the occurrence of an event specified in Sections 501(4) (with respect to any of Sections 1005 through 1017, inclusive and clauses (2), (3) and (4) of Section 801), 501(5) and 501(6) shall not be deemed to be an Event of Default, (iii) the provisions of Article Twelve hereof shall cease to be effective on and after the date the conditions set 84 forth below are satisfied and (iv) the Securities shall thereafter be deemed not Outstanding for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed Outstanding for all other purposes thereunder (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, Clause or Article, whether directly or indirectly by reason of any reference elsewhere herein to any such Section, Clause or Article or by reason of any reference in any such Section, Clause or Article to any other provision herein or in any other document (and Section 501(4) shall not apply to any such Section, Clause or Article) but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE The following shall be the conditions to application of either Section 1302 or Section 1303 to the then Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 609 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Paying Agent or Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and each installment of interest on the Outstanding Securities on the Stated Maturity of such principal or installment of interest in accordance with the terms of this Indenture and of such Outstanding Securities. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. 85 (2) In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities will not recognize gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to the Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. (3) In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities will not recognize gain or loss for Federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred. (4) Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in Section 608 and for purposes of the Trust Indenture Act with respect to any securities of the Company. (5) No Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as subsections 501(7) and (8) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period, but in the case of covenant defeasance, the covenants which are described under Section 1303 will cease to be in effect unless an Event of Default under Section 501(7) or Section 501(8) occurs during such period). (6) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which the Company is a party or by which it is bound. (7) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. (8) Such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder. SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 1003, all 86 money and U.S. Government Obligations (including the proceeds thereof) deposited with the Paying Agent or Trustee (or other qualifying trustee, collectively, for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Securities shall be held in trust and applied by the Paying Agent or Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. Money so held in trust shall not be subject to the provisions of Article Twelve. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article Thirteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 1304(1)), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. SECTION 1306. REINSTATEMENT. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 1302 or 1303 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article Thirteen until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1302 or 1303; PROVIDED, HOWEVER, that if the Company makes any payment of principal of (and premium, if any) or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. 87 PARACELSUS HEALTHCARE CORPORATION By: \s\ Deborah H. Frankovich ------------------------------------------ Deborah H. Frankovich Vice President and Treasurer Attest: \s\ Robert C. Joyner - ----------------------------------------------- Robert C. Joyner Secretary AMSOUTH BANK OF ALABAMA By: \s\ Charles S. Northen ------------------------------------------ Charles S. Northen Vice President and Corporate Trust Officer Attest: \s\ Renee Rogland - ----------------------------------------------- Renee Rogland Corporate Trust Officer EX-4.9 5 CERTIFICATE REPRESENTING COMMON STOCK 1 EXHIBIT 4.9 PARACELSUS HEALTHCARE CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA COMMON STOCK CUSIP 698891 10 8 THIS CERTIFICATE IS TRANSFERABLE IN DALLAS, TEXAS AND NEW YORK, NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF Paracelsus Healthcare Corporation transferable in person or by duly authorized attorney on the books of the Corporation upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Transfer Agent and the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. CERTIFICATE OF STOCK Dated: -------------------------- COUNTERSIGNED AND REGISTERED: - ------------------------------- ------------------------------------------- President and CHASEMELLON SHAREHOLDER SERVICES, L.L.C. Chief Operating Officer TRANSFER AGENT AND REGISTRAR By ----------------------------- ------------------------------------------- Secretary AUTHORIZED SIGNATURE 2 PARACELSUS HEALTHCARE CORPORATION The Company will furnish upon request and without charge to each stockholder the powers, privileges, restrictions, designations, preferences and relative, participating, optional and other special rights of each class of stock and series within a class of stock of the Company authorized to be issued and upon the holders thereof, as well as the qualifications, limitations and restrictions relating to those preferences and/or rights. A stockholder may make the request to the Secretary of the Company or to its Transfer Agent and Registrar. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - ____Custodian _____ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of survivorship and not as under Uniform Gifts to Minors Act tenants in common _________________________ [State] Additional abbreviations may also be used though not in the above list. For value received, ______________________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________________________________________________ ______________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee ______________________________________________________________________________ ______________________________________________________________________________ _______________________________________________________________________ Shares of the Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Company with full power of substitution in the premises. Dated_________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. X ___________________________________________________________ (SIGNATURE) X ___________________________________________________________ (SIGNATURE) CHASEMELLON SHAREHOLDER SERVICES LLC Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of August 16, 1996 (as such may be amended from time to time, the "Rights Agreement", between Paracelsus Health Corporation (the "Company") and ChaseMellon Shareholders Service, L.L.C., as Rights Agents, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may become exercisable for securities assets of the Company or of another entity, may be exchanged for shares of Common Stock or other securities or assets of the Company, may expire, may become void (if they are "Beneficially" Owned by an "Acquiring Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Company will mail or arrange for mailing of a copy of the Rights Agreement to the holder of this Agreement without charge after the receipt of a written request therefor. THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO G.E.O. RULE 1724-15. ___________________________________________________________________________ SIGNATURE(S) GUARANTEED BY: EX-10.1 6 $400 MILLION REDUCING REVOLVING CREDIT FACILITY 1 EXHIBIT 10.1 ================================================================================ PARACELSUS HEALTHCARE CORPORATION CREDIT AGREEMENT Dated as of August 16, 1996 $400,000,000 Reducing Revolving Credit Facility BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, BANQUE PARIBAS, as Documentation Agent and NATIONSBANK OF TEXAS, N.A., as Managing Agent ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 1.3 Accounting Terms and Determinations. . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE 2 - Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.3 Repayment of Revolving Credit Loans. . . . . . . . . . . . . . . . . . . . . 28 Section 2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.5 Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.6 Optional Prepayments, Commitment Terminations and Reductions, Conversions and Continuations of Loans . . . . . . . . . . . . . . . . . . . . 30 Section 2.7 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 2.8 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 2.9 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 2.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 2.11 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 2.12 Computations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 2.13 Reduction or Termination of Commitments . . . . . . . . . . . . . . . . . . . . 33 Section 2.14 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 3 - Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 3.1 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 3.2 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 3.3 Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 3.4 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . 37 Section 3.5 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 3.6 Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 4 - Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 4.1 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 4.2 Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.3 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 4.4 Treatment of Affected Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 4.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 4.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 4.7 Additional Interest on Eurodollar Loans . . . . . . . . . . . . . . . . . . . . 42 Section 4.8 Substitution of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 5 - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 5.1 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
i 3 Section 5.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 5.3 New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 5.4 Release of Collateral and Termination of Guarantees . . . . . . . . . . . . . . 44 Section 5.5 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE 6 - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.1 Initial Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.2 All Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 6.3 Closing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 7 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 7.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 7.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.3 Corporate Action; No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.4 Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.5 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.6 Litigation and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.7 Rights in Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.8 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 7.9 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 7.10 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 7.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 7.12 Margin Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 7.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 7.14 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 7.15 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 7.16 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 7.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 7.18 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 7.19 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . 54 Section 7.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 7.21 Labor Disputes and Acts of God . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.22 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.23 Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.24 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.25 Related Transactions Documents . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.26 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.27 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.28 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 7.29 Fraud and Abuse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE 8 - Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 8.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 8.2 Maintenance of Existence; Conduct of Business . . . . . . . . . . . . . . . . . 61 Section 8.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ii 4 Section 8.4 Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 8.6 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 8.7 Keeping Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 8.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8.12 Borrower's Treatment of Subsidiaries . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE 9 - Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 9.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 9.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 9.3 Limitation on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . 65 Section 9.4 Limitation on Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 9.5 Limitation on Business Acquisitions . . . . . . . . . . . . . . . . . . . . . . 67 Section 9.6 Limitation on Loans and Credit . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 9.7 Limitation on Contracts, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 9.8 Ownership of Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 9.9 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 9.10 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 9.11 Limitation on Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . 70 Section 9.12 Disposition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 9.13 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 9.14 Intercompany Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 9.15 Modification of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . 72 Section 9.16 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE 10 - Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 10.1 Ratio of Senior Leverage to Adjusted EBITDA . . . . . . . . . . . . . . . . . . 73 Section 10.2 Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 10.3 Ratio of Total Debt to Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . 73 Section 10.4 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE 11 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 11.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 11.3 Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 11.4 Performance by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 ARTICLE 12 - The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 12.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . 78 Section 12.2 Rights of Agent as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 12.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 12.4 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
iii 5 Section 12.5 Independent Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 12.6 Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 12.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 12.8 Managing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 ARTICLE 13 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 13.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 13.2 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 13.3 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 13.4 No Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 13.5 No Fiduciary Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 13.6 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 13.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 13.8 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 13.9 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 13.10 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 13.11 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Section 13.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Section 13.13 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Section 13.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Section 13.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Section 13.16 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Section 13.17 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Section 13.18 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 13.19 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 13.20 Approvals and Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
iv 6 INDEX TO EXHIBITS
Exhibit Description of Exhibit Section - ------- ---------------------- ------- A Form of Assignment and Acceptance 1.1 and 13.7 B Form of Krukemeyer Subordinated Note 1.1 C Form of Revolving Credit Loans Note 1.1, 2.2 and 13.7 D Form of Security and Pledge Agreement 1.1 E Form of Master Guaranty with JoinderAgreement 1.1 F Form of Subsidiary Security and Pledge Agreement 1.1 G Forms of Notice of Borrowing and Notice of Conversion/Continuation and Notice of Termination/Commitment Reduction/Prepayment 2.9 H Form of Opinion of General Counsel of Borrower 6.1 I Form of Opinion of Outside Counsel to Borrower 6.1
INDEX TO SCHEDULES
Schedule Description of Schedule - -------- ----------------------- 1.1(a) Excluded Subsidiaries 1.1(b) Existing Letters of Credit 1.1(c) Permitted Liens 1.1(d) Related Transaction Documents 7.6 Litigation and Judgments 7.11 Taxes 7.13 Plans 7.15 Subsidiaries 7.22 Material Contracts 7.27 Employee Matters 7.28 Insurance 9.1 Existing Debt 9.4 Investments
v 7 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of August 16, 1996, is among PARACELSUS HEALTHCARE CORPORATION, a corporation organized under the laws of the State of California (the "Borrower"), each of the banks or other lending institutions which is a party hereto (as evidenced by the signature pages of this Agreement) or which may from time to time become a party hereto or any successor or assignee thereof in accordance with the terms hereof (individually, a "Lender" and, collectively, the "Lenders"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association ("B of A"), as lead agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent") and as the issuing bank, BANQUE PARIBAS, a bank organized and existing under the laws of the Republic of France, as documentation agent for the Lenders (in such capacity, "Documentation Agent"), NATIONSBANK OF TEXAS, N.A., a national banking association, as managing agent for the Lenders, CREDIT LYONNAIS NEW YORK BRANCH, as co-agent, and TORONTO- DOMINION (TEXAS), INCORPORATED, as co-agent. RECITALS: A. The Borrower has entered into the Merger Agreement with CHC pursuant to which PC Merger Sub, Inc. has merged into CHC to form Champion, a Wholly-Owned Subsidiary of the Borrower. B. The Borrower has requested the Lenders to extend to the Borrower a reducing revolving credit facility, with a letter of credit subfacility. C. Subject to the terms, conditions and provisions of this Agreement, the Lenders have agreed to make available to the Borrower the requested credit facility. D. Concurrently with the Closing Date, the obligations under the Existing Paracelsus Credit Agreement will be satisfied in full and the Existing Letters of Credit will be deemed issued on the Closing Date pursuant to Section 2.14. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE 1 Definitions Section 1.1 Definitions. As used in this Agreement, the following terms have the following meanings: "Additional Costs" means as specified in Section 4.1(a). "Adjusted EBITDA" means, on a consolidated basis without duplication for Borrower and its Subsidiaries, the sum of (a) income before taxes and extraordinary items and cumulative effect 1 8 of a change in accounting (inclusive of minority interest income and expense), plus interest expense, plus depreciation expense, plus amortization expense, plus other non-cash items to the extent deducted in determining consolidated net income in each case, measured on a twelve (12) month basis and calculated as of the last day of the fiscal quarter most recently ended, plus any one time charges or expenses incurred in connection with the offering of subordinated debt or of common stock or this Agreement of the Borrower, plus any non-cash net loss incurred in connection with exiting a line of business or market, and plus any non-cash net loss realized in connection with an asset disposition, plus (i) the Settlement Expense Allowance, (ii) interest paid on the unpaid dividend referred to in Section 9.10(h), (iii) Paracelsus and CHC Merger-related expenses that have not been capitalized, and (iv) expenses to conform the Borrower's accounting policies and procedures to CHC standards through December 31, 1996; provided, however, that interest and expenses described in clauses (a)(ii), (iii) and (iv) of this definition shall not exceed, in the aggregate, $85,000,000, plus (b) with respect to an acquisition by Borrower or a Subsidiary of Borrower which has not been owned for a full fiscal quarter, the Borrower will compute the Adjusted EBITDA (as calculated pursuant to (a) above) based on the actual period owned plus the remaining months of prior ownership to total twelve months and upon being owned one full fiscal quarter, the Adjusted EBITDA will be computed based on annualized results and plus (c) with respect to PHC Salt Lake Hospital acquired by the Borrower in May, 1996, the Borrower will compute the Adjusted EBITDA (as calculated pursuant to (a) above) based on the actual period owned plus the remaining months of prior ownership to total twelve months based on a assumed $9,400,000 Adjusted EBITDA and upon being owned one full fiscal quarter, the Adjusted EBITDA will be computed based on annualized results of PHC Salt Lake Hospital, minus (d) with respect to any divestiture of any entity (corporate, partnership or joint venture) by Borrower or a Subsidiary of the Borrower, the Borrower will exclude from Adjusted EBITDA any amounts attributable to such entity in the computation of Adjusted EBITDA pursuant to (a) above for the period following the divestiture. "Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined by the Agent to be equal to the Eurodollar Rate for such Eurodollar Loan for such Interest Period divided by 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. "Affiliate" means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds ten percent or more of any class of voting stock of such Person; or (c) ten percent or more of the voting stock of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; provided, however, in no event shall the Agent, the Documentation Agent, the Managing Agent, the Arranger, any Co-Agent or any Lender be deemed an Affiliate of the Borrower or any of its Subsidiaries. "Agent" means as specified in the introductory paragraph of this Agreement. 2 9 "Agent's Fee Letter" means the letter agreement dated as of July 9, 1996 (and accepted by the Borrower as of July 9, 1996) among the Borrower, the Agent and the Arranger. "Agreement" means this Credit Agreement and any and all amendments, modifications, supplements, renewals, extensions or restatements hereof. "Applicable Lending Office" means for each Lender and each Type of Loan, the Lending Office of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan below its name on the signature pages hereof (or, with respect to a Lender that becomes a party to this Agreement pursuant to an assignment made in accordance with Section 13.7, in the Assignment and Acceptance executed by it) or such other office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Borrower and the Agent as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" means, for any day, a fluctuating rate per annum for Base Rate Loans or Eurodollar Loans, as applicable, equal to the percentage determined by reference to both the Senior Leverage Ratio and the Interest Coverage Ratio then applicable as follows:
Pricing Senior Interest Eurodollar Base Commitment Level Leverage Ratio Coverage Ratio Rate Margin Rate Margin Fee ----- -------------- ----------------- ----------- ----------- ---------- 1 Less than 0.75 Greater than 3.25 0.875% 0.0% 0.25% 2 Less than 1.00 Greater than 3.00 1.125% 0.0% 0.30% 3 Less than 1.50 Greater than 2.75 1.375% 0.125% 0.325% 4 Less than 2.00 Greater than 2.50 1.625% 0.375% 0.375% 5 Less than 2.50 Greater than 2.25 1.75% 0.50% 0.375% 6 Less than or Less than equal to 2.50 or equal to 2.25 2.0% 0.75% 0.50%
The Applicable Margin shall be calculated on the basis of the financial statements delivered by the Borrower pursuant to Section 8.1(a) and (b) and the certificate delivered by the Borrower pursuant to Section 8.1(d); provided, that (a) from the Closing Date until the first day of the month following the date any such certificate is required to be delivered pursuant to Section 8.1(d), the Senior Leverage Ratio and Interest Coverage Ratio shall be assumed to be, respectively, 1.93:1 and 2.67:1, and (b) if the Borrower fails to deliver to the Agent such financial statements or certificate when required, the Senior Leverage Ratio and Interest Coverage Ratio shall be assumed to be respectively, greater than or equal to 2.50:1 and less than or equal to 2.25:1, until five (5) Business Days after such financial statements and certificate are received by the Agent, after which the Applicable Margin shall be determined as otherwise provided herein. If the Senior Leverage Ratio and Interest Coverage Ratio are at any time determined (as provided herein) to fall within different pricing levels on the grid set forth above, then the pricing level with the higher Applicable Margin shall apply. Changes in the Applicable Margin shall be effective on the first day of the month following the close of the fiscal period for which Agent has received financial statements or a certificate 3 10 reflecting a Senior Leverage Ratio and/or Interest Coverage Ratio warranting a change in the Applicable Margin. "Arranger" means BA Securities, Inc. "Asset Disposition" means the disposition of any or all of the Property of the Borrower or any of its Subsidiaries, whether by sale, lease, transfer, assignment, condemnation or otherwise, and including any involuntary disposition resulting from casualty damage to Property in excess of $500,000; provided, however, that the issuance and sale by a Person of its own Capital Stock shall not constitute an Asset Disposition. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and its Assignee and accepted by the Agent and consented to by the Borrower (such consent not to be unreasonably withheld) pursuant to Section 13.7(e), in substantially the form of Exhibit A hereto. "Assignee" means as specified in Section 13.7(b). "Assigning Lender" means as specified in Section 13.7(b). "Bankruptcy Code" means as specified in Section 11.1(e). "Base Rate" means, for any day, the higher of (a) the rate of interest in effect for such day as publicly announced from time to time by B of A in San Francisco, California as its "reference rate"; and (b) 0.50% per annum plus the latest Federal Funds Rate. The "reference rate" is a rate set by B of A based upon various factors including B of A's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans which may be priced at, above, or below the announced rate. Any change in the Base Rate shall take effect at the opening of business on the day specified in the public announcement of such change, or, if there is not such public announcement, on the date of such change. "Base Rate Loans" means Loans that bear interest at rates based upon the Base Rate. "Basle Accord" means the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, supplemented and otherwise modified and in effect from time to time, or any replacement thereof. "B of A" means as specified in the initial paragraph of this Agreement. "Borrower" means as specified in the initial paragraph of this Agreement. "Business Acquisitions" means acquisitions of Facilities, health related businesses, or related lines of business (including acquisitions of all or substantially all of the Capital Stock of 4 11 an entity owning or leasing any of the foregoing) by the Borrower or any Subsidiary of the Borrower. "Business Day" means (a) any day on which commercial banks are not authorized or required to close in Los Angeles, California, Houston, Texas, and New York, New York and (b) with respect to all borrowings, payments, Conversions, Continuations, Interest Periods and notices in connection with Eurodollar Loans, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "Capital Expenditures" means, for any period, expenditures (including the aggregate amount of Capital Lease Obligations incurred during such period) made by the Borrower or any of its Subsidiaries to acquire or construct fixed assets, plant or equipment (including renewals, improvements or replacements, but excluding repairs) during such period and which, in accordance with GAAP, are classified as capital expenditures. "Capital Lease Obligations" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal Property, which obligations are classified as a capital lease on a balance sheet of such Person under GAAP. "Capital Stock" means corporate stock and any and all shares, partnership interests, membership interests, equity interests, participations, rights or other equivalents (however designated) of corporate stock issued by any entity (whether a corporation, a partnership or another entity). "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by an agency thereof and backed by the full faith and credit of the United States of America, maturing within 180 days after the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within 180 days after the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poors' Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (c) commercial paper, other than commercial paper issued by Borrower or any of its Affiliates, maturing no more than 180 days after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or Moody's; (d) domestic certificates of deposit or time deposits or bankers' acceptances maturing within 180 days after the date of acquisition thereof or investments in money market or mutual funds or accounts, in each case issued or managed by any commercial bank or other financial institution organized under the laws of the United States of America or any state thereof or the District of Columbia or by any foreign bank which is a Lender, and in any case having combined capital and surplus of not less than $100,000,000; (e) deposits in any financial institution insured by the Federal Deposit Insurance Corporation; and (f) any of the foregoing marketable direct obligations, commercial paper, certificates of deposit or bankers' acceptances, regardless of maturity, acquired from a securities brokerage firm or financial institution reasonably 5 12 believed to be financially sound pursuant to a repurchase contract which requires that such securities be repurchased by such securities brokerage firm or financial institution, as the case may be, within 180 days of their original acquisition. "CHC" means Champion Healthcare Corporation, a Delaware corporation. "Champion" means PHC/CHC Holdings, Inc., a Delaware corporation, the survivor of the merger of PC Merger Sub, Inc. into CHC pursuant to the Merger Agreement. "Change of Control" means the existence or occurrence of any of the following: (a) any Person or two or more Persons (other than the Permitted Holders) acting as a group (as defined in Section 13d-3 of the Securities Exchange Act of 1934), becomes the "beneficial owner" (within the meaning of Rule 13d-3 and/or Rule 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be deemed to have "beneficial ownership" of all shares that such Person has the right to acquire without condition, other than the passage of time, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than thirty percent (30%) or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors, other than securities having such power only by reason of the happening of a contingency (other than the passage of time); and (b) individuals who, as of the Closing Date, constitute the Board of Directors of the Borrower (the "Borrower Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Borrower; provided, however, that any individual becoming a director of the Borrower subsequent to the Closing Date whose election, or nomination for election by the Borrower's shareholders was approved by a vote of at least a majority of the directors then comprising the Borrower Incumbent Board, shall be considered as though such individual were a member of the Borrower Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies or contest by or on behalf of a Person other than the Board of Directors of the Borrower. "Closing Date" means the date of this agreement as specified in the introductory paragraph of this Agreement. "Co-Agents" means Credit Lyonnais New York Branch and Toronto-Dominion (Texas), Incorporated. "Code" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated and rulings issued thereunder. "Collateral" means all Property and interests in Property and proceeds thereof now owned or hereafter acquired by Borrower and/or its Subsidiaries in or upon which a Lien now or hereafter exists in favor of the Lenders, or Agent on behalf of the Lenders, whether under this Agreement or under any other documents executed by any such Persons and delivered to Agent or the Lenders in connection herewith as security for the Obligations or any portion thereof. 6 13 "Commitments" means the Revolving Credit Loans Commitments and "Commitment" means, for any Lender, such Lender's respective percentage of the Revolving Credit Loans Commitments. "Commitment Fee" means as specified in Section 2.11(a). "Commitment Percentage" means, as to any Lender, the percentage equivalent of such Lender's Commitment divided by the total Commitments of all of the Lenders, as adjusted from time to time in accordance with Section 13.7. "Consolidated Tangible Assets" means the total assets of Borrower and its Subsidiaries less all intangible assets of Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Continue", "Continuation" and "Continued" shall refer to the continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan of the same Type from one Interest Period to the next Interest Period. "Contract Rate" means as specified in Section 13.11(a). "Convert", "Conversion" and "Converted" shall refer to a conversion pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of Loan. "Current Date" means a date occurring no more than 30 days prior to the Closing or such earlier date which is reasonably acceptable to the Agent. "Dakota" means Dakota Foundation, a North Dakota non-profit corporation. "DHHS" means Dakota/Champion Partnership d/b/a Dakota Heartland Health System, a North Dakota general partnership. "DHHS Operating Agreement" means that certain Operating Agreement dated December 21, 1994 entered into by and among Dakota, DHHS, Champion and Paracelsus-Fargo, as the same may be amended or otherwise modified from time-to- time. "DHHS Partnership Agreement" means that certain Amended and Restated Partnership Agreement of Dakota/Champion Partnership dated as of December 21, 1994 entered into by and between Dakota and Paracelsus-Fargo, as the same may be amended or otherwise modified from time-to-time. "Debt" means as to any Person at any time (without duplication): (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of Property or services, except trade accounts payable of such Person arising in the ordinary course of business, (d) all Capital Lease Obligations of such Person, (e) all Debt of 7 14 others Guaranteed by such Person,(f) all obligations (other than trade accounts payable permitted under clause (c) above) to the extent secured by a Lien existing on Property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to such Person, (g) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds and similar instruments, (h) all obligations and liabilities of such Person under Interest Rate Protection Agreements, and all liabilities of such Person in respect of unfunded vested benefits under any Pension Plan; provided, however, that "Debt" does not include (i) any obligations pursuant to receivables financing that are not required by GAAP to be booked as liabilities on the balance sheet of the Borrower and its Subsidiaries. Notwithstanding the foregoing, the contingent obligations of Champion and Paracelsus-Fargo under Section 3.03(g) of the DHHS Partnership Agreement shall not be deemed to constitute Debt of the Borrower until such time as the obligations are no longer contingent or until such time as Dakota gives the Borrower, Champion or Paracelsus-Fargo notice that it is exercising its rights under Section 3.03(g) of the DHHS Partnership Agreement. "Default" means an Event of Default or the occurrence of an event or condition which with notice or lapse of time or both would become an Event of Default. "Default Rate" means, in respect of any principal of any Loan, any Reimbursement Obligation or any other amount payable by the Borrower under this Agreement or any other Loan Document which is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period commencing on the due date until such amount is paid in full equal to the sum of two percent (2%) plus the Base Rate as in effect from time to time plus the Applicable Margin for Base Rate Loans; provided, however, that if such amount in default is principal of a Eurodollar Loan and the due date is a day other than the last day of an Interest Period therefor, the "Default Rate" for such principal shall be, for the period from and including the due date and to but excluding the last day of the Interest Period therefor, two percent (2%) plus the interest rate for such Eurodollar Loan for such Interest Period as provided in Section 2.4(a) hereof and, thereafter, the rate provided for above in this definition. "Deposit Account" means a deposit account maintained by the Borrower with a bank selected by the Borrower and reasonably acceptable to the Agent. "Dollars" and "$" mean lawful money of the U.S. "EBITDA" means, on a consolidated basis without duplication for any Person and its Subsidiaries, the sum of (a) income before taxes and extraordinary items (inclusive of minority interest income and expense), plus interest expense, plus depreciation expense, plus amortization expense, in each case, measured on a twelve (12) month basis and calculated as of the last day of the fiscal quarter most recently ended, plus (b) with respect to any operations acquired by such Person or a Subsidiary of such Person during such twelve-month period, the EBITDA of such operations (as calculated pursuant to (a) above) for the portion of such twelve-month period prior to the respective date of acquisition, plus (c) EBITDA demonstrated and certified by such Person, 8 15 to the reasonable satisfaction of Agent, as attributable to newly acquired businesses during such twelve month period. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any state thereof; or (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country provided that such bank is acting through a branch or agency in the United States, and, in the case of each of (a) and (b), having combined capital and surplus of at least $100,000,000; or (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary, or (d) any other commercial bank, savings and loan association, savings bank, finance company, insurance company, pension fund, mutual fund or other financial institution (whether a corporation, partnership or other entity) acceptable to the Agent, such acceptance not to be unreasonably withheld or delayed. "Environmental Law" means any federal, state, local or foreign law, statute, code or ordinance, principle of common law, rule or regulation, as well as any Permit, order, decree or injunction, issued, promulgated, approved or entered thereunder applicable to the Borrower or any of its Subsidiaries, relating to pollution or the protection, cleanup or restoration of the environment or natural resources, or to the public health or safety, or otherwise governing the generation, use, handling, collection, treatment, storage, transportation, recovery, recycling, discharge or disposal of Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986, 99-499, 100 Stat. 1613, the Resource Conservation and Recovery Act of 1976, 42 U. S. C. Section 6901 et seq., the Occupational Safety and Health Act, 29 U S.C. Section 651 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., and the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., and any state or local counterparts. "Environmental Liabilities" means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability or criminal or civil statute, including, without limitation, any Environmental Law or Permit, order, decree or injunction with any Governmental Authority or other Person, arising from environmental, health or safety conditions or the Release or threatened Release of a Hazardous Material into the environment. 9 16 "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock or securities convertible into Capital Stock (but excluding any debt security that is convertible into, or exchangeable for Capital Stock). "Equity Issuance" means any issuance by the Borrower of any Capital Stock of the Borrower. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereunder. "ERISA Affiliate" means any corporation or trade or business Loan Party is also a member and which is treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the Code. "Eurodollar Loans" means Loans that bear interest at rates based upon the Adjusted Eurodollar Rate. "Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the Reference Lender at approximately 11:00 a.m. London time (or as soon thereafter as practicable) two Business Days prior to the first day of such Interest Period for the offering by the Reference Lender to leading banks in the London interbank market of Dollar deposits in immediately available funds having a term comparable to such Interest Period and in an amount comparable to the principal amount of the Eurodollar Loan made by the Reference Lender to which such Interest Period relates. If the Reference Lender is not participating in any Eurodollar Loans during any Interest Period therefor (whether as a result of Section 4.4 or for any other reason), the Eurodollar Rate and the Adjusted Eurodollar Rate for such Loans for such Interest Period shall be determined by reference to the amount of the Loans which the Reference Lender would have made had it been participating in such Loans. "Event of Default" has the meaning specified in Section 11.1. "Excluded Subsidiaries" means (a) a Subsidiary of the Borrower, including, but not limited to any Subsidiary which is a partnership or owns a partnership interest, if at all times (x) the book value of the total Property of such Subsidiary is less than five percent (5%) of the book value of the total Property of the Borrower (determined on a consolidated basis for the Borrower and all of its Subsidiaries) and such Subsidiary's EBITDA does not exceed five percent (5%) of the Adjusted EBITDA of the Borrower (determined on a consolidated basis for Borrower and all of its Subsidiaries), and (y) the aggregate book value of the total Property of all Excluded Subsidiaries of the Borrower and the aggregate EBITDA for all Excluded Subsidiaries of the Borrower at no time exceeds five percent (5%) of the book value of the total Property of the Borrower (determined on a consolidated basis for the Borrower and all of its Subsidiaries) or five percent (5%) of the 10 17 Adjusted EBITDA of the Borrower (determined on a consolidated basis for the Borrower and all of its Subsidiaries), respectively. (b) In addition, the following are Excluded Subsidiaries: (i) DHHS; (ii) Metropolitan Hospital, L.P.; (iii) Monrovia Community Hospital, a California limited partnership; (iv) PHC Funding Corp.; (v) Hospital Assurance Company, Ltd., a Cayman Island corporation; (vi) IV Care, L.P.; and (vii) To be formed partnership of Psychiatric Healthcare Corporation of Louisiana and a subsidiary of Community Health Services, Inc. The Excluded Subsidiaries as of the Closing Date under clause (a) above are listed on Schedule 1.1(a). All changes in the designation, from time to time, of Excluded Subsidiaries after the Closing Date shall be by written notice from Borrower to the Agent. "Existing Indenture" means the Indenture dated as of October 15, 1993, by and between Borrower and The Bank of New York, as trustee relating to $75,000,000 of 9 7/8% Senior Subordinated Notes due 2003 issued by Borrower as amended or otherwise modified from time to time in a manner not prohibited hereby. "Existing Paracelsus Credit Agreement" means that certain Second Amended and Restated Credit Agreement dated as of December 8, 1995, among Borrower, the lenders named therein, B of A as the issuing bank and as agent, as previously amended from time to time. "Existing Letters of Credit" means those certain letters of credit issued by B of A for the account of Borrower or a Subsidiary pursuant to the Existing Paracelsus Credit Agreement and listed on Schedule 1.1(b). "Existing Subordinated Note Documents" means the Existing Indenture and the Existing Subordinated Notes issued and authenticated thereunder, including all exhibits thereto. "Existing Subordinated Notes" means the 9-7/8% Senior Subordinated Notes Due 2003 issued by Borrower in the original aggregate principal amount of $75,000,000 under and pursuant to the Existing Indenture. 11 18 "Facility" means a hospital or other medical or healthcare facility or an assisted living facility where the respective land and improvements are owned or leased one hundred percent (100%) by Borrower and/or one or more Wholly-Owned Subsidiaries of Borrower, Majority-Owned Subsidiaries of Borrower or Majority-Owned Joint Ventures. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%)) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published on such next succeeding Business Day, the Federal Funds Rate for any day shall be the average rate charged to the Reference Lender on such day on such transactions as determined by the Agent. "Fee Letters" means the Agent's Fee Letter and the Paribas Fee Letter. "Fixed Charge Coverage Ratio" means on a consolidated basis for Borrower and its Subsidiaries, as of the end of any fiscal quarter, the ratio of (a) the sum of (i) Adjusted EBITDA, plus (ii) operating lease payments (to the extent treated as an expense and deducted from Adjusted EBITDA), minus (iii) federal and state income tax expense, in each case for the twelve (12) months ended on the last day of the fiscal quarter most recently ended, minus (iv) the "Maintenance Capital Expenditures", minus (v) with respect to any operations acquired by Borrower or a Subsidiary of Borrower during such twelve-month period, the "Maintenance Capital Expenditures" of any such Person included for purposes of calculating Adjusted EBITDA, to (b) the sum of (w) Interest Expense (including the actual interest expense incurred by any operations acquired by Borrower or any of its Subsidiaries for such twelve-month period and excluding the actual interest expenses incurred by any operations divested by Borrower or any of its Subsidiaries for such twelve- month period), plus (x) Operating Lease payments (to the extent treated as an expense and deducted from Adjusted EBITDA), plus (y) all scheduled payments of principal, in each case for the twelve (12) months ended on the last day of the fiscal quarter most recently ended. "GAAP" means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors or such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period. 12 19 "Governmental Authority" means any nation or government, any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Governmental Requirement" means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, Permit, order, decree, injunction or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them. "Guarantee" means, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Debt, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, including the obligation to make take-or-pay or similar payments; (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the financial condition, net worth or solvency of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the holder of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (d) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof, including without limitation with respect to letter of credit obligations, currency swap agreements, foreign exchange contracts and other derivative or similar agreements; provided, however, that the term Guarantee shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder as determined by such Person in good faith, but in each case without duplication of any such primary obligation). Notwithstanding the foregoing, the contingent obligations of Champion and Paracelsus-Fargo under Section 3.03(g) of the DHHS Partnership Agreement shall not be deemed to constitute Debt of the Borrower until such time as the obligations are no longer contingent or until such time as Dakota gives the Borrower, Champion or Paracelsus-Fargo notice that it is exercising its rights under Section 3.03(g) of the DHHS Partnership Agreement. "Hazardous Material" means any substance, product, waste, pollutant, chemical, contaminant, insecticide, pesticide, constituent or material which is or becomes listed, regulated or addressed under any Environmental Law, including, without limitation, asbestos, dioxin, petroleum, underground storage tanks (whether empty or containing any substance), polychlorinated biphenyls and any medical waste. "Indentures" means the Existing Indenture and the New Indenture. 13 20 "Intellectual Property" means any U.S. or foreign patents, patent applications, trademarks, trade names, service marks, brand names, logos and other trade designations (including unregistered names and marks), trademark and service mark registrations and applications, copyrights and copyright registrations and applications, inventions, invention disclosures, protected formulae, formulations, processes, methods, trade secrets, computer software, computer programs and source codes, manufacturing research and similar technical information, engineering know-how, customer and supplier information, assembly and test data drawings or royalty rights. "Interest Coverage Ratio" means, for any twelve month period, the ratio of (a) Adjusted EBITDA of the Borrower and its Subsidiaries for such period to (b) Interest Expense (including the Interest Expense for CHC and including the actual interest expense incurred by any operations acquired by Borrower or any of its Subsidiaries for such twelve-month period and excluding the actual interest expense incurred by any operations divested by Borrower or any of its Subsidiaries for such twelve-month period) for such period. "Interest Expense" means for any period, all interest on Debt of the Borrower and its Subsidiaries paid or accrued during such period, including the interest portion of payments under Capital Lease Obligations. "Interest Period" means, with respect to any Eurodollar Loan, each period commencing on the date such Loan is made or Converted from a Base Rate Loan or (if Continued) the last day of the next preceding Interest Period with respect to such Loan, and ending on the numerically corresponding day in the first, second, third or sixth and, if available, ninth or twelfth calendar month thereafter, as the Borrower may select as provided in Section 2.9 hereof, except that each such Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (a) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (b) any Interest Period which would otherwise extend beyond an applicable Maturity Date shall end on such Maturity Date; (c) no more than ten (10) Interest Periods for Eurodollar Loans shall be in effect at the same time; (d) no Interest Period shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loans would otherwise be a shorter period, such Loans shall not be available hereunder; and (e) each Interest Period shall be interpreted in accordance with the customs and practices of the international interbank markets. "Interest Rate Protection Agreements" means, with respect to any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more Lenders that are parties to this Agreement providing for the transfer or mitigation of interest rate risks either generally or under specified contingencies. "Investments" means as specified in Section 9.4. 14 21 "Issuing Bank" means B of A or such other Lender which shall issue Letters of Credit pursuant to Section 2.14. "Joinder Agreements" means the agreements executed by each Subsidiary after the Closing Date (other than Excluded Subsidiaries) whereby such Subsidiary becomes a party to the Master Guaranty. "Krukemeyer" means Dr. Manfred George Krukemeyer, an individual. "Krukemeyer Subordinated Note" means that certain 6.51% subordinated note to be issued by Borrower in the aggregate principal amount of $7,185,467, substantially in the form of Exhibit B, and any and all amendments, modifications, supplements, renewals, extensions or restatements thereof not prohibited by this Agreement. "Lender" and "Lenders" means as specified in the initial paragraph of this Agreement. "Letter of Credit" means any standby letter of credit issued or deemed issued by the Issuing Bank for the account of the Borrower pursuant to this Agreement. "Letter of Credit Agreement" means, with respect to each Letter of Credit to be issued by the Issuing Bank, the letter of credit application and reimbursement agreement which such Issuing Bank requires to be executed by the Borrower in connection with the issuance of such Letter of Credit. "Letter of Credit Liabilities" means, at any time, the aggregate undrawn face amounts of all outstanding Letters of Credit and all unreimbursed drawings under Letters of Credit. "Leverage Ratio" means as of any date, the ratio of (a) Total Debt including Letter of Credit Liabilities, to (b) Adjusted EBITDA for the twelve (12) months ending with the last day of the fiscal quarter most recently ended. "Lien" means any lien, mortgage, security interest, tax lien, pledge, charge, hypothecation or other encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law or otherwise. "Loans" means the Revolving Credit Loans. "Loan Documents" means this Agreement, the Notes, the Security Documents, the Fee Letters, the Letters of Credit, the Letter of Credit Agreements and all other agreements, documents and instruments now or hereafter executed and/or delivered by any Loan Party to the Agent, the Documentation Agent, the Managing Agent, the Arranger, any Co-Agent, the Issuing Bank or any Lender pursuant to or in connection with any of the foregoing, and any and all amendments, modifications, supplements, renewals, extensions or restatements thereof. 15 22 "Loan Party" means the Borrower, each of the Subsidiaries (other than Excluded Subsidiaries) of the Borrower and any other Person who is or becomes a party to any agreement, document or instrument that Guarantees or secures payment or performance of the Obligations or any part thereof. "Maintenance Capital Expenditures" means an amount equal to three percent (3%) of the net revenues of the Borrower and its Subsidiaries (and, in the case of any partnership or joint venture, 3% of its net revenues multiplied by the Borrower's or any of its Subsidiary's right to receive distributable cash flow) determined in accordance with GAAP for the twelve (12) months ended on the last day of the fiscal quarter most recently ended. "Majority-Owned Joint Venture" means any partnership or joint venture: (a) in which a majority of the equity interest is owned by Borrower and/or a Wholly-Owned Subsidiary of Borrower; (b) in which Borrower and/or a Wholly-Owned Subsidiary of Borrower is the sole general partner; and (c) which operates a Facility and is properly licensed to do so. "Majority-Owned Subsidiary" means a Subsidiary of Borrower which is reported with Borrower on a consolidated basis under GAAP and the rules and regulations of the Securities and Exchange Commission, and which is engaged in the health care business or a related line of business. "Master Guaranty" means the Master Guaranty substantially in the form of Exhibit E dated of even date herewith entered into (i) on the Closing Date, by and among all of the existing Subsidiaries (except the Excluded Subsidiaries), and (ii) after the Closing Date, by the execution of Joinder Agreements by all newly-formed or newly-acquired Subsidiaries (except Excluded Subsidiaries) as well as Subsidiaries that were formerly but no longer remain Excluded Subsidiaries. "Material Adverse Effect" means (a) any event that could reasonably be expected to have a material and adverse effect on (i) the condition (financial or otherwise), assets or business operations of Borrower and its Subsidiaries, taken as a whole, or (ii) the ability of Borrower and its Subsidiaries to perform their obligations under the Loan Documents, and (b) any material and adverse change in (x) the condition (financial or otherwise), assets or business operations of Borrower and its Subsidiaries, taken as a whole, or (y) the ability of Borrower and its Subsidiaries to perform their obligations under the Loan Documents. "Material Contracts" means, as to any Person, any supply, purchase, service, employment (including all contracts with physicians), tax, indemnity, Majority-Owned Joint Venture, shareholder or other agreements or contracts for which the aggregate amount or value of services performed or to be performed for or by, or funds or other Property transferred or to be transferred to or by, such Person or any of its Subsidiaries party to such agreement or contract, or by which such Person or any of its Subsidiaries or any of their respective Properties are otherwise bound, during any fiscal year of the Borrower exceeds $5,000,000, and any and all amendments, modifications, supplements, renewals or restatements thereof. 16 23 "Maturity Date" means the Revolving Credit Loans Maturity Date. "Maximum Rate" means the maximum non-usurious interest rate, if any, that any time or from time to time may be contracted for, taken, reserved, charged or received with respect to the particular Obligations as to which such rate is to be determined, payable to any Lender or any other Person pursuant to this Agreement or any other Loan Document, under laws applicable to such Lender or other Person which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments and other charges in respect of the Loan Documents that constitute interest under applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrower at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be the indicated rate ceiling described in, and computed in accordance with, Article 5069-1.04, Vernon's Texas Civil Statutes; provided, however, that, to the extent permitted by applicable law, the Agent shall have the right to change the applicable rate ceiling from time to time in accordance with applicable law. "Merger" means the merger of PC Merger Sub, Inc. into CHC, pursuant to the terms of the Merger Agreement. "Merger Agreement" means that certain Agreement and Plan of Merger, dated April 12, 1996, by and among Borrower, CHC and PC Merger Sub, Inc., as amended and restated on May 29, 1996, pursuant to which Champion has become a Wholly-Owned Subsidiary of the Borrower. "Merger Documents" means the Merger Agreement and the Certificate of Merger filed with the Secretary of State of Delaware with respect to the Merger. "Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by or are required from any Loan Party or any ERISA Affiliate within six (6) years of the time in question and which is covered by Title IV of ERISA. "Net Earnings" means the net income of Borrower and its Subsidiaries on a consolidated basis determined in accordance with GAAP. "Net Proceeds" means, with respect to any Asset Disposition, (a) the gross proceeds received by the Borrower or any of its Subsidiaries from such Asset Disposition (including, without limitation, cash or notes, minus (b) the amount, if any, of all taxes paid or payable by the Borrower or any of its Subsidiaries directly resulting from such Asset Disposition (including the amount, if any, estimated by the Borrower in good faith at the time of such Asset Disposition for taxes payable by the Borrower or any of its Subsidiaries on or measured by net income or gain resulting from such Asset Disposition), minus (c) the reasonable out-of-pocket costs and expenses incurred by the Borrower or such Subsidiary in connection with such Asset Disposition (including 17 24 reasonable brokerage fees paid to a Person other than an Affiliate of the Borrower) excluding any fees or expenses paid to an Affiliate of the Borrower. "Net Proceeds" with respect to any Asset Disposition shall also include proceeds (after deducting any amounts specified in clauses (b) and (c) of the preceding sentence) of insurance with respect to any actual or constructive loss of Property, or an agreed or compromised loss of Property or the taking of any Property under the power of eminent domain and condemnation awards and awards in lieu of condemnation for the taking of Property under the power of eminent domain, except such proceeds and awards as are released to and used by the Borrower in accordance with Section 8.5. In no event shall any item be included in "Net Proceeds" in respect of any joint venture or partnership to the extent it shall exceed the Borrower's direct or indirect share of the earnings from such joint venture or partnership. "Net Worth" means, at any particular time, all amounts which, in conformity with GAAP, would be included as stockholders' equity on a consolidated balance sheet of the Borrower and its Subsidiaries. "New Indenture" means the Indenture dated as of August 16, 1996 by and between Borrower and AmSouth Bank of Alabama, as trustee related to $325,000,000 of ten percent (10%) Senior Subordinated Notes due 2006 issued by Borrower. "New Subordinated Debt" means the obligations of Borrower under the New Subordinated Notes. "New Subordinated Note Documents" means the New Indenture and the New Subordinated Notes issued and authenticated thereunder, including all exhibits related thereto. "New Subordinated Notes" means the Senior Subordinated Notes due 2006 issued by Borrower in the aggregate principal amount of $325,000,000 under and pursuant to the New Indenture. "Notes" means the promissory notes made by the Borrower evidencing the Revolving Credit Loans, in the form of Exhibit C hereto. "Obligations" means any and all (a) indebtedness, liabilities and obligations of the Loan Parties, or any of them, to the Agent, the Issuing Bank, the Documentation Agent, the Managing Agent, any Co-Agent and the Lenders, or any of them, evidenced by and/or arising pursuant to any of the Loan Documents, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, including, without limitation, (i) the obligations of the Loan Parties to repay the Loans and the Reimbursement Obligations, to pay interest on the Loans and Reimbursement Obligations (including, without limitation, interest accruing after any, if any, bankruptcy, insolvency, reorganization or other similar filing) and to pay all fees, indemnities, costs and expenses (including attorneys' fees) provided for in the Loan Documents and (ii) the indebtedness constituting the Loans, the Reimbursement Obligations and such fees, indemnities, costs and 18 25 expenses, and (b) indebtedness, liabilities and obligations of the Borrower under any and all Interest Rate Protection Agreements that it may enter into with any Lender. "Operating Lease" means, with respect to any Person, any lease, rental or other agreement for the use by that Person of any Property which is not a Capital Lease Obligation. "Outstanding Credit" means, at any particular time, the sum of (a) the outstanding principal amount of the Revolving Credit Loans and (b) the Letter of Credit Liabilities. "Paracelsus-Fargo" means Paracelsus Healthcare Corporation of North Dakota, Inc., a Wholly-Owned Subsidiary of Borrower. "Paribas Fee Letter" means the letter agreement dated as of July 18, 1996 (and accepted by the Borrower as of July 23, 1996), between Borrower and the Documentation Agent. "Payor" means as specified in Section 3.4. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "PC Merger Sub, Inc." means PC Merger Sub, Inc., a Delaware corporation. "Pension Plan" means an employee pension benefit plan as defined in Section 3(2) of ERISA (excluding any Multiemployer Plan) which is subject to the funding requirements under Section 302 of ERISA or Section 412 of the Code, in whole or in part, and which is maintained or contributed to currently or at any time within six years of the time in question, by the Borrower or any ERISA Affiliate for employees of the Borrower or any ERISA Affiliate. "Permit" means any permit, certificate, approval, license or other authorization issued by a Governmental Authority. "Permitted Acquisitions" means as specified in Section 9.5. "Permitted Holders" means (a) any Person employed by the Borrower and its Subsidiaries in a management capacity as of the Closing Date, (b) Krukemeyer, (c) any 80% or more owned Subsidiary of Krukemeyer, or a spouse or immediate family member of Krukemeyer, and (d) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a controlling interest of which consist of Krukemeyer and/or any such other Persons referred to in clause (c) above. "Permitted Liens" means: (a) Liens disclosed on Schedule 1.1(c) hereto; 19 26 (b) Liens securing the Obligations in favor of the Agent (for the benefit of the Agent and the Lenders or the Issuing Bank) pursuant to the Loan Documents; (c) Encumbrances consisting of easements, zoning restrictions or other restrictions on the use of real Property or minor imperfections to title which do not (individually or in the aggregate) materially affect the value of the Property encumbered thereby or materially impair the ability of the Borrower or any of its Subsidiaries to use such Property in its businesses, and none of which is violated in any material respect by existing or proposed structures or land use; (d) Liens for current taxes, assessments or other governmental charges which are not yet due or which are being contested in good faith and for which adequate reserves have been provided on the books of the Borrower or such Subsidiary, as the case may be; (e) Liens of mechanics, materialmen, warehousemen, carriers, landlords (including contractual landlords Liens) or other similar statutory Liens securing obligations that are not yet due and are incurred in the ordinary course of business or which are being contested in good faith and for which adequate reserves have been established; (f) Liens resulting from good faith deposits to secure payment of worker's compensation (or to participate in any fund in connection with worker's compensation insurance), unemployment insurance, pension or other social security programs or to secure the performance of tenders, statutory obligations, taxes, customs, duties or other charges, surety and appeal bonds, bids, contracts (other than for payment of Debt) or leases, all in the ordinary course of business; (g) Liens incurred in connection with Capital Lease Obligations; (h) Purchase-money Liens on any Property now owned or hereafter acquired or the assumption after the Closing Date of any Lien on Property existing at the time of such acquisition (and not created in contemplation of such acquisition), or a Lien incurred prior to or after the Closing Date in connection with any conditional sale or other title retention agreement other than Capital Lease Obligations; provided that: (i) any Property subject to the foregoing is or was acquired by the Borrower or any of its Subsidiaries in the ordinary course of its respective business and the Lien on the Property attaches concurrently or within 90 days after the acquisition thereof; (ii) the Debt secured by any Lien so created, assumed or existing shall not exceed the lesser of the cost or fair market value at the time of acquisition of the Property covered thereby; (iii) each such Lien shall attach only to the Property so acquired and the proceeds thereof; and 20 27 (iv) the Debt secured by all such Liens shall not exceed three percent (3%) of the book value of the total Property of the Borrower and all of its Subsidiaries; (i) Liens against the Property and Capital Stock of any Excluded Subsidiary; (j) judgment Liens on appeal if and only if (i) the amount, applicability or validity thereof is currently (at the time in question) being contested in good faith by appropriate action promptly and diligently conducted and adequate cash reserves (segregated to the extent required by GAAP) have been set aside therefor, (ii) levy and execution thereon have been stayed and continue to be stayed, and (iii) they do not in the aggregate materially detract from the value of the Property of the Person in question or materially impair the use of such Property in such Person's business; (k) other Liens so long as the obligations secured thereby do not exceed $1,000,000 in the aggregate at any one time outstanding; and (l) Any extension, renewal or replacement of any of the foregoing, provided that Liens permitted under this clause (l) shall not be extended or spread to cover any additional indebtedness or Property; provided, however, that none of the Permitted Liens (except those in favor of the Agent and except for Liens permitted under subsection (d) of this definition) may attach or relate to the Capital Stock of or any other ownership interest in any Subsidiary of the Borrower (other than the Excluded Subsidiaries), or the proceeds thereof. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, Governmental Authority or other entity. "PHC Funding Corp." means PHC Funding Corp. II, a California corporation. "PHC Funding Sale Documents" means all documents, instruments and agreements executed and delivered by PHC Funding Corp. as of April 16, 1993, together with any documents, instruments and agreements executed and delivered in connection with any amendment, modification or change thereto, and including any similar documentation entered into between a third-party lender and a Subsidiary established for the special purpose of obtaining accounts receivable financing. "PHC Salt Lake Hospital" means the assets relating to FHP Hospital, a 125-bed acute care hospital and its surrounding campus in Salt Lake City, Utah. "Plan" means any employee benefit plan as defined in Section 3(3) of ERISA established or maintained or contributed to by any Loan Party or any ERISA Affiliate, including any Pension Plan. 21 28 "Principal Office" means the principal office of the Agent in Los Angeles, California, presently located at 555 South Flower Street, 11th Floor, Los Angeles, California 90071. "Pro Formas" means the unaudited consolidated balance sheets of the Borrower and its consolidated Subsidiaries dated on or about June 26, 1996 and provided to the Agent prior to the Closing Date. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "Projections" means the Borrower's forecasted consolidated (a) balance sheets, (b) income statements, and (c) cash flow statements, together with appropriate supporting details and a statement of underlying assumptions, dated on or about June 26, 1996 and provided to the Agent prior to the Closing Date. "Property" means property or assets of all kinds, real, personal or mixed, tangible or intangible (including, without limitation, all rights relating thereto), and including all stock and other equity interests, whether owned or acquired before, on or after the Closing Date. "Quarterly Date" means the last day of each March, June, September and December of each year, the first of which shall be the first such day after the Closing Date. "Reference Lender" means B of A. "Register" means as specified in Section 13.7(d). "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulatory Change" means, with respect to any Lender, any change after the Closing Date in any U.S. federal or state or foreign laws or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders including such Lender of or under any U.S. federal or state or foreign laws or regulations (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof. "Reimbursement Obligation" means the obligation of the Borrower to reimburse the Issuing Bank for any drawing under a Letter of Credit. "REIT Debt" means all indebtedness outstanding under (a) the Amended and Restated Note dated as of April 13, 1993, signed by Psychiatric Healthcare Corporation of Missouri payable to the order of Health Care REIT, Inc. ("HCRI"), in the original principal sum of $7,000,000, (b) the Note dated as of March 22, 1995 signed by Psychiatric Healthcare Corporation of Louisiana ("PHCL") payable to the order of HCRI in the original principal sum of $1,595,000 22 29 and (c) the Note dated as of April 13, 1993 signed by PHCL payable to the order of HCRI in the original principal amount of $3,225,000. "Related Transactions" means, collectively, (a) the Merger, (b) the execution and delivery of the Related Transactions Documents, and (c) the issuance and funding of the New Subordinated Notes. "Related Transactions Documents" means the Merger Agreement (including only those schedules and exhibits to the Merger Agreement designated by the Agent and listed on Schedule 1.1(d) hereto), the New Subordinated Note Documents, the Existing Subordinated Note Documents and the Krukemeyer Subordinated Note. "Release" means, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, disbursement, leaching or migration of Hazardous Materials into the indoor or outdoor environment or into or out of Property owned by such Person, including, without limitation, the movement of Hazardous Materials through or in the air, soil, surface water or ground water. "Remedial Action" means all actions required to (a) cleanup, remove, respond to, treat or otherwise address Hazardous Materials in the indoor or outdoor environment, (b) prevent the Release or threat of Release or minimize the further Release of Hazardous Materials so that they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform studies and investigations on the extent and nature of any actual or suspected contamination, the remedy or remedies to be used or health effects or risks of such contamination, or (d) perform post-remedial monitoring, care or remedy of a contaminated site. "Reportable Event" means any of the events set forth in Section 4043(b) or (c) of ERISA other than a Reportable Event as to which the provision of 30 days' notice to the PBGC is waived under applicable regulations. "Required Lenders" means, at any date of determination, Lenders having in the aggregate at least 51% (in dollar amount as to any one or more of the following) of the sum of the aggregate outstanding Revolving Credit Loans Commitments (or, if such Commitments have terminated or expired, the aggregate outstanding principal amount of the Revolving Credit Loans and the aggregate Letter of Credit Liabilities). "Required Payment" means as specified in Section 3.4. "Reserve Requirement" means, for any Eurodollar Loan of any Lender for any Interest Period therefor, the maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under any regulations of the Board of Governors of the Federal Reserve System (or any successor) by such Lender for deposits exceeding $100,000,000 against "Eurocurrency Liabilities" as such term is used in Regulation D. 23 30 "Responsible Officer" means, as to any Loan Party, the chief financial officer, chief operating officer, chief executive officer, treasurer or general counsel of such Person. "Restricted Payment" means (a) any dividend or other distribution (whether in cash, Property or obligations), direct or indirect, on account of (or the setting apart of money for a sinking or other analogous fund for) any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries (other than the Excluded Subsidiaries) now or hereafter outstanding, except a dividend payable solely in shares of stock or cash payments in lieu of fractional shares; (b) any redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding; (c) any payment or prepayment of principal of, premium, if any, or interest on, or any redemption, conversion, exchange, purchase, retirement, redemption or defeasance of, or payment with respect to, any Subordinated Debt; and (d) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding; provided, however, that the term "Restricted Payment" shall not include (i) any of the foregoing made solely in the form of shares of the Borrower's Capital Stock, options, warrants or other rights to acquire shares of the Borrower's Capital Stock or securities convertible into, or exchangeable for, shares of the Borrower's Capital Stock other than debt securities that are convertible into, or exchangeable for, shares of the Borrower's Capital Stock, (ii) payments under the service agreement and the insurance agreement with Krukemeyer contemplated by the Merger Agreement, or (iii) any payments under Section 3.03(g) of the DHHS Partnership Agreement. "Revolving Credit Loans" means as specified in Section 2.1(a). "Revolving Credit Loans Commitment" means, as to any Lender, the obligation of such Lender to make or continue Revolving Credit Loans and incur or participate in Letter of Credit Liabilities hereunder in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set forth opposite the name of such Lender on the signature pages hereto under the heading "Revolving Credit Loans Commitment" or, if such Lender is a party to an Assignment and Acceptance, the amount set forth in the most recent Assignment and Acceptance of such Lender, as the same may be reduced or terminated pursuant to Sections 2.7, 2.13 or 11.2, and "Revolving Credit Loans Commitments" means such obligations of all Lenders; provided, however, that the Revolving Credit Loans Commitments shall be permanently reduced by $50,000,000 on each of August 15, 1999 and August 15, 2000 and such reductions pursuant to this proviso shall be applied ratably to the respective Commitment of each Lender in accordance with its respective Commitment Percentage. As of the Closing Date, the aggregate principal amount of the Revolving Credit Loans Commitments is $400,000,000. "Revolving Credit Loans Maturity Date" means August 15, 2001. "Revolving Credit Loans Notes" means the Notes. 24 31 "Security Agreement" means the Security and Pledge Agreement substantially in the form of Exhibit D executed by Borrower in favor of the Agent for the benefit of the Agent and the Lenders, and any and all amendments, modifications, supplements, renewals, extensions or restatements thereof. "Security Documents" means the Security Agreement, the Subsidiary Security Agreements and the Master Guaranty, as they may be amended, modified, supplemented, renewed, extended or restated from time to time, and any and all other agreements, deeds of trust, mortgages, chattel mortgages, security agreements, pledges, guaranties, assignments of proceeds, assignments of income, assignments of contract rights, assignments of partnership interests, assignments of royalty interests, assignments of performance or other collateral assignments, completion or surety bonds, standby agreements, subordination agreements, undertakings and other agreements, documents, instruments and financing statements now or hereafter executed and/or delivered to or for the benefit of the Agent and the Lenders by any Loan Party in connection with or as security or assurance for the payment or performance of the Obligations or any part thereof. "Senior Leverage Ratio" means, as of any date, the ratio of (a) Total Debt, including Letter of Credit Liabilities, less Subordinated Debt, to (b) Adjusted EBITDA for the twelve (12) months ending with the last day of the fiscal quarter most recently ended. "Settlement Expense Allowance" means the amount of up to $22,356,000 in expenses incurred in connection with the settlement of two lawsuits (one with Aetna and one with another party), associated legal expenses, and the write-off of certain psychiatric receivables. "Solvent" means, with respect to any Person as of the date of any determination, that on such date (a) the fair value of the Property of such Person (both at fair valuation and at present fair saleable value) is greater than the total liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's Property would constitute unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, such liabilities shall be computed at the amount which, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Subordinated Debt" means (a) the Debt of the Borrower under the Existing Subordinated Notes, the New Subordinated Notes and the Krukemeyer Subordinated Note, and (b) any and all other current or future Debt of the Borrower or any Subsidiary of the Borrower which is 25 32 subordinated to all or any portion of the Obligations and which is approved in writing by Required Lenders, and (c) Debt incurred to refinance the Subordinated Debt in existence as of the Closing Date provided that (i) the proceeds of such Debt are used solely to retire, replace or refinance the Subordinated Debt (and the transaction costs relating thereto), (ii) such Debt is subordinated to the Obligations on terms and conditions that are substantially no less favorable to the Agent and the Lenders than the Subordinated Debt being refinanced, and (iii) the terms of such Debt do not provide for scheduled payments of any principal of such Debt (including scheduled repayments or sinking fund payments) prior to August 31, 2001, and are not materially more restrictive on Borrower or any of its Subsidiaries than the terms of the Subordinated Debt being refinanced, including, without limitation, with respect to sales of assets, incurrence of Debt, change of control or the granting of Liens, as reasonably determined by Required Lenders. "Subordinated Debt Documents" means (a) the Existing Subordinated Note Documents, the New Subordinated Note Documents, and the Krukemeyer Subordinated Note, and (b) any and all other agreements, documents and instruments now or hereafter evidencing or governing any Subordinated Debt. "Subordinated Notes" means the Existing Subordinated Notes, the New Subordinated Notes, the Krukemeyer Subordinated Note, and any and all amendments, modifications, supplements, renewals, extensions or restatements of such Subordinated Notes. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (irrespective of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries and, with respect to Paracelsus-Fargo, DHHS, but not any subsidiary or partnership owned or controlled by DHHS. "Subsidiary Guarantor" means each current and future Subsidiary of Borrower (other than an Excluded Subsidiary). "Subsidiary Pledgor" means each Subsidiary (other than Excluded Subsidiaries) that has executed a Subsidiary Security Agreement pledging certain Capital Stock to the Agent for the benefit of the Lenders. "Subsidiary Security Agreement" means the Security Agreement substantially in the form of Exhibit F executed by each Subsidiary Pledgor in favor of the Agent for the benefit of the Agent and the Lenders, and any security agreement executed pursuant to Section 5.3 hereof, and any and all amendments, modifications, supplements, renewals, extensions or restatements thereof. 26 33 "Total Debt" means, at any particular time, the aggregate principal amount of all Debt of the Borrower and its Subsidiaries outstanding, determined on a consolidated basis. "Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar Loan). "UCC" means the Uniform Commercial Code as in effect in the State of Texas and/or any other jurisdiction, the laws of which may be applicable to the creation, perfection or priority of any Lien on any Property created pursuant to any Security Document. "UCP" means as specified in Section 2.14(b). "U.S." means the United States of America. "U.S. Person" means a citizen or resident of the U.S., a corporation, partnership or other entity created or organized in or under any laws of the U.S. or any estate or trust that is subject to U.S. Federal income taxation regardless of the source of its income. "U.S. Taxes" means any present or future tax, assessment or other charge or levy imposed by or on behalf of the U.S. or any taxing authority thereof. "Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary of such Person all of whose outstanding Capital Stock (other than directors' qualifying shares, if any) shall at the time be owned by such Person and/or one or more of its Wholly-Owned Subsidiaries, and which is engaged in the health care business or a related line of business. Section 1.2 Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein" and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all Article and Section references pertain to this Agreement. Terms used herein that are defined in the UCC, unless otherwise defined herein, shall have the meanings specified in the UCC. Section 1.3 Accounting Terms and Determinations. (a) All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with such accounting principles applied in the preparation of the audited financial statements referred to in Section 7.2(a). All financial information delivered to the Agent pursuant to Section 8.1 shall, unless otherwise specified herein, be prepared in accordance with GAAP applied on a basis consistent with such accounting principles applied in the preparation of the audited financial statements referred to in Section 7.2(a) or in accordance with Section 8.7. The parties acknowledge and agree that all calculations made to determine compliance with covenants contained in this Agreement, including the financial covenants set forth in Article 10, shall be made on a consolidated basis for Borrower and its Subsidiaries. 27 34 (b) The Borrower shall deliver to the Lenders at the same time as the delivery of any annual or quarterly financial statement under Section 8.1 (i) a description, in reasonable detail, of any material variation between the application of GAAP employed in the preparation of the next preceding annual or quarterly financial statements and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. (c) To enable the ready and consistent determination of compliance with the covenants set forth in this Agreement (including Article 10 hereof), the Borrower will not, without giving the Agent at least 90 days advance written notice thereof, change the last day of its fiscal year from December 31, or the last days of the first three fiscal quarters of the Borrower in each of its fiscal years from that existing on the Closing Date (except to fix the last day of the first, second and third fiscal quarters of the Borrower at March 31, June 30 and September 30, respectively) and any such change of the last day of its fiscal year or a fiscal quarter shall not be made if it has the effect of circumventing any of the financial covenants contained in the Loan Documents. ARTICLE 2 Loans Section 2.1 Commitments. (a) Revolving Credit Loans. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make one or more revolving credit loans to the Borrower from time to time from and including the Closing Date to but excluding the Revolving Credit Loans Maturity Date up to but not exceeding the amount of such Lender's Revolving Credit Loans Commitment as then in effect. (Such revolving credit loans now or hereafter made by the Lenders to the Borrower from and including and after the Closing Date are hereinafter collectively called the "Revolving Credit Loans") Subject to the foregoing limitations and the other terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow the Revolving Credit Loans; provided, however, that the Revolving Credit Loans Commitments shall be permanently reduced by $50,000,000 on each of August 15, 1999 and August 15, 2000, and such reductions shall be applied ratably to the respective Commitment of each Lender in accordance with its respective Commitment Percentage. (b) Continuation and Conversion of Loans. Subject to the terms and conditions of this Agreement, the Borrower may borrow the Loans as Base Rate Loans or Eurodollar Loans and, until the Revolving Credit Loans Maturity Date, the Borrower may Continue Eurodollar Loans or Convert Loans of one Type into Loans of the other Type. (c) Lending Offices. Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. Section 2.2.2 Notes. The Revolving Credit Loans made by each Lender shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit C hereto, dated the Closing Date, payable to the order of such Lender in a principal amount equal 28 35 to its Revolving Credit Loans Commitment as originally in effect and otherwise duly completed. Each Lender is hereby authorized by the Borrower to endorse on the schedule (or a continuation thereof) attached to each Note of such Lender, to the extent applicable, the date, amount and Type of and the Interest Period for each Loan made by such Lender to the Borrower hereunder and the amount of each payment or prepayment of principal of such Loan received by such Lender, provided that any failure by such Lender to make any such endorsement shall not affect the obligations of the Borrower under such Note or this Agreement in respect of such Loan. Section 2.3 Repayment of Revolving Credit Loans. The Borrower shall pay to the Agent for the account of each applicable Lender the outstanding principal of the Revolving Credit Loans (and the outstanding principal of the Revolving Credit Loans shall be due and payable) on the Revolving Credit Loans Maturity Date. Section 2.4 Interest. (a) Interest Rate. The Borrower shall pay to the Agent for the account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period commencing on the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (i) during the periods such Loan is a Base Rate Loan, the Base Rate plus the Applicable Margin; and (ii) during the periods such Loan is a Eurodollar Loan, the Adjusted Eurodollar Rate plus the Applicable Margin. (b) Payment Dates. Accrued interest on the Loans shall be due and payable as follows: (i) in the case of Base Rate Loans, on each Quarterly Date; (ii) in the case of each Eurodollar Loan, on the last day of the Interest Period with respect thereto and, in the case of an Interest Period greater than three months, at three-month intervals after the first day of such Interest Period; (iii) upon the payment or prepayment of any Eurodollar Loan or the mandatory prepayment of Base Rate Loans, or upon the Conversion of any Eurodollar Loan to a Loan of the other Type (but only on the principal amount so paid, prepaid or Converted); and (iv) on the Maturity Date for such Loan. (c) Default Interest. Notwithstanding the foregoing, the Borrower will pay to the Agent for the account of each Lender interest at the applicable Default Rate on any principal of any Loan made by such Lender, any Reimbursement Obligation and (to the fullest extent permitted by law) any other amount payable by the Borrower under this Agreement or any other Loan 29 36 Document to or for the account of such Lender, which is not paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Interest payable at the Default Rate shall be payable from time to time on demand by the Agent. Section 2.5 Borrowing Procedure. The Borrower shall give the Agent written notice of each borrowing hereunder in accordance with Section 2.9. Not later than 10:00 a.m. (Los Angeles time) on the date specified for each borrowing hereunder or in the case of Base Rate Loans made on the same date as a notice of borrowing is given, 1:00 p.m. (Los Angeles time), each Lender will make available the amount of the Loan to be made by it on such date in immediately available funds to Agent at B of A, ABA No. 121000358, Attention: Agency Management Services 5596 for credit to Bancontrol Account Number 12357-00475 with a reference to Paracelsus Healthcare Corporation, or at such other address as Agent may designate. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement and unless Agent determines that any applicable condition precedent set forth in Article 6 has not been satisfied or waived, be made available to the Borrower no later than 11:00 a.m. (Los Angeles time) where notice has been given in accordance with Section 2.9, but no later than 2:00 p.m. (Los Angeles time) where Base Rate Loans are made on the same day as notice has been given, each by wire transfer of immediately available funds to the Deposit Account. Section 2.6 Optional Prepayments, Commitment Terminations and Reductions, Conversions and Continuations of Loans. Subject to Section 2.7, the Borrower shall have the right from time to time to prepay the Loans, to terminate or reduce the Commitments in whole or in part, to Convert all or part of a Loan of one Type into a Loan of another Type or to Continue Eurodollar Loans; provided that: (a) the Borrower shall give the Agent notice of each such prepayment, termination, reduction, Conversion or Continuation as provided in Section 2.9, (b) Eurodollar Loans may only be Converted on the last day of the Interest Period and (c) except for Conversions of Eurodollar Loans into Base Rate Loans, no Conversions or Continuations shall be made while a Default has occurred and is continuing. Any optional termination or reduction of Commitments by the Borrower shall be permanent. Section 2.7 Mandatory Prepayments. (a) Asset Dispositions. The Borrower shall pay to the Agent, for the benefit of the Lenders, as a prepayment of the Revolving Credit Loans, an aggregate amount equal to 100% of the Net Proceeds from all Asset Dispositions permitted by Section 9.12, unless such proceeds are used by the Borrower within one year of receipt of such proceeds in cash, to make Investments permitted by Sections 9.4(b), (c) or (d). (b) Outstanding Credit Exceeds Commitments. If at any time the Outstanding Credit exceeds the amount of the Revolving Credit Loans Commitments at such time, the Borrower shall immediately pay to the Agent the amount of such excess as a prepayment of the Revolving Credit Loans. 30 37 (c) Application of Mandatory Prepayments. All repayments or prepayments pursuant to subsections (a) and (b) preceding shall be allocated to the unpaid principal amounts of the Revolving Credit Loans, and, with respect to the prepayments under subsection (a), the Commitments shall be permanently reduced in an amount equal to the amount of such repayments and prepayments, which reductions shall be in addition to any other mandatory commitment reductions under this Agreement, and such reduction shall be applied ratably to the respective Commitment of each Lender in accordance with their respective Commitment Percentages. Section 2.8 Minimum Amounts. Except for Conversions and prepayments pursuant to Section 2.7 and Article 4, each borrowing, each Conversion and each prepayment of principal of the Loans shall be in an amount at least equal to $1,000,000 or an integral multiple of $1,000,000 in excess thereof (borrowings, prepayments or Conversions of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder shall be deemed separate borrowings, prepayments and Conversions for purposes of the foregoing, one for each Type or Interest Period). Section 2.9 Certain Notices. Notices by the Borrower to the Agent of terminations or reductions of Commitments, of borrowings, Conversions, Continuations and prepayments of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Agent not later than 9:00 a.m. (Los Angeles time) on the same Business Day in the case of certain Base Rate Loans or on the Business Day prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period, in each case specified below:
Number of Notice Business Days Prior ------ ------------------- Borrowing of Revolving Credit Loans which are Base Rate Loans 1* Borrowing of Revolving Credit Loans which are Eurodollar Loans 3 Conversions or Continuations of Loans 3 Prepayments of Revolving Credit Loans which are Base Rate Loans 1 Prepayments of Revolving Credit Loans which are Eurodollar Loans 3
* If notice is timely received by 9:00 a.m. (Los Angeles time), Agent shall make Base Rate Loans on same day as notice. If notice is received after 9:00 a.m. (Los Angeles time), Agent shall make Base Rate Loans on the Business Day following such notice. Each such notice of termination or reduction shall specify the amount of the Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or prepayment shall specify the Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof) and Type of the Loans to be borrowed, Converted, Continued or prepaid 31 38 (and, in the case of a Conversion, the Type of Loans to result from such Conversion) and the date of borrowing, Conversion, Continuation or prepayment (which shall be a Business Day) and the duration of the Interest Period selected, if applicable. Notices of termination or reductions of Commitments, borrowings, Conversions, Continuations or prepayments shall be in the form of Exhibit G hereto, appropriately completed as applicable. Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Agent shall promptly notify the Lenders of the contents of each such notice. In the event the Borrower fails to select the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 2.9, or fails to satisfy the conditions precedent set forth in Section 6.2(b), such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted (without any need to comply with the conditions precedent set forth in Section 6.2) into a Base Rate Loan on the last day of the preceding Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. Section 2.10 Use of Proceeds. (a) The Borrower represents and warrants that the proceeds of the Revolving Credit Loans to be made on and after the Closing Date shall be used in accordance with the terms and conditions of this Agreement by the Borrower and only for the following purposes: (i) to refinance the existing indebtedness under the Existing Paracelsus Credit Agreement, (ii) to pay transaction costs associated with the Merger and the Related Transactions, including the payment of dividends and bonuses to, and payments for phantom stock appreciation rights held by, executive management, (iii) to repay the REIT Debt, (iv) to repay the Existing Subordinated Notes, and (v) for general business purposes, including working capital needs, Permitted Acquisitions permitted under Section 9.5 and Capital Expenditures. (b) None of the proceeds of any Loan have been or will be used to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, or to purchase or carry any margin stock (within the meaning of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System). Section 2.11 Fees. (a) The Borrower agrees to pay to the Agent for the account of each Lender a commitment fee (the "Commitment Fee") on the daily average unused or unfunded amount of such Lender's Revolving Credit Loans Commitment, for the period from and including the Closing Date to and including the Revolving Credit Loans Maturity Date, at the applicable rate per annum equal to the percentage corresponding to both the Senior Leverage Ratio and the Interest Coverage Ratio set forth on the pricing matrix in the definition of "Applicable Margin" under the column entitled "Commitment Fee," which accrued commitment fees shall be payable in arrears on each Quarterly Date beginning on September 30, 1996 and on the Revolving Credit Loans Maturity Date. Changes in the Commitment Fee shall be determined in the same manner, and effective at the same time, as changes to the Applicable Margin are determined. 32 39 (b) The Borrower agrees to pay to the Agent for the account of each Lender on the Closing Date a participation fee as set forth in the side letter dated of even date herewith. (c) The Borrower agrees to pay to the Agent and the Documentation Agent such additional fees as are specified in their respective Fee Letters, which fees shall be payable in such amounts and on such dates as are specified therein. Section 2.12 Computations. Interest and fees payable by the Borrower under this Agreement and under the other Loan Documents on all Loans, other than interest on Base Rate Loans, shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which payable unless, in the case of any amount constituting interest under applicable law, such calculation would result in a usurious rate, in which case such amount of interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be. Interest payable by the Borrower hereunder and under the other Loan Documents on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be. Section 2.13 Reduction or Termination of Commitments. The Borrower shall have the right to permanently terminate or reduce in part the unused portion of the Revolving Credit Loans Commitments at any time and from time to time, without premium or penalty, provided that (a) the Borrower shall give notice of each such termination or reduction as provided in Section 2.9, (b) each partial reduction shall be in an aggregate amount of at least $1,000,000 and in integral multiples of $1,000,000 in excess thereof, and shall be applied ratably to the respective Commitment of each Lender in accordance with its respective Commitment Percentage, (c) in no event shall the Commitments be reduced below the amount of the Outstanding Credit without a simultaneous payment of Revolving Credit Loans and all accrued interest thereon such that the amount of the Outstanding Credit does not exceed the remaining aggregate Commitments after being so reduced, and (d) no Eurodollar Loans shall be prepaid other than on the last day of the applicable Interest Period unless such prepayment is in accordance with Section 4.5 hereof. The Revolving Credit Loans Commitments may not be reinstated after they have been terminated or (if applicable) reduced. Section 2.14 Letters of Credit. (a) Subject to the terms and conditions of this Agreement, the Borrower may utilize the Revolving Credit Loans Commitments by requesting that the Issuing Bank issue Letters of Credit; provided, that the aggregate amount of outstanding Letter of Credit Liabilities shall not at any time exceed the lesser of (i) $40,000,000 and (ii) the Revolving Credit Loans Commitments less the then outstanding and unpaid Revolving Credit Loans. Upon the date of issue of each Letter of Credit, the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation to the extent of such Lender's Commitment Percentage in such Letter of Credit. 33 40 (b) The Borrower shall give the Issuing Bank (with a copy to the Agent) at least five Business Days irrevocable prior notice (effective upon receipt) specifying the date of each Letter of Credit and the nature of the transactions to be supported thereby. Upon receipt of such notice the Agent shall promptly notify each applicable Lender of the contents thereof and of such Lender's Commitment Percentage of the amount of the proposed Letter of Credit. Each Letter of Credit shall have an expiration date that does not exceed one year from the date of issuance and that does not extend beyond the Revolving Credit Loans Maturity Date, shall be payable in Dollars, shall support a transaction entered into in the course of the Borrower's business, shall be satisfactory in form and substance to the Issuing Bank, and shall be issued pursuant to such agreements, documents and instruments (including a Letter of Credit Agreement) as the Issuing Bank may reasonably require, none of which shall be inconsistent with this Agreement. Without limiting the generality of the foregoing, no provision of any Letter of Credit Agreement shall give the Agent, the Issuing Bank or any Lender any rights or remedies that are greater than the rights or remedies such Person would otherwise have under this Agreement. Each Letter of Credit shall (i) provide for the payment of drafts presented for, on or thereunder by the beneficiary in accordance with the terms thereof, when such drafts are accompanied by the documents (if any) described in the Letter of Credit and (ii) to the extent not inconsistent with the terms hereof or any applicable Letter of Credit Agreement, be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (together with any subsequent revision thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Bank, the "UCP"), and shall, as to matters not governed by the UCP, be governed by, and construed and interpreted in accordance with, the laws of the State of Texas. (c) Borrower agrees to pay to Agent a nonrefundable letter of credit fee on the face amount of each Letter of Credit calculated at a rate per annum equal to the Applicable Margin for Eurodollar Loans pursuant to the pricing matrix set forth in the definition of "Applicable Margin." The letter of credit fee shall be payable quarterly in arrears on the first Business Day of the calendar quarter following the date any Letter of Credit is issued commencing with the calendar quarter beginning on October 1, 1996, for the period through the earliest of the expiry date of each Letter of Credit, the last day of such calendar quarter or the Revolving Credit Loans Maturity Date, to Agent for the ratable benefit of Lenders. Changes in the Letter of Credit fee shall be determined in the same manner, and effective at the same time, as changes to the Applicable Margin are determined. The Agent agrees to pay to each Lender, promptly after receiving any payment of letter of credit fees referred to above in this subsection (c), such Lender's Commitment Percentage of such fees. (d) The Borrower also agrees to pay to the Issuing Bank for its own account, on the date of issuance of any Letter of Credit, a nonrefundable letter of credit issuance fee with respect to each Letter of Credit issued by the Issuing Bank hereunder in an amount equal to (A) one-quarter of one percent (0.25%) per annum, multiplied by (B) the face amount of the Letter of Credit. In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Bank for such normal and customary costs and expenses, including, without limitation, administrative, issuance, amendment, payment and negotiation charges, as are incurred or charged by the Issuing 34 41 Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. (e) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment or other drawing under such Letter of Credit, the Issuing Bank shall promptly notify the Borrower and each Lender as to the amount to be paid as a result of such demand or drawing and the respective payment date. If at any time the Issuing Bank shall make a payment to a beneficiary of a Letter of Credit pursuant to a drawing under such Letter of Credit, each Lender will pay to the Issuing Bank, immediately upon the Issuing Bank's demand at any time commencing after such payment until reimbursement therefor in full by the Borrower, an amount equal to such Lender's Commitment Percentage of such payment, together with interest on such amount for each day from the date of such payment to the date of payment by such Lender of such amount at a rate of interest per annum equal to the Federal Funds Rate. (f) In the event Borrower shall fail to reimburse the Issuing Bank for the account of the Issuing Bank the full amount of any drawing by 9:00 a.m. (Los Angeles time) on the same date such drawing is honored by the Issuing Bank under any Letter of Credit, the Issuing Bank shall promptly notify Agent and the Agent shall as promptly as possible notify each Lender thereof and Borrower shall be deemed to have requested that Base Rate Loans be made by the Lenders to be disbursed on the date of payment by the Issuing Bank under such Letter of Credit, without requiring the Borrower to satisfy the conditions of Section 6.2. Any notice given by the Issuing Bank or Agent pursuant hereto may be oral if immediately confirmed in writing (including telex); provided that the lack of such an immediate confirmation shall not affect the conclusiveness and binding effect of such notice. (g) The Borrower shall be irrevocably and unconditionally obligated to immediately reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind. The Issuing Bank will pay to each Lender such Lender's Commitment Percentage of all amounts received from or on behalf of the Borrower for application in payment, in whole or in part, of the Reimbursement Obligation in respect of any Letter of Credit, but only to the extent such Lender has made payment to the Issuing Bank in respect of such Letter of Credit pursuant to subsection (d) above. Outstanding Reimbursement Obligations shall bear interest at the Default Rate and such interest shall be payable on demand. (h) The Reimbursement Obligations of the Borrower under this Agreement and the other Loan Documents shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and the other Loan Documents under all circumstances whatsoever, including, without limitation, the following circumstances: (i) Any lack of validity or enforceability of any Letter of Credit or any other Loan Document; 35 42 (ii) Any amendment or waiver of or any consent to departure from any Loan Document other than an amendment, waiver or consent which directly affects such Reimbursement Obligations; (iii) The existence of any claim, setoff, counterclaim, defense or other right which any Loan Party or other Person may have at any time against any beneficiary of any Letter of Credit, the Agent, the Issuing Bank, the Lenders or any other Person, whether in connection with this Agreement or any other Loan Document or any unrelated transaction; (iv) Any statement, draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient (other than insufficiency on the face of such draft or other document) in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (v) Payment by the Issuing Bank under any Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, provided, that such payment shall not have constituted gross negligence or willful misconduct of the Issuing Bank; and (vi) Any other circumstance whatsoever, whether or not similar to any of the foregoing, provided that such other circumstance or event shall not have been the result of the gross negligence or willful misconduct of the Issuing Bank. (i) The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit with respect to its use of such Letter of Credit. The Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. (j) All Letters of Credit issued pursuant to the Existing Paracelsus Credit Agreement shall be deemed to be Letters of Credit issued pursuant to this Agreement. ARTICLE 3 Payments Section 3.1 Method of Payment. All payments of principal, interest, fees and other amounts to be made by the Borrower under this Agreement and the other Loan Documents shall be made to the Agent at its Bancontrol Account No.12357-00475, reference: Paracelsus Healthcare Corporation, 1850 Gateway Blvd., Concord, California 94520, or at such other address as Agent may designate, for the account of each Lender in Dollars and in immediately available funds, without setoff, deduction or counterclaim, not later than 10:00 a.m. (Los Angeles time) on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). The Borrower shall, at the time of making each such payment, specify to the Agent the sums 36 43 payable by the Borrower under this Agreement and the other Loan Documents to which such payment is to be applied (and in the event that the Borrower fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may apply such payment to the Obligations in such order and manner as the Agent may elect, subject to Section 3.2.) Upon the occurrence and during the continuation of an Event of Default, all proceeds of any Collateral may be applied by the Agent to the Obligations in such order and manner as the Agent may elect, subject to Section 3.2. Each payment received by the Agent under this Agreement or any other Loan Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds, for the account of such Lender's Applicable Lending Office. Whenever any payment under this Agreement or any other Loan Document shall be stated to be due on a day that is not a Business Day, except as may be contemplated by the definition of Interest Period, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and commitment fee, as the case may be. Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided in this Agreement: (a) each Loan shall be made by the Lenders under Section 2.1, each payment of commitment fees under Section 2.11(a) shall be made for the account of the Lenders, and each termination or reduction of the Commitments under Section 2.13 shall be applied to the Commitments of the Lenders, pro rata according to the respective unused Commitments; (b) the making, Conversion and Continuation of Loans of a particular Type (other than Conversions provided for by Section 4.4) shall be made pro rata among the Lenders holding Loans of such Type according to the amounts of their respective Commitments; (c) each payment and prepayment by the Borrower of principal of or interest on Loans of a particular Type shall be made to the Agent for the account of the Lenders holding Loans of such Type pro rata in accordance with the respective unpaid principal amounts of such Loans held by such Lenders; (d) Interest Periods for Loans of a particular Type shall be allocated among the Lenders holding Loans of such Type pro rata according to the respective principal amounts held by such Lenders; and (e) the Lenders (other than the Issuing Bank) shall purchase participations in the Letters of Credit pro rata in accordance with their Commitment Percentages of the aggregate Revolving Credit Loans Commitments. Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain payment of any principal of or interest on any of the Obligations due to such Lender hereunder through the exercise of any right of setoff, banker's lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders participations in the Obligations held by the other Lenders in such amounts, and make such adjustments from time to time as shall be equitable to the end that all the Lenders shall share pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them. To such end, all of the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if all or any portion of such excess payment is thereafter rescinded or must otherwise be restored. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any Lender so purchasing a participation in the Obligations by the other Lenders may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Obligations in the amount of such participation. 37 44 Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. Section 3.4 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or the Borrower (the "Payor") prior to the date on which such Lender is to make payment to the Agent of the proceeds of a Loan to be made by it hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Lenders, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the Agent the amount made available to it together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such period. Section 3.5 Withholding Taxes. All payments by the Borrower of principal of and interest on the Loans and of all fees and other amounts payable under the Loan Documents shall be made free and clear of, and without deduction by reason of, any present or future taxes, duties, imposts, assessments or other charges levied or imposed by any Governmental Authority (other than taxes on or measured by or calculated on the basis of the overall net income or capital of any Lender). If any such taxes, duties, imposts, assessments or other charges are so levied or imposed, the Borrower will make additional payments in such amounts so that every net payment of principal of and interest on the Loans and of all other amounts payable by it under the Loan Documents, after withholding or deduction for or on account of any such present or future taxes, duties, imposts, assessments or other charges (other than any tax imposed on or measured by or calculated on the basis of net income or capital of a Lender attributable to payments made to or on behalf of a Lender pursuant to this Section 3.5 and any penalties or interest attributable to such payments), will not be less than the amount provided for herein or therein absent such withholding or deduction, provided that the Borrower shall have no obligation to pay such additional amounts to any Lender to the extent that such taxes, duties, imposts, assessments or other charges are levied or imposed by reason of the failure of such Lender to comply with the provisions of Section 3.6. The Borrower shall furnish promptly to the Agent for distribution to each affected Lender, as the case may be, upon the reasonable request of such Lender, official receipts evidencing any such withholding or reduction. Section 3.6 Withholding Tax Exemption. Each Lender that is not incorporated or otherwise formed under the laws of the U.S. or a state thereof agrees that it will, prior to or on the Closing Date or the date upon which it becomes a party to this Agreement and if it is legally able to do so, deliver to the Borrower and the Agent two duly completed copies of U.S. Internal Revenue Service Form 1001, 4224 or W-8, as appropriate, certifying in any case that such Lender is entitled to receive payments from the Borrower under any Loan Document without deduction or withholding of any U.S. federal income taxes. Each Lender which so delivers a Form 1001, 38 45 4224 or W-8 further undertakes to deliver to Borrower and the Agent two additional copies of such form (or a successor form) on or before the date such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments from the Borrower under any Loan Document without deduction or withholding of any U.S. federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving such payments without any deduction or withholding of U.S. federal income tax. ARTICLE 4 Yield Protection and Illegality Section 4.1 Additional Costs. (a) The Borrower shall pay directly to each Lender from time to time, promptly upon the request of such Lender, the costs incurred by such Lender which such Lender reasonably determines are attributable to its making or maintaining of any Eurodollar Loans hereunder or its obligation to make any of such Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), in each case resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Note in respect of any of such Loans (other than taxes imposed on or measured by or calculated on the basis of the overall net income or capital of such Lender or its Applicable Lending Office for any of such Loans); (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (including any of such Loans or any deposits referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof, but excluding the Reserve Requirement to the extent it is included in the calculation of the Adjusted Eurodollar Rate); or (iii) imposes any other condition affecting this Agreement or the Notes or any of such extensions of credit or liabilities or commitments. Each Lender will notify the Borrower (with a copy to the Agent) of any event occurring after the Closing Date which will entitle such Lender to compensation pursuant to this Section 4.1 (a) as promptly as practicable after it obtains knowledge thereof and determines to request such 39 46 compensation, and (if so requested by the Borrower) will designate a different Applicable Lending Office for the Eurodollar Loans of such Lender if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, violate any law, rule or regulation or be in any way disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the U.S. Each Lender will furnish the Borrower with a certificate setting forth the basis and the amount of each request of such Lender for compensation under this Section 4.1(a). If any Lender requests compensation from the Borrower under this Section 4.1(a), the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue making, or Convert Base Rate Loans into, Eurodollar Loans until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 4.4 hereof shall be applicable). (b) Without limiting the effect of the foregoing provisions of this Section 4.1, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs, that the Borrower has indicated it will not pay, based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Lender so elects by notice to the Borrower (with a copy to the Agent), the obligation of such Lender to make or Continue making, or Convert Base Rate Loans into, Eurodollar Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 4.4 hereof shall be applicable). (c) Determinations and allocations by any Lender for purposes of this Section 4.1 of the effect of any Regulatory Change on its costs of maintaining its obligation to make Loans or of making or maintaining Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required to compensate such Lender in respect of any Additional Costs, shall be conclusive in the absence of manifest error, provided that such determinations and allocations are made on a reasonable basis. Section 4.2 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if with respect to any Eurodollar Loans for any Interest Period therefor: (a) The Agent determines on a reasonable basis (which determination shall be conclusive absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof are not being provided in the relative amounts or for the relative maturities for purposes of determining the rate of interest for such Loans as provided in this Agreement; or (b) Required Lenders determine on a reasonable basis (which determination shall be conclusive absent manifest error) and notify the Agent that the relevant rates of interest referred to in the definition of "Eurodollar Rate" or "Adjusted Eurodollar Rate" 40 47 in Section 1.1 hereof on the basis of which the rate of interest for such Loans for such Interest Period is to be determined do not accurately reflect the cost to the Lenders of making or maintaining such Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof and, so long as such condition remains in effect, the Lenders shall be under no obligation to make Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with the terms of this Agreement. During the 30 days next succeeding the giving of such notice by the Agent to the Borrower, the Borrower, the Agent and each of the Required Lenders shall negotiate in good faith in order to arrive at a mutually satisfactory interest rate for the rates of interest referred to in the definition "Eurodollar Rate" or "Adjusted Eurodollar Rate" for proposed Eurodollar Loans. If within such 30 day period the Borrower, the Agent and the Required Lenders shall agree in writing upon a substitute interest rate and the effective date thereof, such substituted interest rate shall be applicable to all requests by the Borrower for proposed Eurodollar Loans. During any period when the borrowing of Eurodollar Loans is suspended or when an alternative interest rate is in force pursuant to this subsection, the Agent, in consultation with the Lenders, shall periodically, at least once a month, determine whether circumstances are such that the interest rates referred to in the definitions of "Eurodollar Rate" or "Adjusted Eurodollar Rate" may again be determined. If such a determination is made, the Agent shall forthwith give written notice to the Borrower and each Lender, where upon the Agent, the Borrower and the Lenders shall begin redetermining the "Eurodollar Rate" and the "Adjusted Eurodollar Rate" in accordance with the terms of the definition thereof. Section 4.3 Illegality. Notwithstanding any other provision of this Agreement, but subject however to the provisions of Section 4.1(a), in the event that it becomes unlawful for any Lender or its Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans hereunder or (b) maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower (with a copy to the Agent) thereof and such Lender's obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans hereunder shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 4.4 hereof shall be applicable). Section 4.4 Treatment of Affected Loans. If the obligation of any Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans is suspended pursuant to Section 4.1, 4.2 or 4.3 hereof, such Lender's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or, in the case of a Conversion required by Section 4.1(b) or 4.3 hereof, on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 4.1 or 4.3 hereof which gave rise to such Conversion no longer exist: 41 48 (a) To the extent that such Lender's Eurodollar Loans have been so Converted, all payments and prepayments of principal which would otherwise be applied to such Lender's Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) All Loans which would otherwise be made or Continued by such Lender as Eurodollar Loans shall be made as or Converted into Base Rate Loans and all Loans of such Lender which would otherwise be Converted into Eurodollar Loans shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Eurodollar Loans and by such Lender are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. Section 4.5 Compensation. The Borrower shall pay to the Agent for the account of each Lender, promptly upon the request of such Lender through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense incurred by it as a result of: (a) Any payment, prepayment or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the outstanding Loans pursuant to Section 11.2) on a date other than the last day of an Interest Period for such Loan; or (b) Any failure by the Borrower for any reason (including, without limitation, the failure of any conditions precedent specified in Article 6 to be satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for such borrowing, Conversion or prepayment specified in the relevant notice of borrowing, prepayment or Conversion under this Agreement; provided, however, that where such failure is solely attributable to the circumstances set forth in Sections 4.1(b)(ii) or 4.3 with respect to Lenders' inability to make such Eurodollar Loans, then no such compensation shall be required. Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender shall have determined that the adoption or implementation of any applicable law, rule or regulation regarding capital adequacy (including, without limitation, any law, rule or regulation implementing the Basle Accord), or after the Closing Date any change therein, or after the Closing Date any change in the interpretation or administration thereof by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or compliance by such Lender (or its parent) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any central bank or other Governmental Authority issued after the Closing Date (including, without limitation, any guideline or other requirement implementing the Basle 42 49 Accord), has or would have the effect of reducing the rate of return on such Lender's (or its parent's) capital as a consequence of its obligations hereunder or the transactions contemplated hereby to a level below that which such Lender (or its parent) could have achieved but for such adoption, implementation, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within ten Business Days after demand by such Lender (with a copy to the Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or its parent) for such reduction. A certificate of such Lender claiming compensation under this Section 4.6 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error, provided that the determination thereof is made on a reasonable basis. In determining such amount or amounts, such Lender may use any reasonable averaging and attribution methods. Section 4.7 Additional Interest on Eurodollar Loans. The Borrower shall pay, directly to each Lender from time to time, additional interest on the unpaid principal amount of each Eurodollar Loan held by such Lender, from the date of the making of such Eurodollar Loan until such principal amount is paid in full, at an interest rate per annum determined by such Lender in good faith equal to the positive remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar Loan. Each payment of additional interest pursuant to this Section 4.7 shall be payable by the Borrower on each date upon which interest is payable on such Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the Borrower shall not be obligated to make any such payment of additional interest until the first Business Day after the date when the Borrower has been informed (i) that such Lender is subject to a Reserve Requirement and (ii) of the amount of such Reserve Requirement (after which time the Borrower shall be obligated to make all such payments of additional interest, including, without limitation, such payments of additional interest that otherwise would have been payable by the Borrower on or prior to such time had the Borrower been earlier informed). Section 4.8 Substitution of Lender. If (a) the obligation of any Lender to make or Continue or Convert Loans into Eurodollar Loans has been suspended pursuant to Section 4.1(b) or 4.3, (b) any Lender has demanded compensation under Sections 4.1, 4.5, 4.6 or 4.7, or (c) any Lender has notified the Borrower that it is not capable of receiving payments without deduction or withholding for taxes pursuant to Section 3.6, the Borrower may replace such Lender by designating in a notice given to the Agent an Eligible Assignee to replace such Lender, and the Agent may assist the Borrower in finding Eligible Assignees willing to replace such Lender. If the Borrower so designates an Eligible Assignee, then the Agent shall give notice thereof to the Lender to be replaced, and thereupon and concurrently with the payment in full to such Lender of all amounts owed to such Lender, such Lender shall promptly consummate an assignment, in accordance with Section 13.7, of such Lender's Revolving Credit Loans Commitment, Loans, Notes, participations in Letters of Credits and other rights and obligations hereunder relative to the Revolving Loans Commitment of such Lender. 43 50 ARTICLE 5 Security Section 5.1 Collateral. To secure the full and complete payment and performance of the Obligations, the Borrower will, and will cause each of the Subsidiary Pledgors to grant to the Agent for the benefit of the Agent and the Lenders a perfected, first priority Lien on all of its right, title and interest in and to all Capital Stock of the Subsidiaries of the Borrower that are corporations (except for Excluded Subsidiaries) owned by the Borrower or any Subsidiary (except for Excluded Subsidiaries) of the Borrower, whether now owned or hereafter acquired, pursuant to the Security Documents. Section 5.2 Guaranties. The Borrower shall cause each Subsidiary Guarantor to guaranty the payment and performance of the Obligations pursuant to the Master Guaranty. In all events, Pioneer Valley Hospital, Inc. shall not be required to execute and deliver the Master Guaranty or a Joinder Agreement, but so long as the Capital Stock of Pioneer Valley Hospital, Inc. is pledged as collateral security to the Agent, for the benefit of the Agent and the Lenders, Pioneer Valley Hospital, Inc. shall not be an Excluded Subsidiary for any purpose of this Agreement. Section 5.3 New Subsidiaries. Contemporaneously with the creation or acquisition of any Subsidiary (other than Excluded Subsidiaries) of the Borrower after the Closing Date, the Borrower shall: (a) grant or cause to be granted to the Agent, for the benefit of the Agent and the Lenders, a perfected, first priority security interest in all Capital Stock or other ownership interests in such Subsidiary owned by the Borrower or owned by any other Subsidiary (other than an Excluded Subsidiary) of the Borrower (to the extent such Capital Stock or other ownership interests or indebtedness are already not so pledged to the Agent); and (b) cause each such Subsidiary (other than an Excluded Subsidiary) to guaranty the payment and performance of the Obligations by executing and delivering to the Agent a Joinder Agreement and thereby becoming a party to the Master Guaranty. Section 5.4 Release of Collateral and Termination of Guarantees. Upon (a) any sale, transfer or other disposition of Collateral that is expressly permitted under Section 9.12 or (b) any designation by the Borrower of Excluded Subsidiaries by which a Subsidiary Guarantor becomes an Excluded Subsidiary, and, in each case, upon five Business Days prior written request by the Borrower, the Agent shall execute at the Borrower's expense such documents as may be necessary to evidence the release by the Agent of its Liens on such Collateral, including the pledge of the Equity Interests of any such redesignated Subsidiary, and appropriate releases of any Subsidiary Guarantor where such release is required in connection with the transfer or redesignation; provided, however, that (a) the Agent shall not be required to release any Lien on any Collateral or any Subsidiary Guarantor if a Default shall have occurred and be continuing, (b) the Agent 44 51 shall not be required to execute any such document on terms which, in the Agent's reasonable opinion, would expose the Agent to liability or create any obligation not reimbursed by the Borrower or entail any consequences other than the release of such Lien or such Subsidiary Guarantor without recourse or warranty, and (c) such release shall not in any manner discharge, affect or impair any of the Obligations or any of the Agent's Liens on any Collateral retained by the Borrower or any of its Subsidiaries, including, without limitation, its Liens on the proceeds of any such sale, transfer or other disposition (except for the Equity Interests of any newly designated Excluded Subsidiary), or any other Subsidiary Guarantor. Section 5.5 Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being hereby expressly waived by the Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement, such Lender's Note or any other Loan Document, irrespective of whether or not the Agent or such Lender shall have made any demand under this Agreement, such Lender's Note or any such other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower (with a copy to the Agent) after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights and remedies of each Lender hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which such Lender may have. ARTICLE 6 Conditions Precedent Section 6.1 Initial Extension of Credit. Each of the obligations of each Lender to make its initial Loan under this Agreement and the obligation of the Issuing Bank to issue the initial Letter of Credit under this Agreement are subject to the conditions precedent that the Agent shall have received, on or before the Closing Date or such later date (if any) as may be specified in this Section 6.1 below, all of the following in form and substance reasonably satisfactory to the Agent and, in the case of actions to be taken, evidence that the following required actions have been taken to the satisfaction of the Agent: (a) Resolutions. Resolutions of the Board of Directors of each Loan Party certified by its Secretary or an Assistant Secretary which authorize the execution, delivery and performance by such Loan Party of the Loan Documents to which it is or is to be a party; (b) Incumbency Certificate. A certificate of incumbency certified by the Secretary or an Assistant Secretary of each Loan Party certifying the name of each officer of such Loan Party (i) who is authorized to sign the Loan Documents to which such Loan Party is or is to be a party (including any certificates contemplated therein), together with specimen signatures of each such officer, and (ii) who will, until replaced by other officers 45 52 duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with the Loan Documents and the transactions contemplated thereby; (c) Articles or Certificate of Incorporation, etc. The articles or certificate of incorporation, certificate of formation, certificate of limited partnership, partnership agreement or other applicable constitutional document of each Loan Party certified by the Secretary or Assistant Secretary of such Loan Party; (d) Bylaws. The bylaws of each Loan Party certified by the Secretary or an Assistant Secretary of such Loan Party; (e) Governmental Certificates. Short form certificates of appropriate officials as to the good standing of each Loan Party in their respective jurisdictions of incorporation or organization and any and all jurisdictions where such Loan Party is qualified to do business as a foreign corporation or other entity and where the failure to so qualify could reasonably be expected to have a Material Adverse Effect, each such certificate to be dated as of a Current Date; (f) Revolving Credit Loans Notes. The Revolving Credit Loans Notes duly completed and executed by the Borrower; (g) Master Guaranty. The Master Guaranty executed by each of the Subsidiary Guarantors; (h) Security Agreement. The Security Agreement executed by the Borrower; (i) Subsidiary Security Agreements. A Subsidiary Security Agreement executed by each of the Subsidiary Pledgors; (j) Insurance Policies. Certificates of, or, upon request therefor by Agent, copies of insurance policies required by this Agreement and the other Loan Documents, together with loss payable endorsements naming the Agent as loss payee under all such casualty insurance policies and the Agent as an additional insured party under all such liability policies; (k) Stock Certificates. The stock certificates representing all of the issued and outstanding Capital Stock pledged to the Agent by Borrower and each of the Subsidiary Pledgors accompanied by appropriate stock powers signed in blank, except to the extent that such Capital Stock is not required to be pledged in accordance with Section 5.1(a); (l) Financing Statements. UCC-1 financing statements executed by the Loan Parties necessary to perfect the Liens created pursuant to the Security Documents or otherwise requested by the Agent; 46 53 (m) Lien Releases. Within thirty (30) days of the Closing Date, duly executed releases of Liens and UCC-3 financing statements in recordable form, as may be necessary to reflect that the Liens created by the Security Documents are first priority Liens subject only to Permitted Liens; (n) Lien Searches. Within thirty (30) days of the Closing Date, lien searches in the names of the Borrower and each Subsidiary (other than Excluded Subsidiaries) of the Borrower (and in all names under which each such Person has done business within the last five years) in each state where each such Person maintains an office or has Property, showing no financing statements or other Lien instruments of record except for Permitted Liens; (o) Letter of Credit Agreement. With respect to any issuance of a Letter of Credit, a Letter of Credit Agreement in the form required by the Issuing Bank with respect thereto executed by the Borrower; (p) Related Transactions Documents. Copies of the Merger Agreement (including only those schedules and exhibits to the Merger Agreement designated by the Agent and listed on Schedule 1.1(d) hereto) and the New Indenture, all certified by a Responsible Officer of the Borrower as being true and correct copies of such documents as of the Closing Date and all in form and substance satisfactory to the Agent, together with a copy or other evidence satisfactory to the Agent of the filing of the Certificate of Merger; (q) Additional Funding of Capital Structure. Evidence that on or before the Closing Date, the aggregate net proceeds to or on behalf of Borrower (consisting wholly of cash) from (i) the issuance by Borrower of the New Subordinated Debt pursuant to the New Indenture and/or (ii) the issuance by Borrower of Borrower Common Stock equals or exceeds $175,000,000: (r) Subordination Provisions. The subordination provisions contained in the New Subordinated Note Documents (i) shall be binding and enforceable against the Loan Parties thereto in accordance with their terms and (ii) shall be satisfactory in form and substance to the Agent and the Lenders; (s) Payment of Interest, Fees and Expenses. The Borrower shall have paid all interest and fees accrued to the Closing Date and not previously paid with respect to the loans or reimbursement obligations outstanding under the Existing Paracelsus Credit Agreement, and the Borrower shall have paid all fees due on or before the Closing Date as specified in this Agreement or in the Fee Letters and all fees and expenses of or incurred by the Agent, the Documentation Agent and their counsel, Jenkens & Gilchrist, a Professional Corporation and billed to the Borrower prior to the Closing Date; (t) Regulatory Approvals. Copies of (i) an acknowledgment letter from the Federal Trade Commission of its receipt of all filings (if any) required of the Borrower or 47 54 any of its Subsidiaries under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 required in connection with the Merger, and setting forth any applicable waiting periods, and a certificate from a Responsible Officer of the Borrower confirming the lapse of all waiting periods with respect thereto and (ii) a copy of the letter from the Federal Trade Commission approving the transfer of the Salt Lake Regional Medical Center; (u) Compliance with Laws. Each Loan Party that is a party to this Agreement, any of the other Loan Documents or the Merger Agreement shall have complied in all material respects with all Governmental Requirements applicable to such Person and necessary to consummate the transactions contemplated by this Agreement and the other Loan Documents and the Merger Agreement; (v) No Prohibitions. No Governmental Requirement shall prohibit the consummation of the Merger or the transactions contemplated by this Agreement, or any other Loan Document, and no order, judgment or decree applicable to any of the Loan Parties of any Governmental Authority or arbitrator shall, and no litigation or other proceeding shall be pending or threatened against any of the Loan Parties which would, enjoin, prohibit, restrain or could otherwise reasonably be expected to have a material adverse effect with respect to the consummation of the Merger or the transactions contemplated by this Agreement or the other Loan Documents; (w) No Material Adverse Change. No material adverse change shall have occurred with respect to the financial condition, business, operations, capitalization, liabilities or prospects of Borrower and its Subsidiaries taken as a whole since March 31, 1996; (x) Tax Matters. Copies of legal opinions provided in connection with the Merger opining as to any tax ramifications of the Merger. (y) Wiring Instructions. A letter of direction from the Borrower to the Agent with respect to the disbursement of the proceeds of the Loans; (z) Financial Statements. Copies of each of the financial statements referred to in Section 7.2; (aa) Opinions of Counsel. The written opinion of Robert Joyner, Esq., General Counsel of Borrower and certain of its Subsidiaries, and the written opinion of Mayor, Day, Caldwell & Keeton, L.L.P., special counsel for the Loan Parties, with respect to the Borrower and its Subsidiaries and with respect to the Loan Documents, in each case dated the Closing Date, in substantially the form of Exhibit H and I, respectively; (bb) Certificate as to Health Care Regulatory Matters. A certificate, dated the Closing Date, signed by a Responsible Officer of Borrower, to the effect that, other than as disclosed to the Agent in writing on or before the Closing Date and to the best knowledge of the officer signing such certificate, there has been no claim, complaint, 48 55 notice or request for information received by Borrower or any of its Facilities, Subsidiaries or Majority-Owned Joint Ventures with respect to compliance with health care regulatory requirements that could reasonably be expected to have a Material Adverse Effect and (other than malpractice claims, but including claims relating to patient dumping, in the case of the operation of an emergency department), including, but not limited to, any alleged violation of any federal, state or local statute, regulation or ordinance relating to the delivery of medical services, and payment made thereof, including, but not limited to the requirements applicable under federal Medicare and Medi-Cal (or Medicaid) statutes, 42 U.S.C. Sections 1320a-7, 1320a-7(a) and 1320a-7b, or the regulations promulgated pursuant to such statutes or related state or local statutes or regulations; and (cc) Additional Documentation. The Agent shall have received such additional approvals, opinions, agreements, documents and instruments as the Agent may reasonably request. Upon the request of the Borrower, the Agent shall inform the Borrower in writing as to the status of satisfaction of the conditions precedent set forth in this Section 6.1. Section 6.2 All Extensions of Credit. Except as otherwise provided in Sections 2.9 and 2.14 the obligation of each Lender to make any Loan (including the initial Loan) and the obligation of the Issuing Bank to issue any Letter of Credit (including the initial Letter of Credit) under this Agreement are subject to the satisfaction of each of the conditions precedent set forth in Section 6.1 (except to the extent that, in accordance with Section 6.1, such conditions are to be satisfied as of a date later than the proposed date of the making of the subject Loan or the issuance of the subject Letter of Credit) and each of the following additional conditions precedent: (a) No Default. No Default shall have occurred and be continuing, or would result from such Loan or Letter of Credit; and (b) Representations and Warranties. All of the representations and warranties of the Borrower and the other Loan Parties contained in Article 7 hereof and in the other Loan Documents shall be true and correct on and as of the date of such Loan or Letter of Credit with the same force and effect as if such representations and warranties had been made on and as of such date except for any such representations and warranties as are expressly stated to be made as of a particular date. Except as otherwise provided in this Agreement, each notice of borrowing or request for the issuance of a Letter of Credit by the Borrower hereunder shall constitute a representation and warranty by the Borrower that the conditions precedent set forth in Sections 6.2(a) and (b) have been satisfied (both as of the date of such notice and, unless the Borrower otherwise notifies the Agent prior to such borrowing or Letter of Credit, as of the date of such borrowing or Letter of Credit). Section 6.3 Closing Certificates. The Borrower shall, concurrently with the execution and delivery of this Agreement, execute and deliver to the Agent a Closing Certificate, in form 49 56 and substance satisfactory to the Agent, certifying as to the satisfaction of each of the conditions precedent set forth in Section 6.1 and 6.2 which are required to be satisfied on or before the Closing Date; provided, however, that with respect to Sections 6.1(m), (n), (r), and (s), no certification shall be required with respect to whether the evidence or the Documents referenced therein were, in fact, satisfactory to the Agent. ARTICLE 7 Representations and Warranties The Borrower represents and warrants to the Agent and the Lenders that the following statements are true, correct and complete: Section 7.1 Corporate Existence. Each Loan Party (a) is a corporation, or a limited liability company, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority to own its Properties and carry on its business as now being or as proposed to be conducted, and (c) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where the failure to so qualify would have a Material Adverse Effect. Each Loan Party has the power and authority to execute, deliver and perform its obligations under the Loan Documents and the Related Transactions Documents to which it is a party. Section 7.2 Financial Statements. (a) The Borrower has delivered to the Agent (i) audited consolidated statements of operations and statements of cash flow of Borrower for the fiscal years ended September 30, 1993, 1994 and 1995, (ii) audited consolidated balance sheets of Borrower as of September 30, 1994 and 1995, (iii) audited consolidated statements of operations and statements of cash flow of CHC for the fiscal years ended December 31, 1993, 1994 and 1995, (iv) audited consolidated balance sheets of CHC as of December 31, 1994 and 1995, and (v) the unaudited balance sheets of Borrower and CHC as of March 31, 1996 and the related income statement for the six-month and three-month periods, respectively, then ended. To the Borrower's knowledge, such financial statements are true and correct, have been prepared in accordance with GAAP and fairly and accurately present the financial condition of Borrower and its consolidated Subsidiaries and CHC and its consolidated Subsidiaries as of the respective dates indicated therein and the results of operations for the respective periods indicated therein. There has not occurred, as of the Closing Date with respect to Borrower and its consolidated Subsidiaries and CHC and its consolidated Subsidiaries, any material adverse change in the business, condition (financial or otherwise), operations, prospects or Properties of Borrower and its consolidated Subsidiaries, or CHC and its consolidated Subsidiaries since the effective dates of the most recent applicable financial statements referred to in this Section 7.2(a). (b) The Pro-Formas were prepared by the Borrower on a basis substantially consistent with the financial statements referred to in Section 7.2(a). Neither the Borrower nor any of its Subsidiaries has any material contingent liabilities, liabilities for taxes, unusual forward or long- 50 57 term commitments or unrealized or unanticipated losses from any unfavorable commitments except as referred to or reflected in the Pro-Formas. (c) The Projections were prepared by the Borrower on a basis substantially consistent with the financial statements referred to in Section 7.2(a). The Projections represent, as of the Closing Date, the good faith estimate of the Borrower and its senior management concerning the probable financial condition and performance of the Borrower and its Subsidiaries based on assumptions believed to be reasonable at the time made. Section 7.3 Corporate Action; No Breach. The execution, delivery and performance by each Loan Party of the Loan Documents and Related Transactions Documents to which it is a party and compliance with the terms and provisions hereof and thereof have been duly authorized by all requisite corporate or other entity action on the part of the Loan Parties and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent, except as may have been obtained under (i) the articles or certificates of incorporation or bylaws (or, with respect to any Loan Party that is not a corporation, certificate of formation or other organizational documents) of any Loan Party the violation of, conflict with, or breach, which could reasonably be expected to have a Material Adverse Effect, (ii) any Governmental Requirement or any order, writ, injunction or decree of any arbitrator the violation of, conflict with, or breach of, which could reasonably be expected to have a Material Adverse Effect, or (iii) any material agreement, document or instrument to which any Loan Party is a party or by which any Loan Party or any of its Property is bound or subject, the violation of, conflict with, or breach or default of, which could reasonably be expected to have a Material Adverse Effect, or (b) constitute a default under any such material agreement, document or instrument which default could reasonably be expected to have a Material Adverse Effect, or result in the creation or imposition of any Lien (except under the Security Documents as provided in Article 5 and except for Permitted Liens) upon any of the revenues or Property of any Loan Party. Section 7.4 Operation of Business. The Loan Parties possess all Permits and franchises necessary to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted except where the failure to so possess would not cause a Material Adverse Effect. None of such Persons is in material violation of any such Permits or franchises. Section 7.5 Intellectual Property. The Loan Parties own or possess (or will be licensed or have the full right to use) all Intellectual Property which is necessary for the operation of their respective businesses as presently conducted and as proposed to be conducted except where the failure to do so could not reasonably be expected to have a Material Adverse Effect, without any known conflict with the rights of others that could reasonably be expected to have a Material Adverse Effect. The consummation of the transactions contemplated by this Agreement, the other Loan Documents and the Related Transactions Documents will not materially alter or impair, individually or in the aggregate, any of such rights of such Persons where such alteration or impairment could reasonably be expected to have a Material Adverse Effect. No product of the Loan Parties infringes upon any Intellectual Property owned by any other Person, and no claim or litigation is pending or, to the knowledge of the Borrower, threatened against any Loan Party or any such Person contesting its right to use any product or material, in each case which could 51 58 reasonably be expected to have a Material Adverse Effect. There is no violation by any Loan Party of any right of such Loan Party with respect to any material Intellectual Property owned or used by such Loan Party, in each case, that could reasonably be expected to have a Material Adverse Effect. Section 7.6 Litigation and Judgments. Except as is disclosed on Schedule 7.6, as of the Closing Date, there are no actions, suits, investigations or proceedings before or by any Governmental Authority or arbitrator pending or, to the knowledge of the Borrower, threatened against or affecting any Loan Party, or that relate to any of the Related Transactions which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. As of the Closing Date, there are no outstanding judgments against any Loan Party or their respective Subsidiaries that could reasonably be expected to have a Material Adverse Effect. Section 7.7 Rights in Properties; Liens. Each of the Loan Parties has good and indefeasible title to or, except as expressly stated to the contrary on Schedule 1.1(b), valid leasehold interests in its Properties and assets, real and personal, including as of the Closing Date the Properties, assets and leasehold interests reflected in the financial statements described in Section 7.2(a) and the Pro-Formas, and none of the Properties or leasehold interests of any Loan Party or any of its Subsidiaries is subject to any Lien, except Permitted Liens. Section 7.8 Enforceability. The Loan Documents and the New Indenture have been duly and validly executed and delivered by each of the Loan Parties that is a party thereto and constitute the legal, valid and binding obligations of such Loan Parties, enforceable against such Loan Parties in accordance with their respective terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity. Section 7.9 Approvals. No authorization, approval or consent of, and no filing or registration with or notice to, any Governmental Authority is or will be necessary for the execution, delivery or performance by any Loan Party of any of the Loan Documents to which it is a party or for the validity or enforceability thereof in respect of any Loan Party, except for such consents, approvals and filings as have been validly obtained or made and are in full force and effect. The consummation of the Related Transactions does not require any of the Loan Parties to obtain the consent or approval of any other Person, except such consents and approvals (a) as have been in full force and effect or (b) as to which the failure to obtain would not, individually or in the aggregate, have a Material Adverse Effect. None of the Loan Parties has failed to obtain any governmental consent, Permit or franchise necessary for the ownership of any of its Properties or the conduct of its business except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. Section 7.10 Debt. As of the Closing Date, the Loan Parties and their Subsidiaries have and will have no Debt except for (a) the Obligations, (b) the Debt evidenced by the Subordinated Notes, (c) the Debt disclosed on the most recent balance sheets referred to in Section 7.2(a), (d) the Debt disclosed on Schedule 9.1 or permitted under Section 9.1, and (e) Debt a Subsidiary may have as a partner or joint venturer. 52 59 Section 7.11 Taxes. The Loan Parties have filed all tax returns (federal, state and local) required to be filed, including all income, franchise, employment, Property and sales tax returns, and have paid all of their respective liabilities for taxes, assessments, governmental charges and other levies that are shown to be due and payable on such returns except for any of the foregoing which are not the subject of any recorded tax lien and do not involve amounts in excess of $1,000,000 in the aggregate. The Borrower is not aware of any pending investigation of any Loan Party or any Subsidiary of a Loan Party, by any taxing authority or of any pending but unassessed tax liability of any Loan Party or any Subsidiary of a Loan Party, other than with respect to (a) ad valorem or other real property taxes not in excess of $1,000,000 as to any such Person and (b) other taxes in an aggregate amount as to any such Person which could not, if an adverse determination is made with respect to such taxes, reasonably be expected to materially and adversely affect such Person, and (c) taxes, assessments, governmental charges and other levies, which are currently being contested in good faith by appropriate proceedings diligently conducted by or on behalf of such Person and as to which, if required by GAAP, such Person has established adequate reserves. No tax Liens (other than Permitted Liens) have been filed and, except as disclosed on Schedule 7.11, no claims are being asserted as of the Closing Date against any Loan Party or any Subsidiary of a Loan Party, with respect to any taxes. Except as disclosed on Schedule 7.11 hereto, as of the Closing Date, none of the U.S. income tax returns of the Loan Parties or any Subsidiary of a Loan Party, are under audit. The charges, accruals and reserves on the books of the Loan Parties in respect of taxes or other governmental charges are in accordance with GAAP. Section 7.12 Margin Securities. None of the Loan Parties or any of their respective Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. Section 7.13 ERISA. As of the Closing Date, neither any Loan Party nor any ERISA Affiliate maintains or contributes to, or has any obligation under, any Pension Plan other than the Pension Plans identified on Schedule 7.13. Each Plan of each Loan Party is in compliance in all material respects with all applicable provisions of ERISA and the Code. Neither a Reportable Event nor, to the knowledge of the Borrower, a Prohibited Transaction has occurred within the last 60 months with respect to any Pension Plan. No notice of intent to terminate a Pension Plan has been filed, nor has any Pension Plan been terminated. No circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Pension Plan, nor has the PBGC instituted any such proceedings. As of the Closing Date, neither any of the Loan Parties nor any ERISA Affiliate has completely or partially withdrawn from a Multiemployer Plan. Each Loan Party and each ERISA Affiliate have met their minimum funding requirements under ERISA and the Code with respect to all of their Pension Plans subject to such requirements, and, as of the Closing Date except as specified on Schedule 7.13, the present value of all vested benefits under each funded Pension Plan does not and will not exceed the fair market value of all such Pension Plan assets allocable to such benefits, as determined on the most recent valuation date of such Pension Plan and in accordance with 53 60 ERISA. As of the Closing Date, neither any of the Loan Parties nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA (other than any required insurance premiums, all of which that have become due prior to the Closing Date have been paid). As of the Closing Date, no litigation is pending or, to the knowledge of any Loan Party, threatened concerning or involving any Pension Plan. There are no unfunded or unreserved liabilities relating to any Pension Plan that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect if such Loan Party were required to fund or reserve such liability in full. As of the Closing Date, no funding waivers have been or will have been requested or granted under Section 412 of the Code with respect to any Pension Plan. No unfunded or unreserved liability for benefits under any Pension Plan or Pension Plans (exclusive of any Multiemployer Plans) exceeds $1,500,000 with respect to any such Plan or $3,000,000 with respect to all such Plans in the aggregate as of the Closing Date. Section 7.14 Disclosure. The Pro Formas and Projections have been prepared in a manner consistent with Sections 7.2(b) and (c) hereof. No other written statement, information, report, representation or warranty made to the Agent or any Lender by any Loan Party in any Loan Document or furnished to the Agent or any Lender by any Loan Party in connection with the Loan Documents or any transaction contemplated hereby or thereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein in light of the circumstances in which they were made not misleading as of the respective dates thereof. No material adverse change shall have occurred with respect to the financial condition, business, operations, capitalization, liabilities or prospects of Borrower and its Subsidiaries taken as a whole since March 31, 1996. Section 7.15 Subsidiaries. Schedule 7.15 correctly sets forth the name of each Subsidiary of Borrower and a statement of the ownership of the Capital Stock or other interest of each such Subsidiary as of the date hereof. All outstanding Capital Stock of each Subsidiary of Borrower that has been pledged to the Agent has been validly issued, is fully paid and is nonassessable and is free and clear of all Liens, charges and encumbrances (except the Liens in favor of Agent, for the ratable benefit of Lenders, and for Permitted Liens). Section 7.16 Agreements. None of the Loan Parties is in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, document or instrument binding on it or its Properties, except for instances of noncompliance that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Section 7.17 Compliance with Laws. None of the Loan Parties is in violation of any Governmental Requirement, except for instances of non-compliance that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Section 7.18 Investment Company Act. None of the Loan Parties is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 54 61 Section 7.19 Public Utility Holding Company Act. None of the Loan Parties is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 7.20 Environmental Matters. (a) Except for instances of noncompliance with or exceptions to any of the following representations and warranties that could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect: (i) The Loan Parties and all of their respective Properties and operations are in full compliance with all Environmental Laws. The Borrower is not aware of, nor has the Borrower received written notice of, any past, present or future conditions, events, activities, practices or incidents which may interfere with or prevent the compliance or continued compliance by any Loan Party with all Environmental Laws; (ii) The Loan Parties have obtained all Permits that are required under applicable Environmental Laws, and all such Permits are in good standing and all such Persons are in compliance with all of the terms and conditions thereof; (iii) No Hazardous Materials exist on, about or within or have been (to the Borrower's knowledge) or are being used, generated, stored, transported, disposed of on or Released from any of the Properties of the Loan Parties except in compliance with applicable Environmental Laws. The use which the Loan Parties make and intend to make of their respective Properties will not result in the use, generation, storage, transportation, accumulation, disposal or Release of any Hazardous Material on, in or from any of their Properties except in compliance with applicable Environmental Laws; (iv) Neither the Loan Parties nor any of their respective currently or, to the Borrower's knowledge, previously owned or leased Properties or operations is subject to any outstanding or, to the best of the Borrower's knowledge, threatened order from or agreement with any Governmental Authority or other Person or subject to any judicial or administrative proceeding with respect to (A) any failure to comply with Environmental Laws, (B) any Remedial Action, or (C) any Environmental Liabilities; (v) There are no conditions or circumstances associated with the currently or to the Borrower's knowledge previously owned or leased Properties or operations of the Loan Parties that could reasonably be expected to give rise to any Environmental Liabilities or claims resulting in any Environmental Liabilities. None of the Loan Parties is subject to, or has received written notice of any claim from any Person alleging that any of the Loan Parties is or will be subject to, any Environmental Liabilities; (vi) None of the Properties of the Loan Parties is a treatment facility (except for the recycling of Hazardous Materials generated onsite and the treatment of liquid wastes 55 62 subject to the Clean Water Act), storage facility (except for temporary storage of Hazardous Materials generated onsite prior to their disposal offsite) or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., regulations thereunder or any comparable provision of state law. The Loan Parties and their Subsidiaries are in compliance with all applicable financial responsibility requirements of all Environmental Laws; and (vii) None of the Loan Parties has failed to file any notice required under applicable Environmental Law reporting a Release. (b) No Lien arising under any Environmental Law that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect has attached to any Property or revenues of any Loan Party. Section 7.21 Labor Disputes and Acts of God. Neither the business nor the Properties of any Loan Party are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that is having or could reasonably be expected to have a Material Adverse Effect. Section 7.22 Material Contracts. Attached hereto as Schedule 7.22 is a complete list, as of the Closing Date of all Material Contracts of the Loan Parties, other than the Loan Documents, the Indentures and the Subordinated Notes. As of the Closing Date, all of the Material Contracts are in full force and effect and none of the Loan Parties is in default under any Material Contract and, to the best of the Borrower's knowledge after due inquiry, no other Person that is a party thereto is in default under any of the Material Contracts, in each case, in any material respect. None of the Material Contracts prohibit the transactions contemplated under the Loan Documents or the Related Transactions Documents. The Borrower will, upon the Agent's request therefor, deliver to the Agent a complete and current copy of each Material Contract requested by the Agent in a reasonably prompt fashion after the request therefor. Section 7.23 Outstanding Securities. As of the Closing Date, all outstanding securities (as defined in the Securities Act of 1933, as amended, or any successor thereto, and the rules and regulations of the Securities and Exchange Commission thereunder) of the Loan Parties have been offered, issued, sold and delivered in compliance in all material respects with all applicable Governmental Requirements. Section 7.24 Subordination. The Loans and all other Obligations of the Borrower to the Agent and the Lenders under the Loan Documents constitute "Senior Indebtedness" of the Borrower (as such term is defined in the New Indenture), and the holders thereof from time to time shall be entitled to all of the rights of a holder of "Senior Indebtedness" (as such term is defined in the New Indenture) pursuant to the New Indenture. The principal and interest owed by the Borrower under the Loans constitute "Senior Indebtedness" of the Borrower (as such term is defined in the Existing Indenture), and the holders thereof from time to time shall be entitled 56 63 to all of the rights of a holder of "Senior Indebtedness" (as such term is defined in the Existing Indenture) pursuant to the Existing Indenture. Section 7.25 Related Transactions Documents. (a) The Borrower has delivered to the Agent complete and correct copies of all Related Transactions Documents. (b) As of the Closing Date, after giving effect to the Merger, the Borrower will be the owner of substantially all of the Capital Stock of Champion free and clear of any Liens, except Permitted Liens. Section 7.26 Solvency. The Borrower and each of the Subsidiary Guarantors as separate corporate entities and on a consolidated basis, are Solvent, after giving effect to the Loans and the Related Transactions. Section 7.27 Employee Matters. Except as set forth on Schedule 7.27, as of the Closing Date, (a) none of the Loan Parties or any of their respective Subsidiaries other than Excluded Subsidiaries, or any of their respective employees, is subject to any collective bargaining agreement, and (b) no petition for certification or union election is pending with respect to the employees of any Loan Party or any of their respective Subsidiaries other than Excluded Subsidiaries, and no union or collective bargaining unit has sought such certification or recognition with respect to the employees of any of the Loan Parties or any of their respective Subsidiaries other than Excluded Subsidiaries. There are no strikes, slowdowns, work stoppages or controversies pending or, to the best knowledge of the Borrower after due inquiry, threatened against, any of the Loan Parties or any of their respective Subsidiaries, and their respective employees, which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. Section 7.28 Insurance. Schedule 7.28 sets forth a complete and accurate description of all policies of insurance that will be in effect as of the Closing Date for the Borrower and its Subsidiaries. To the extent such policies have not been replaced, no notice of cancellation has been received for such policies and the Borrower and its Subsidiaries are in compliance in all material respects with all of the terms and conditions of such policies. Section 7.29 Fraud and Abuse. Borrower, its Subsidiaries and all Majority-Owned Joint Ventures, and their respective officers and directors, and persons who provide professional services under agreements with any of Borrower, its Subsidiaries and all Majority-Owned Joint Ventures, have not engaged in any activities which are prohibited under federal Medicare and Medi-Cal (or Medicaid) statutes, 42 U.S.C. Sections 1320a-7, 1320a-7(a) and 1320a-7b, or the regulations promulgated pursuant to such statutes or related state or local statutes or regulations, including but not limited to the following: (a) 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; (b) 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; 57 64 (c) presenting or causing to be presented a claim for reimbursement for services under Medicare, Medi-Cal (or Medicaid), or other state health care program that is for an item or service that is known or should be known to be (1) not provided as claimed, or (2) false or fraudulent; (d) 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; (e) knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe, or rebate but excluding any activities which come within a "safe harbor" under federal law), directly or indirectly, overtly or covertly, in cash or in kind (1) 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 Medi-Cal (or Medicaid), or other state health care program, or (2) 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 Medi-Cal (or Medicaid) or other state health care program but excluding any activities which come within a "safe harbor" under federal law; (f) 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, Medi-Cal (or Medicaid), or other state health care program but excluding any activities which come within a "safe harbor" under federal law; (g) 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 hospital in-patient from the hospital; (h) knowingly and willfully making or causing to be made or inducing or seeking to induce the making of any false statement or representation (or omit 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 (1) the conditions or operations of a facility in order that the facility may qualify for Medicare, Medi-Cal (or Medicaid) or other state health care program certifications, or (2) information required to be provided under Section 1124A of the Social Security Act (42 U.S.C. Section 1320a-3; (i) knowingly and willfully (1) charging for any Medi-Cal (or Medicaid) service money or other consideration at a rate in excess of the rates established by the state, or (2) charging, soliciting, accepting or receiving, in addition to amounts paid by Medi-Cal (or Medicaid), any gift money, donation or other consideration (other than a charitable, religious or other philanthropic contribution from an organization or from a person unrelated to the patient) (x) as a precondition of admitting the patient, or (y) as a requirement for the patient's continued stay in the facility. Borrower, its Subsidiaries and all Majority-Owned Joint Ventures and their respective officers and directors, and persons who provide professional services under agreements with any of Borrower, its Subsidiaries and all Majority-Owned Joint Ventures, in the case of a hospital with a hospital emergency department, provide for an appropriate medical screening examination within the capacity of the hospital's emergency department, including ancillary services routinely available to the emergency department, if any individual (whether or not eligible for Medicare benefits) comes to the emergency department and a request is made on the individual's behalf for examination or treatment for a medical condition, to determine whether or not an emergency medical condition exists. Representations and warranties set forth in this Section 7.31 shall not be deemed breached unless any such activity or failure to provide services could reasonably be expected to have a Material Adverse Effect on Borrower and its Subsidiaries, taken as a whole. 58 65 ARTICLE 8 Affirmative Covenants The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Lender has any Commitment hereunder or any Letter of Credit remains outstanding hereunder, the Borrower will perform and observe, or cause to be performed and observed, the following covenants: Section 8.1 Reporting Requirements. The Borrower will furnish to the Agent: (a) Annual Financial Statements. As soon as available, and in any event within 120 days after the end of each fiscal year of the Borrower, beginning with the fiscal year ending December 31, 1996, (i) a copy of the annual audit report of the Borrower and its consolidated Subsidiaries as of the end of and for such fiscal year then ended containing, on a consolidated basis, balance sheets and statements of income, retained earnings and cash flow, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and audited and certified by Ernst & Young or any other "Big Six" accounting firm, or other independent certified public accountants of recognized standing reasonably acceptable to the Agent and containing no qualification thereto except as may be reasonably acceptable to the Agent, to the effect that such report has been prepared in accordance with GAAP and (ii) a certificate of such independent certified public accountants to the Agent stating that to their knowledge no Default has occurred and is continuing or, if in their opinion a Default has occurred and is continuing, stating the nature thereof; (b) Quarterly Financial Statements. As soon as available, and in any event within forty-five (45) days after the end of each of the first three quarters of each fiscal year of the Borrower, beginning with the fiscal quarter ending September 30, 1996, a copy of an unaudited financial report of the Borrower and its consolidated Subsidiaries as of the end of such fiscal quarter and for the portion of the fiscal year then ended containing, on a consolidated basis, balance sheets and statements of income, retained earnings and cash flow, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year, all in reasonable detail certified by a Responsible Officer of the Borrower to have been prepared in accordance with GAAP and to fairly and accurately present (subject to year-end audit adjustments) the financial condition and results of operations of the Borrower and its consolidated Subsidiaries, on a consolidated basis, at the date, and for the periods indicated therein and a schedule reflecting the EBITDA and net revenues of the material operating Subsidiaries for each of the four fiscal quarters of each fiscal year of Borrower in a format substantially similar to Schedule 8.1(b); (c) Certificate of No Default. Concurrently with the delivery of each of the financial statements referred to in Sections 8.1(a) and 8.1(b), a certificate of a Responsible Officer of the Borrower (i) stating that, to the best of such officer's knowledge, no Default has occurred and is continuing or, if a Default 59 66 has occurred and is continuing, stating the nature thereof and the action that has been taken and is proposed to be taken with respect thereto, and (ii) showing (with respect to each certificate delivered concurrently with the delivery of each of the financial statements referred to in Section 8.1(a) or 8.1(b)) in reasonable detail the calculations demonstrating compliance with Article 10; (d) Applicable Margin Certificate. Concurrently with the delivery of each of the financial statements referred to in Sections 8.1(a) and 8.1(b), a certificate of a Responsible Officer of the Borrower showing in reasonable detail the calculation of the Applicable Margin; (e) Budget. As soon as available and in any event no later than sixty (60) days after the beginning of each fiscal year of the Borrower, a copy of the budget of the Borrower and its Subsidiaries for such fiscal year (segregated by entity and quarter and setting forth all material assumptions), which budget shall have been presented to and reviewed and approved by the Board of Directors of the Borrower and which is subject to year-end adjustments; provided, however, that the requirement to provide the budget as described in this Section 8.1(e) shall terminate on the later to occur of (i) the second anniversary of the Closing Date or (ii) the earliest date on which the ratio of Total Debt to Adjusted EBITDA is equal to or less than 2.5 to 1; (f) Notice of Litigation. Promptly and in any event within five (5) days after the Borrower's obtaining knowledge of the threat or commencement thereof, notice of all actions, suits and proceedings before any Governmental Authority or arbitrator affecting any Loan Party which, if determined adversely to any such Person, could reasonably be expected to have a Material Adverse Effect; (g) Notice of Default. Promptly and in any event within five (5) days after the Borrower's knowledge of the occurrence of any Default, a written notice setting forth the details of such Default and the action that the Borrower has taken and proposes to take with respect thereto; (h) ERISA Reports. Promptly, and in any event within ten (10) Business Days after any such Person knows or has reason to know that any Multiemployer Plan is insolvent, or that any Reportable Event or Prohibited Transaction has occurred with respect to any Pension Plan or Multiemployer Plan, or that the PBGC, any Loan Party or any ERISA Affiliate has instituted or will institute proceedings under ERISA to terminate or withdraw from or reorganize any Pension Plan or Multiemployer Plan, written notice of a Responsible Officer of the Borrower setting forth the details as to such insolvency, withdrawal, Reportable Event, Prohibited Transaction or termination and the action that the Borrower has taken and proposes to take with respect thereto; (i) Reports to Other Creditors. Promptly after the furnishing thereof, a copy of any notice furnished by the Borrower to the Trustee under either of the Indentures as 60 67 to the occurrence of a default or event of default thereunder and not otherwise required to be furnished to the Agent pursuant to any other subsection of this Section 8.1; (j) Notice of Material Adverse Effect. Within five (5) Business Days after the Borrower becomes aware thereof, written notice of any matter that could reasonably be expected to have a Material Adverse Effect; (k) Proxy Statements, Etc. As soon as available, one copy of each financial statement, report, notice or proxy statement sent by the Borrower to its stockholders generally and one copy of each regular, periodic or special report, registration statement or prospectus filed by the Borrower with any securities exchange or the Securities and Exchange Commission or any successor agency, and of all press releases made by the Borrower to the public containing material developments in its business; (l) Notice of New Subsidiaries. Concurrently with the delivery of each of the financial statements referred to in Sections 8.1(a), and 8.1(b), notice of the creation or acquisition of any Subsidiary of the Borrower (other than any Excluded Subsidiary) after the Closing Date and subsequent to the last delivery of such information; (m) Plan Information. From time to time, as reasonably requested by the Agent or any Lender, such books, records and other documents relating to any Pension Plan or Multiemployer Plan as the Agent or any Lender shall specify; prior to any termination, partial termination or merger of a Pension Plan, or a transfer of assets of a Pension Plan, written notification thereof; and (n) General Information. Promptly, such other information concerning the Loan Parties and their respective Subsidiaries as the Agent or any Lender may from time to time reasonably request. Section 8.2 Maintenance of Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries (other than the Excluded Subsidiaries) to, preserve and maintain its corporate existence (except for mergers of Subsidiaries permitted by Section 9.3 and Subsidiaries substantially all the assets of which have been disposed of pursuant to Section 9.12) and all of its material leases, privileges, licenses, Permits, franchises, qualifications and rights that are necessary in the ordinary conduct of its business, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. The Borrower will, and will cause each of its Subsidiaries (other than Excluded Subsidiaries) to, conduct its business in an orderly and efficient manner in accordance with good business practices. Section 8.3 Maintenance of Properties. The Borrower will, and will cause each of its Subsidiaries to, maintain, keep and preserve all of its Properties necessary in the proper conduct of its business in good repair, working order and condition (ordinary wear and tear excepted and other than Facilities closed and held for disposition) and make all necessary repairs, renewals, replacements, betterments and improvements thereof. 61 68 Section 8.4 Taxes and Claims. The Borrower will, and will cause each of its Subsidiaries to, pay or discharge at or before maturity or before becoming delinquent (a) all taxes, levies, assessments and governmental charges imposed on it or its income or profits or any of its Property and (b) all lawful claims for labor, material and supplies, which, if unpaid, might become a Lien upon any of its Property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any tax, levy, assessment or governmental charge or claim for labor, material or supplies (i) so long as the aggregate of such taxes, levies, assessments, charges or claims for which Liens have been recorded do not exceed $1,000,000 or (ii) whose amount, applicability or validity is being contested in good faith by appropriate proceedings being diligently pursued and for which adequate reserves have been established under GAAP; provided, however, that with respect to the Liens described in subsection (i) of this Section 8.4, if such Liens have not been discharged within 60 days of the time of their filing, then the Subsidiary against whose Property the Liens have been recorded shall become an Excluded Subsidiary, after such 60-day period. Section 8.5 Insurance. (a) The Borrower will, and will cause each of its Subsidiaries to, keep insured by financially sound and reputable insurers, including, but not limited to Hospital Assurance Company, Ltd., all Property of a character usually insured by responsible corporations engaged in the same or a similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations all in amounts and of the type currently carried by Borrower and its Subsidiaries. (b) If no Event of Default or payment Default shall have occurred and be continuing, the Borrower may use each insurance recovery to repair, restore or replace the Property that was the subject of such insurance recovery. (c) If an Event of Default or payment Default shall have occurred and be continuing, the Borrower will cause all proceeds of insurance paid on account of the loss of or damage to any Property of the Borrower or any of its Subsidiaries and all awards of compensation for any Property of the Borrower or any of its Subsidiaries taken by condemnation or eminent domain to be paid directly to the Agent to be applied against or held as security for the Obligations, at the election of the Agent and the Required Lenders and, to the extent such proceeds of insurance are applied against the Obligations, there shall be a prepayment of the Revolving Credit Loans. Section 8.6 Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, permit representatives and agents of the Agent and each Lender, during normal business hours and upon reasonable notice to the Borrower, to examine, copy and make extracts from its books and records except confidential patient records, to visit and inspect its Properties and to discuss its business, operations and financial condition with its officers and independent certified public accountants; provided, however, that prior to a Default, discussions with Borrower's independent certified public accountants shall only take place in the presence of a Responsible Officer unless Borrower otherwise consents. Following the occurrence of a Default or Event of Default, Agent and each Lender may meet with Borrower's independent certified public accountants without any Responsible Officer of Borrower present. By this provision, 62 69 Borrower hereby authorizes said accountants to discuss with Agent and Lenders and their agents and representatives, the affairs, finances and accounts of Borrower and its Subsidiaries in accordance with this Section 8.6. Section 8.7 Keeping Books and Records. The Borrower will, and will cause each of its Subsidiaries to, maintain appropriate books of record and account in accordance with GAAP consistently applied in which true, full and correct entries will be made of all their respective dealings and business affairs. If any material changes in accounting principles from those used in the preparation of the financial statements referenced in Section 8.1 are hereafter required or permitted by GAAP and are adopted by the Borrower or any of its Subsidiaries with the concurrence of its independent certified public accountants and such changes in GAAP result in a change in the method of calculation or the interpretation of any of the financial covenants, standards or terms found in Section 8.1 or Article 10 or any other provision of this Agreement, the Borrower and the Required Lenders agree to amend any such affected terms and provisions so as to reflect such changes in GAAP with the result that the criteria for evaluating the Borrower's or such Subsidiaries' financial condition shall be the same after such changes in GAAP as if such changes in GAAP had not been made; provided that, until any necessary amendments have been made, the certificate required to be delivered under Section 8.1(c) hereof demonstrating compliance with Article 10 shall include calculations setting forth the adjustments from the relevant items as shown in the current financial statements based on the changes to GAAP to the corresponding items based on GAAP as used in the financial statements referenced in Section 7.2(a), in order to demonstrate how such financial covenant compliance was derived from the current financial statements. Section 8.8 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all applicable Governmental Requirements, except for instances of noncompliance that could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Section 8.9 Compliance with Agreements. The Borrower will, and will cause each of its Subsidiaries to, comply with all agreements, contracts and instruments binding on it or affecting its Properties or business, except for instances of noncompliance that could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The Borrower will comply with all terms and provisions of Article 10 in the Existing Indenture and Article 12 of the New Indenture which are intended to benefit the holders of any "Senior Indebtedness" (as such term is defined in each of the Indentures). Section 8.10 Further Assurances. The Borrower will, and will cause each of its Subsidiaries to, execute and deliver such further agreements, documents and instruments and take such further action as may be reasonably requested by the Agent to carry out the provisions and purposes of this Agreement and the other Loan Documents, to evidence the Obligations and to create, preserve, maintain and perfect the Liens of the Agent for the benefit of itself and the Lenders in and to the Collateral and the required priority of such Liens. 63 70 Section 8.11 ERISA. The Borrower will, and will employ reasonable efforts to cause each of its ERISA Affiliates to, comply with all minimum funding requirements and all other material requirements of ERISA, if applicable, so as not to give rise to any liability thereunder. Section 8.12 Borrower's Treatment of Subsidiaries. In consideration of the Loans made hereunder and the execution and delivery of the Master Guaranty by each Subsidiary Guarantor, Borrower hereby agrees that it will remain solvent at all times. Determinations of compliance with this Section 8.12 shall be made by computing the amount of contingent liabilities at any time at the amount which, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. ARTICLE 9 Negative Covenants The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Lender has any Commitment hereunder, or any Letter of Credit remains outstanding hereunder, the Borrower will perform and observe, or cause to be performed and observed, the following covenants: Section 9.1 Debt. Except as permitted by Sections 9.6 and 9.9, the Borrower will not, and will not permit any of its Subsidiaries to, incur, create, assume or permit to exist any Debt, except: (a) Debt of the Borrower and its Subsidiaries to the Lenders pursuant to the Loan Documents; (b) Existing Debt described on Schedule 9.1 hereto and renewals, extensions or refinancings of such Debt which do not increase the outstanding principal amount of such Debt; (c) Capital Lease Obligations; (d) Debt incurred in payment for the acquisition of goods, supplies or merchandise on normal trade credit in the ordinary course of its respective business; (e) Purchase money Debt secured by purchase money Liens, which Debt and Liens are permitted under and meet all of the requirements of clause (h) of the definition of Permitted Liens contained in Section 1.1; (f) the Subordinated Debt, which shall include, for a period no greater than ten (10) days after the Closing Date, all outstanding indebtedness under the Existing Subordinated Notes on the Closing Date as well as the New Subordinated Notes; provided, however, that as long as at least $73,000,000 of indebtedness represented by Existing Subordinated Notes has been repaid within such ten-day period, the amount of the repaid 64 71 Existing Subordinated Notes will not be included in calculating the financial covenants set forth in Article 10; (g) Pre-existing Debt assumed by the Borrower or a Subsidiary as a condition to a Business Acquisition permitted under Section 9.5 provided, however, that such Debt shall be unsecured, unless the related collateral is only Property of an Excluded Subsidiary; (h) Intercompany Debt between or among the Borrower and any of its Majority-Owned or Wholly-Owned Subsidiaries (other than an Excluded Subsidiary), subject to the following requirements: any and all of the Debt permitted pursuant to this Section 9.1(h) shall be unsecured, shall be evidenced, at the Borrower's option, either on the books and records of the Borrower and the relevant Subsidiary or by instruments reasonably satisfactory to the Agent and all such Debt shall be subordinated to the Obligations pursuant to the Master Guaranty or by separate agreement; (i) Intercompany Debt between or among the Excluded Subsidiaries permitted under Section 9.4; (j) the transactions contemplated by the PHC Funding Sale Documents permitted by Section 9.12A(d); (k) Intercompany Loans to DHHS. The Borrower or any of its Subsidiaries may make loans or advances to DHHS; provided, however, such loans and advances may only be made so long as (a) DHHS has (i) agreed not to permit any Liens (other than those in favor of one or more of the Lenders as hereinafter provided and those securing Capital Lease Obligations, to the extent that such Liens attach only to the Property leased and such Capital Lease Obligations are permitted under the terms of this Agreement) to attach to any of the Property of DHHS, (ii) agreed not to enter into a negative pledge in favor of any Person other than the Agent and the Lenders except in connection with Permitted Liens, and (iii) agreed not to incur any Debt other than (x) Capital Lease Obligations and (y) Debt owed to one or more of the Lenders as hereinafter provided, and (b) such amounts do not exceed the product obtained by multiplying three (3) times that portion of the EBITDA of DHHS which is attributable to Paracelsus-Fargo's EBITDA distribution percentage under the DHHS Partnership Agreement. The foregoing restrictions on loans and advances shall not apply to any loan transaction DHHS may enter into with one or more of the Lenders as long as the terms and conditions of such loan transaction have been approved by the Required Lenders (which approval shall not be unreasonably withheld), and are not inconsistent with the representations, warranties and covenants set forth in this Agreement. Except as expressly contemplated above, notwithstanding anything to the contrary contained herein or any other Loan Document, the Loan Documents do not permit DHHS to incur Debt other than that described above and other Debt permitted by Section 9.1. 65 72 (l) Debt owed to the Borrower or any of its Majority-Owned Subsidiaries or Wholly-Owned Subsidiaries by any Person which is not a Majority-Owned Subsidiary or Wholly-Owned Subsidiary of Borrower, so long as the aggregate amount of such Debt, together with Investments permitted by Section 9.4(d), does not exceed ten percent (10%) of Consolidated Tangible Assets; (m) Other unsecured Debt of the Borrower and its Subsidiaries in an aggregate principal amount not to exceed $10,000,000 at any time outstanding; and (n) All extensions or renewals of the above-referenced Debt which do not increase the outstanding principal amount of such Debt. Section 9.2 Limitation on Liens. The Borrower will not, and will not permit any of its Subsidiaries to, incur, create, assume or permit to exist any Lien (including, without limitation, the Lien of an attachment, judgment or execution) upon any of its Property or revenues, whether now owned or hereafter acquired, except Permitted Liens. Section 9.3 Limitation on Fundamental Changes. Except as otherwise permitted under this Agreement, the Borrower will not, and will not permit any of its Subsidiaries (other than Excluded Subsidiaries) to, become a party to a merger, consolidation, partnership, joint venture, or other combination, or wind-up, dissolve or liquidate itself, or sell, lease or dispose of all or a substantial portion of its business or assets; provided, however, that any Wholly-Owned Subsidiary may merge into, consolidate with or transfer its business or assets to Borrower or any other Wholly-Owned Subsidiary if (a) in such a merger, consolidation or transfer Borrower or such other Wholly-Owned Subsidiary (other than an Excluded Subsidiary) survives and in the case of such a Subsidiary, remains a Wholly-Owned Subsidiary of Borrower, and (b) no Default or Event of Default occurs and is continuing after giving effect to such merger, consolidation or transfer; provided, further, that Borrower and its Subsidiaries shall be permitted to form partnerships and joint ventures which, after formation, are Subsidiaries and are otherwise permitted by this Agreement. Borrower will not, nor will it permit any of its Subsidiaries to, form any Subsidiary that would be a second-tier Subsidiary of Borrower that would not be an Excluded Subsidiary unless Borrower's Subsidiaries shall not be prohibited by the terms and conditions of any contract or agreement to which Borrower or any of its Subsidiaries is a party, including without limitation either of the Indentures, to pledge the stock of such second-tier Subsidiary to Agent for the benefit of Banks in accordance with the provision of Section 5.3. Section 9.4 Limitation on Investment. Except to the extent permitted by Sections 9.1, 9.6 or 9.10, Borrower will not, nor will it permit any of its Subsidiaries to, make or permit to remain outstanding any loan, extension of credit or capital contribution to or investment in any Person, or purchase or own any stock, bonds, notes, debentures or other securities of any Person, or acquire or purchase the assets or business of any other Person, or acquire or purchase securities or become a joint venturer with or partner of any Person (all such transactions being herein called "Investments"), other than: (a) Cash Equivalents; 66 73 (b) acquisitions permitted by Section 9.5; (c) Investments (whether in cash or property, and if in property, valued at its then current appraised value) in Wholly-Owned Subsidiaries or Majority-Owned Subsidiaries of Borrower, in either event so long as such Wholly-Owned Subsidiaries or Majority-Owned Subsidiaries are not Excluded Subsidiaries; (d) Other Investments (whether in cash or in property, and if in property, valued at its then current appraised value) made after the Closing Date in any Person, including Excluded Subsidiaries, in an aggregate amount (together with Debt permitted by Section 9.1(l)) not to exceed ten percent (10%) of Consolidated Tangible Assets; (e) Other Investments made by Hospital Assurance Company, Ltd., a Wholly-Owned Subsidiary of Borrower, in investment grade securities; (f) receivables owing to it, if created in the ordinary course of business or dischargeable in accordance with customary trade terms; (g) Investments between and among the Excluded Subsidiaries; and (h) Existing Investments (other than the Investments covered under subsections (a) through (g) above) identified on Schedule 7.15(a) or Schedule 9.4 hereto; provided, however, that, no Investments may be made by the Borrower or any of its Subsidiaries pursuant to clauses (b) or (d) preceding if an Event of Default exists at the time of such Investment or would result therefrom. Section 9.5 Limitation on Business Acquisitions. Borrower will not, nor will it permit any of its Subsidiaries (other than DHHS or any other partnership or joint venture) to, make expenditures or incur any obligations or consent to make expenditures or incur obligations, to make Business Acquisitions (including, without limitation, all Capital Lease Obligations and Operating Lease obligations to be assumed by Borrower or any of its Subsidiaries), except as follows (the acquisitions permitted under this Section 9.5 are sometimes referred to herein as "Permitted Acquisitions"): (a) the acquisition must be of Facilities, health related businesses or related lines of business and (b) except with respect to any Business Acquisition where the obligations incurred are in an amount of less than $5,000,000, in conjunction with, or, with respect to Business Acquisitions for which the purchase price or consideration in any twelve (12) month period does not exceed, in the aggregate, the applicable amounts set forth below based upon a determination of the Leverage Ratio of the Borrower and its Subsidiaries, calculated as of the end of the most recently completed fiscal quarter, then at least five days before the closing of any such Business Acquisition the Borrower shall provide to the Agent a notice briefly describing such Business Acquisition and demonstrating compliance with all financial covenants and agreements of Borrower under this Agreement, including, without limitation, compliance with the Leverage Ratios set forth below: 67 74
Leverage Ratio: Maximum Consideration --------------- --------------------- Greater than 4.0x $ 25,000,000 Greater than 3.5x and #4.0x $ 50,000,000 Greater than 3.0x and #3.5x $ 75,000,000 Less than 3.0x $ 150,000,000
In connection with any Business Acquisition under clause (b) above for which the obligations to be incurred exceed, in the aggregate with obligations incurred for all other Business Acquisitions during any twelve (12) month period, the amount shown above under the heading "Maximum Consideration" opposite the applicable Leverage Ratio prior to the date of determination, not less than forty-five (45) days prior to any such acquisition, Borrower shall have submitted to the Lenders pro-forma financial statements, based upon projections (based on good faith estimates of the Borrower and its senior management based on assumptions believed to be reasonable at the time made), demonstrating compliance with all financial covenants and agreements of Borrower pursuant to this Agreement, after such proposed acquisition, all in form and substance reasonably satisfactory to the Lenders. Any such Business Acquisitions described in the immediately preceding sentence may only be made with the prior consent of the Agent and the Required Lenders (such consent not to be unreasonably withheld) and the Agent and the Required Lenders shall notify the Borrower within two weeks of the Borrower's delivery of financial statements required under this Section 9.5 whether they have consented to such Business Acquisition (with any failure of the Agent and the Required Lenders to provide their consent within such two week period to be deemed a refusal to consent). Any acquisition permitted under this Section 9.5 shall have been approved by the appropriate officers, or, if required, by the Board of Directors or other governing body, of the company or business to be acquired or holding the assets to be acquired. Section 9.6 Limitation on Loans and Credit. Except to the extent permitted by Section 9.1 and Section 9.4, Borrower will not, nor will it permit any of its Subsidiaries to, make any loans or extend any credit, except: (a) extensions of credit in the ordinary course of its respective health care related business; (b) to employees of Borrower or its Subsidiaries, and to physicians associated with operating entities of Borrower and its Subsidiaries not in excess of $1,000,000 for loans and extensions of credit to any such employee or physician; provided, however, that all such loans and extensions of credit, when added to the guaranties made to health care professionals pursuant to Section 9.9(c), may not exceed $10,000,000 in the aggregate at any one time outstanding for Borrower and its Subsidiaries; (c) extensions of credit permitted under Section 9.9; and (d) a loan to Krukemeyer in the principal amount of $4,000,000 as of the Closing Date. 68 75 Section 9.7 Limitation on Contracts, Etc. Borrower will not, nor will it permit any of its Subsidiaries engage in any business activities or operations substantially different from or not related to the healthcare industry. Section 9.8 Ownership of Subsidiaries. Borrower will not dispose of or agree to dispose of any shares of any Subsidiary of Borrower (other than Excluded Subsidiaries) if such disposition would result in Borrower's owning less than a majority of the outstanding shares of such Subsidiary or failure to otherwise control such Subsidiary, except pursuant to Section 9.3. Section 9.9 Contingent Obligations. Borrower will not directly enter into any partnership or joint venture and will not enter into any agreement pursuant to which it directly assumes any liabilities of any joint venture or partnership entered into by any of its Subsidiaries. In addition, Borrower will not, after the Closing Date, and will not permit any of its Subsidiaries to Guarantee any Debt or indebtedness of any other Persons, including, without limitation, any Affiliate, except: (a) Guarantees by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (b) pursuant to the Master Guaranty; (c) each of Borrower's Subsidiaries may Guarantee the income or debts of individual health care professionals (or of professional corporations or partnerships owned one hundred percent (100%) by individual health care professionals) associated with its respective health care institution; (d) each of Borrower's Wholly-Owned Subsidiaries the sole asset of which is a joint venture interest acquired after the Closing Date in a less than one hundred percent (100%) owned Subsidiary of Borrower permitted by Sections 9.4(d), may assume, Guarantee, endorse or otherwise become directly or contingently liable in connection with any Debt or indebtedness of such joint venture, provided that prior to any such Subsidiary becoming so obligated for the Debt or indebtedness of such joint venture, Borrower shall furnish to Agent, (i) a certificate of a Responsible Officer of Borrower stating that all reasonable steps have been taken in the opinion of Borrower to insulate Borrower from any liability for the debts of such Subsidiary, and (ii) such other documents as Agent and Required Lenders shall reasonably request to confirm that reasonable steps have been taken to so insulate Borrower from any liability for the debts of such Subsidiary; (e) any liability, contingent or otherwise, which is permitted pursuant to Section 9.1; and (f) Guarantees of Debt permitted by Section 9.1. 69 76 Section 9.10 Restricted Payments. Except as permitted by Section 9.1, the Borrower will not, and will not permit any of its Subsidiaries (other than Excluded Subsidiaries) to, make any Restricted Payments, except: (a) Subject to the subordination provisions relating thereto, the Borrower and its Subsidiaries may make regularly scheduled payments of interest and principal on the Subordinated Notes and on any other Subordinated Debt approved in writing by the Required Lenders; (b) The Borrower may, from time to time, repurchase or redeem the Existing Subordinated Notes if the Senior Leverage Ratio is equal to or less than 2.5 to 1.0 after such repurchase is completed; (c) The Borrower may refinance any Subordinated Debt (including, without limitation, Debt under the Existing Subordinated Notes) with other Subordinated Debt; (d) The Borrower may make Restricted Payments with respect to its Capital Stock up to an aggregate amount of $1,000,000 per calendar year; provided, however, Borrower shall not be subject to the foregoing $1,000,000 limitation if Borrower's senior unsecured long-term debt ratings are BBB- and BAA3 or better from S&P and Moody's, respectively; (e) Subsidiaries of the Borrower may make Restricted Payments to the Borrower or Wholly-Owned Subsidiaries or Majority-Owned Subsidiaries (in either event other than Excluded Subsidiaries) of the Borrower; (f) Subsidiaries of the Borrower that are joint ventures or partnerships may make Restricted Payments to their joint venturers or partners in accordance with their joint venture agreements as in effect from time to time; (g) The Borrower or any Subsidiary may redeem or repurchase any Equity Interests of the Borrower or any Subsidiary held by any officers, directors or employees of the Borrower (or any of its Subsidiaries) whose employment has been terminated or who have died or become disabled, so long as the aggregate amount of payments for all such redemptions or repurchases in any fiscal year do not exceed $5.0 million; (h) The Borrower may pay a one-time dividend to Park Hospital, GmbH in an amount not to exceed $22,000,000 and may make the payments referred to in Section 2.10(a)(ii); and provided, however, that no Restricted Payments may be made, except pursuant to clauses (d), (e) (f), (g) and (h) preceding, if a Default exists at the time of such Restricted Payment or would result therefrom, except that the foregoing provision will not be violated by the payment by the Borrower of any dividend within 60 days of the date of declaration thereof if at such date of declaration such payment would have complied with the provisions of this Section 9.10. 70 77 Section 9.11 Limitation on Issuance of Capital Stock. The Borrower will not permit any of its Subsidiaries (other than the Excluded Subsidiaries) to, at any time issue, sell, assign or otherwise dispose of any of its Equity Interests; provided, however, that, if and to the extent not otherwise prohibited by this Agreement or the other Loan Documents any Subsidiary of the Borrower may issue additional shares of its Capital Stock if and to the extent that the Borrower and its Subsidiaries continue to own a majority of the shares of such Capital Stock; and provided, further, that all of such additional shares of Capital Stock referred to in the foregoing proviso that are issued to the Borrower or any Subsidiary Pledgor (other than the shares of Excluded Subsidiaries) shall be pledged to the Agent, on behalf of the Agent and the Lenders, as security for the Obligations pursuant to a pledge agreement substantially similar to the Subsidiary Security Agreements delivered pursuant to Section 6.1. Section 9.12 Disposition of Property. A. Except as permitted by Section 9.4, the Borrower will not, and will not permit any of its Subsidiaries to, sell, lease, assign, transfer or otherwise dispose of any of its Property, except: (a) sales of assets of the closed Bellwood Health Center, the closed Palmdale Community Hospital, IV Care, Inc. and IV Care, L.P., Heartland Hospital owned by DHHS, and Physicians and Surgeons Hospital in Midland, Texas; (b) other Asset Dispositions by the Borrower and its Subsidiaries to Persons other than the Borrower or its Wholly-Owned Subsidiaries or its Majority-Owned Subsidiaries (other than Excluded Subsidiaries) if each of the following conditions have been satisfied: (i) the aggregate fair market value of the assets sold, disposed of or otherwise transferred by the Borrower and its Subsidiaries in any twelve-month period does not exceed ten percent (10%) of the fair market value of the Consolidated Tangible Assets of the Borrower and its Subsidiaries,(ii) the consideration received by the Borrower or its Subsidiaries is at least equal to the fair market value of such assets, and (iii) no Default exists at the time of or will result from such Asset Disposition; (c) Asset Dispositions by the Borrower and its Subsidiaries to the Borrower or any Wholly-Owned Subsidiary or Majority-Owned Subsidiary of the Borrower other than an Excluded Subsidiary if no Default exists at the time of or will result from such Asset Disposition; (d) the sale of accounts receivable under the PHC Funding Sale Documents in an amount sufficient to derive Net Proceeds of no more than $100,000,000; (e) asset swaps as long as no more than twenty percent (20%) of the total consideration paid is in cash; 71 78 (f) dispositions of Property no longer used or useful in the ordinary course of business; and (g) transfers otherwise permitted under this Agreement. B. In connection with an authorized Asset Disposition under this Section 9.12, Agent hereby agrees to release such Collateral and, where applicable, a Subsidiary Guarantor, as is required to effectuate the authorized Asset Disposition. Section 9.13 Environmental Protection. The Borrower will not, and will not permit any of its Subsidiaries to, (a) use (or permit any tenant to use) any of its Properties for the handling, processing, storage, transportation or disposal of any Hazardous Material except in compliance with applicable Environmental Laws, (b) generate any Hazardous Material except in compliance with applicable Environmental Laws, (c) conduct any activity that is likely to cause a Release or threatened Release of any Hazardous Material in violation of any Environmental Law, or (d) otherwise conduct any activity or use any of its Properties in any manner that violates or is likely to violate any Environmental Law or create any Environmental Liabilities for which the Borrower or any of its Subsidiaries would be responsible, except for circumstances or events described in clauses (a) through (d) preceding that would not have, individually or in the aggregate, a Material Adverse Effect. Section 9.14 Intercompany Transactions. Except as may be expressly permitted or required by the Loan Documents, the Borrower will not, and will not permit any of its Subsidiaries to, create or otherwise cause or permit to exist or become effective any material consensual encumbrance or restriction of any kind on the ability of any Subsidiary (other than Excluded Subsidiaries) to (a) pay dividends or make any other distribution to the Borrower or any of its Subsidiaries in respect of such Subsidiary's Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any indebtedness owed to the Borrower or any of its Subsidiaries, (c) make any loan or advance to the Borrower or any of its Subsidiaries, or (d) sell, lease or transfer any of its Property to the Borrower or any of its Subsidiaries. Section 9.15 Modification of Other Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, consent to or implement any termination, amendment, modification, supplement or waiver of (a) the subordination provisions of the Subordinated Debt Documents, and (b) the certificate of incorporation or bylaws (or analogous constitutional documents) of the Borrower or any of the Borrower's Subsidiaries (other than Excluded Subsidiaries) if the same could reasonably be expected to have a Material Adverse Effect or otherwise could reasonably be expected to be materially adverse to the Agent or the Lenders, or (c) any other Material Contract to which it is a party or any Permit which it possesses if the same could reasonably be expected to have a Material Adverse Effect. Without limiting the generality of and in addition to the foregoing, except as otherwise permitted in this Agreement, the Borrower will not consent to or implement any termination, amendment, modification, supplement or waiver of the Subordinated Debt Documents (i) to increase the principal amount of any Subordinated Debt, (ii) to shorten the maturity of, or any date for the payment of any principal of or interest 72 79 on, any Subordinated Debt, (iii) to increase the rate of interest on or with respect to any Subordinated Debt, (iv) to otherwise amend or modify the payment or subordination terms of any Subordinated Debt, (v) to provide any Collateral or security for payment or collection of any Subordinated Debt, or (vi) in any other respect that could reasonably be expected to have a Material Adverse Effect or to be materially adverse to the Agent and the Lenders. Section 9.16 ERISA. The Borrower will not: (a) allow or take or to the extent, after the Company employs reasonable efforts, such action is within the Borrower's effective control permit any ERISA Affiliate to take any action which would cause, any unfunded or unreserved liability for benefits under any Pension Plan (exclusive of any Multiemployer Plan) to exist or to be created that exceeds $1,500,000 with respect to any such Pension Plan or $3,000,000 with respect to all such Pension Plans in the aggregate; and (b) with respect to any Multiemployer Plan, allow, or take (or to the extent, after the Company employs reasonable efforts, such action is within the Borrower's effective control) permit any ERISA Affiliate to take) any action which would cause, any unfunded or unreserved liability for benefits under any Multiemployer Plan to exist or to be created with respect to the Borrower or any ERISA Affiliate, either individually as to any such Multiemployer Plan or in the aggregate as to all such Multiemployer Plans, that could, upon any partial or complete withdrawal by the Borrower or any ERISA Affiliate from or termination of any such Multiemployer Plan or Plans, could reasonably be expected to have a Material Adverse Effect. ARTICLE 10 Financial Covenants The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Lender has any Commitment hereunder or any Letter of Credit remains outstanding, the Borrower will perform and observe the following covenants: Section 10.1 Ratio of Senior Leverage to Adjusted EBITDA. The Borrower will not permit the Senior Leverage Ratio at the end of any fiscal quarter to exceed, during the following time periods, the following respective ratios:
Calendar Year Quarters Ending Maximum Permitted ----------------------------- ----------------- During the following Periods Senior Leverage Ratio ---------------------------- --------------------- Closing Date through June 30, 1998 3.00 : 1.00 July 1, 1998 through June 30, 1999 2.75 : 1.00
73 80
Calendar Year Quarters Ending Maximum Permitted ----------------------------- ----------------- During the following Periods Senior Leverage Ratio ---------------------------- --------------------- July 1, 1999 and thereafter 2.50 : 1.00
Section 10.2 Minimum Net Worth. As of the close of each fiscal quarter ending on or after December 31, 1996, the Borrower will not permit Net Worth to be less than (a) 85% of $236,000,000, plus (b) for each quarter on a cumulative basis ending on or after the fiscal quarter ending December 31,1996 or thereafter, fifty percent (50%) of Borrower's net income, if any, plus seventy-five percent (75%) of the net proceeds from any Equity Issuance following the Closing Date, and (c) shall exclude any extraordinary item related to the extinguishment of Debt or any cumulative effect of a change in accounting. Section 10.3 Ratio of Total Debt to Adjusted EBITDA. The Borrower will not permit the ratio, calculated as of the end of each fiscal quarter ending during the periods below, of (i) Total Debt to (ii) Adjusted EBITDA for the period then ended, to exceed the ratio set forth below:
Period Ratio ------- ----- From the Closing Date through March 31, 1997 5.25 to 1.00 From April 1, 1997 through September 30, 1997 5.00 to 1.00 From October 1, 1997 through March 31, 1998 4.50 to 1.00 From April 1, 1998 through December 31, 1998 4.00 to 1.00 From January 1, 1999 and at all times thereafter 3.50 to 1.00
Section 10.4 Fixed Charge Coverage Ratio. The Borrower will not permit the Fixed Charge Coverage Ratio, calculated as of the end of each fiscal quarter commencing with the fiscal quarter ending September 30, 1996 then ended to be less than (i) 1.25 to 1.00 during the period beginning on the Closing Date and through March 31, 1998, and (ii) 1.50 to 1.00 for the period beginning on April 1, 1998 and at all times thereafter. ARTICLE 11 Default Section 11.1 Events of Default. Each of the following shall be deemed an "Event of Default": (a) The Borrower shall fail to pay, repay or prepay within one (1) day after the due date thereof any amount of principal, and within five (5) days after the due date thereof any interest, fees or other amount or other Obligation owing to the Agent or any Lender pursuant to this Agreement or any other Loan Document. 74 81 (b) Any representation or warranty made or deemed made by the Borrower or any Loan Party in any Loan Document or in any certificate, report, notice or financial statement furnished at any time in connection with this Agreement or any other Loan Document shall be false, misleading or erroneous in any material respect when made or deemed to have been made. (c) The Borrower shall fail to perform, observe or comply, or to cause any of its Subsidiaries to perform, observe or comply, with any covenant, agreement or term contained in this Agreement (other than covenants and agreements pertaining to payment of the Obligations which shall be governed by Section 11.1(a)), or the Borrower, any Subsidiary of the Borrower or any other Loan Party shall fail to perform, observe or comply with any covenant, agreement or term contained in the other Loan Documents; and such failure is not remedied to the sole satisfaction of Agent and the Required Lenders or waived in writing by Agent and the Required Lenders within 30 days after any officer of the Borrower has knowledge that, or Agent has given Borrower notice that, such failure occurred. Notwithstanding the foregoing, there shall be no grace period in the event of (i) the breach of any financial covenant under Article 10, or (ii) the failure of any Loan Party to comply with the provisions of Sections 8.2 (Maintenance of Existence) and 8.5 (Insurance). (d) Any of the Loan Parties shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due. (e) Any Loan Party shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner, liquidator or the like of itself or of all or any substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect, the "Bankruptcy Code"), (iv) institute any proceeding or file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, winding-up or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, or (vi) take any corporate action for the purpose of authorizing any of the foregoing. (f) A proceeding or case shall be commenced, without the application, approval or consent of any of the Loan Parties in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of any of the Loan Parties or of all or any substantial part of its Property, or (iii) similar relief in respect of any of the Loan Parties under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief 75 82 against any of the Loan Parties shall be entered in an involuntary case under the Bankruptcy Code. (g) Any of the Loan Parties shall fail to discharge within a period of 30 days after the commencement thereof any order of attachment, sequestration, forfeiture or similar order or orders involving an aggregate amount of $1,000,000 or more against any of its Properties. (h) A judgment or judgments shall be entered against Borrower or any of its Subsidiaries in the aggregate amount at any time of $1,000,000 or more in excess of any amounts covered by insurance, on any claim or claims, and Borrower or its respective Subsidiaries shall not have satisfied or appealed such judgment or judgments, and obtained a stay of such judgment or judgments pending appeal, within the time period available for appeal under applicable law; (i) (i) Any of the Loan Parties shall fail to pay when due, after taking into account any applicable cure or grace periods, any principal of or interest on any Debt (other than the Obligations and Debt under the Krukemeyer Subordinated Note) having (either individually or in the aggregate) a principal amount of at least $5,000,000, or (ii) the maturity of any such Debt shall have been accelerated, or (iii) other than in connection with a redemption or defeasance pursuant to a refinancing of Subordinated Debt permitted by Section 9.1(f) or as otherwise provided by Sections 9.10(b) and (c) (x) any such Debt shall have been required to be prepaid prior to the stated maturity thereof, or (y) any event shall have occurred (and shall not have been waived or otherwise cured) that permits after taking into account any applicable cure or grace periods any holder or holders of such Debt or any Person acting on behalf of such holder or holders to accelerate the maturity thereof or require any such prepayment. (j) This Agreement or any other Loan Document shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by any Loan Party or any of its shareholders, or any Loan Party shall deny that it has any further liability or obligation under any of the Loan Documents, or any Lien created by the Loan Documents shall for any reason cease to be a valid, first priority perfected Lien (subject only to Permitted Liens) upon any of the Collateral purported to be covered thereby. (k) Any of the following events shall occur or exist with respect to any Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any Reportable Event with respect to any Pension Plan; (iii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Pension Plan or the termination of any Pension Plan; (iv) any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Pension Plan, or the institution by the PBGC of any such proceedings; (v) any "accumulated funding deficiency" (as defined in Section 406 of ERISA or Section 412 of the Code), whether or not waived, shall exist with 76 83 respect to any Pension Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency or termination of any Pension Plan or Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, have subjected or could in the reasonable opinion of Required Lenders subject any Loan Party or any ERISA Affiliate to any tax, penalty or other liability to a Plan, a Multiemployer Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate exceed or could reasonably be expected to exceed $1,500,000. (l) The occurrence of a Change of Control. (m) If, at any time, the subordination provisions of any of the Subordinated Notes, the Indentures or any other Subordinated Debt Documents shall be invalidated or shall otherwise cease to be in full force and effect. (n) If, at any time, (i) any acceleration of the maturity of the Krukemeyer Subordinated Note shall occur for any reason, or (ii) other than in connection with a refinancing of such Subordinated Debt permitted by Section 9.1(f) or as otherwise provided in Sections 9.10(b) and 9.10(c), the Borrower shall initiate or give any election or notice relating to any redemption or other prepayment of any such Subordinated Debt. (o) Borrower and/or its Subsidiaries shall fail to deliver to the Agent, for the ratable benefit of the Lenders, certificates evidencing outstanding certificated Capital Stock of the Subsidiaries as required by this Agreement, the Security Agreement and each of the Subsidiary Security Agreements. (p) Any involuntary Lien or Liens securing in the aggregate at any time the sum of $1,000,000 or more, of any kind or character, other than Permitted Liens or any other Lien being contested in good faith by appropriate proceedings or any Lien for taxes due but not in default, and, in either case, for which adequate reserves in the reasonable opinion of Agent, have been provided on the books of Borrower or its Subsidiary, as the case may be, shall attach to any assets or property of Borrower or any Subsidiary of Borrower which Lien or Liens shall not have been removed or the performance of such Lien obligation bonded for an amount equal to such Lien obligations within thirty (30) days after said attachment. (q) An event or condition shall occur which results in a Material Adverse Effect. Section 11.2 Remedies. If any Event of Default shall occur and be continuing, the Agent may (subject to Section 13.10 with respect to clauses (a) and (b) below) and, if directed by the Required Lenders, the Agent shall do any one or more of the following: (a) Acceleration. Declare all outstanding principal of and accrued and unpaid interest on the Loans and all other amounts payable by the Borrower under the Loan 77 84 Documents immediately due and payable, and the same shall thereupon become immediately due and payable, without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; (b) Termination of Commitments. Terminate the Commitments (including, without limitation, the obligation of the Issuing Bank to issue Letters of Credit) without notice to the Borrower; (c) Judgment. Reduce any claim to judgment; (d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the Agent for the benefit of the Agent and the Lenders to secure payment and performance of the Obligations in accordance with the terms of the Loan Documents; or (e) Rights. Exercise any and all rights and remedies afforded by the laws of the State of Texas or any other jurisdiction, by any of the Loan Documents, by equity or otherwise, including, but not limited to, its right of offset with respect to all bank accounts of Borrower and its Subsidiaries; provided, however, that upon (i) the occurrence of an Event of Default under Section 11.1(e) or Section 11.1(f), the Commitments of all of the Lenders (including, without limitation, the obligation of the Issuing Bank to issue Letters of Credit) shall immediately and automatically terminate, and the outstanding principal of and accrued and unpaid interest on the Loans and all other amounts payable by the Borrower under the Loan Documents shall thereupon become immediately and automatically due and payable, and (ii) upon the occurrence of an Event of Default under clause (ii) of Section 11.1(n), the outstanding principal of and accrued and unpaid interest on the Loans and all other amounts payable by the Borrower under the Loan Documents shall thereupon become immediately and automatically due and payable, all (with respect to each of clause (i) and (ii) preceding) without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. Section 11.3 Cash Collateral. If an Event of Default shall have occurred and be continuing the Borrower shall, if requested by the Agent or the Required Lenders, pledge to the Agent as security for the Obligations an amount in immediately available funds equal to the then outstanding Letter of Credit Liabilities, such funds to be held in a cash collateral account satisfactory to the Agent without any right of withdrawal by the Borrower. Section 11.4 Performance by the Agent. If any Loan Party shall fail to perform any covenant or agreement in accordance with the terms of the Loan Documents, the Agent may, at the direction of the Required Lenders, during the continuance of an Event of Default, perform or attempt to perform such covenant or agreement on behalf of such Loan Party. In such event, the Borrower shall, at the request of the Agent, promptly pay any reasonable amount expended by the Agent or the Lenders in connection with such performance or attempted performance to the Agent 78 85 at the Principal Office, together with interest thereon at the applicable Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that neither the Agent nor any Lender shall have any liability or responsibility for the performance of any obligation of the Borrower or any other Loan Party under this Agreement or any of the other Loan Documents. ARTICLE 12 The Agent Section 12.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Neither the Agent nor any of its Affiliates, officers, directors, employees, attorneys or agents shall be liable for any action taken or omitted to be taken by any of them hereunder or otherwise in connection with this Agreement or any of the other Loan Documents except for its or their own gross negligence or willful misconduct. Without limiting the generality of the preceding sentence, the Agent (a) may treat the payee of any Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent, (b) shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be required to initiate any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by the Required Lenders, (d) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by any Person to perform any of its obligations hereunder or thereunder, (e) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, and (f) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing reasonably believed by it to be genuine and signed or sent by the proper party or parties. As to any matters not expressly provided for by this Agreement, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Lenders, and such instructions of the Required Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders; provided, however, that the Agent shall not be required to take any action which exposes the Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law. 79 86 Section 12.2 Rights of Agent as a Lender. With respect to its Commitment, the Loans made by it and the Note issued to it, B of A (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, act as trustee under indentures of, provide merchant banking services to, own securities of, and generally engage in any kind of banking, trust or other business with, the Loan Parties or any of their Affiliates and any other Person who may do business with or own securities of the Loan Parties or any of their Affiliates, all as if it were not acting as the Agent and without any duty to account therefor to the Lenders. Section 12.3 Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default (other than the non-payment of principal of or interest on the Loans or of commitment fees) unless the Agent has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to Section 12.1 and Section 13.10) take such action with respect to such Default as shall be directed by the Required Lenders, provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall seem advisable and in the best interest of the Lenders. Section 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY THE AGENT AND THE DOCUMENTATION AGENT FROM AND HOLD THE AGENT AND THE DOCUMENTATION AGENT HARMLESS AGAINST (TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY IN ACCORDANCE WITH THEIR PRO RATA SHARES (CALCULATED ON THE BASIS OF THE COMMITMENT PERCENTAGES), ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT OR THE DOCUMENTATION AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE AGENT OR THE DOCUMENTATION AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY, RESPECTIVELY, THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE LENDERS THAT THE AGENT AND THE DOCUMENTATION AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH 80 87 LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT OR THE DOCUMENTATION AGENT, AS THE CASE MAY BE (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSONS TO BE INDEMNIFIED). WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE AGENT AND THE DOCUMENTATION AGENT, AS APPROPRIATE, PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENT PERCENTAGES) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE AGENT OR THE DOCUMENTATION AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE AGENT OR THE DOCUMENTATION AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY THE BORROWER. Section 12.5 Independent Credit Decisions. Each Lender agrees that it has independently and without reliance on the Agent, the Documentation Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and the other Loan Parties and its own decision to enter into this Agreement and that it will, independently and without reliance upon the Agent, the Documentation Agent, or any other Lender, and based upon such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Agent shall not be required to keep itself informed as to the performance or observance by any Loan Party of this Agreement or any other Loan Document or to inspect the Properties or books of any Loan Party. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or under the other Loan Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other financial information concerning the affairs, financial condition or business of any Loan Party (or any of their Affiliates) which may come into the possession of the Agent or any of its Affiliates. Section 12.6 Several Commitments. The Commitments and other obligations of the Lenders under this Agreement are several. The default by any Lender in making a Loan in accordance with its Commitment shall not relieve the other Lenders of their obligations under this Agreement. In the event of any default by any Lender in making any Loan, each nondefaulting Lender shall be obligated to make its Loan but shall not be obligated to advance the amount which the defaulting Lender was required to advance hereunder. In no event shall any Lender be required to advance an amount or amounts with respect to any of the Loans which would in the 81 88 aggregate exceed such Lender's Commitment with respect to such Loans. No Lender shall be responsible to the Agent or any other Lender for any act or omission of any other Lender. Section 12.7 Successor Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Borrower and the Agent may be removed at any time with cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders will have the right to appoint another Lender as a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, and with the consent of the Borrower, which consent shall not be unreasonably withheld, appoint a successor Agent, which shall be a commercial bank organized under the laws of the U.S. or any state thereof or of a foreign country if acting through its U.S. branch and having combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges, immunities and duties of the resigning or removed Agent, and the resigning or removed Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any Agent's resignation or removal as Agent, the provisions of this Article 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was the Agent. Section 12.8 Managing Agent and Co-Agents. The Managing Agent and Co-Agents, as such, shall have no duties or obligations whatsoever under this Agreement or any Loan Document or any other document or any matter related hereto or thereto (but shall have the duties and obligations of a Lender), but shall nevertheless be entitled to all of the indemnities and other protection afforded to the Agent and Documentation Agent under this Article 12. ARTICLE 13 Miscellaneous Section 13.1 Expenses. Whether or not the transactions contemplated hereby are consummated, the Borrower hereby agrees, on demand, to pay or reimburse the Agent, the Documentation Agent and each of the Lenders for: (a) all reasonable out-of-pocket costs and expenses of the Agent and the Documentation Agent in connection with the preparation, negotiation, execution, administration and delivery of this Agreement and the other Loan Documents, and any and all amendments, modifications, renewals, extensions and supplements thereof and thereto, and the syndication of the Loans, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent and the Documentation Agent, (b) all reasonable out-of-pocket costs and expenses of (i) the Agent in connection with any Default or any Event of Default, and (ii) the Documentation Agent and the Lenders in connection with any Event of Default, the exercise thereafter of any right or remedy and the enforcement of this Agreement or any other Loan Document or any term or provision hereof or thereof, including, without limitation, the reasonable fees and expenses of legal counsel for any such Person, (c) subject to 82 89 Articles 3 and 4 hereof, all out-of-pocket transfer, stamp, documentary or other similar taxes, assessments or charges levied by any Governmental Authority in respect of this Agreement or any of the other Loan Documents, (d) all reasonable costs, expenses, assessments and other charges incurred by the Agent or Documentation Agent in connection with any filing, registration, recording or perfection of any Lien contemplated by this Agreement or any other Loan Document, and (e) all reasonable out-of-pocket costs and expenses incurred by the Agent and the Documentation Agent in connection with due diligence, computer services, copying, appraisals, collateral audits, insurance, consultants and search reports. Section 13.2 INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT, THE DOCUMENTATION AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' AND CONSULTANTS' FEES BUT SUBJECT TO THE PROVISIONS OF SECTION 13.1) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY ANY LOAN PARTY OF ANY REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE OF ANY LOAN OR LETTER OF CREDIT, (E) SUBJECT TO ARTICLES 3 AND 4 HEREOF, ANY AND ALL TAXES, LEVIES, DEDUCTIONS AND CHARGES IMPOSED ON THE AGENT, THE ISSUING BANK OR ANY LENDER IN RESPECT OF ANY LOAN OR LETTER OF CREDIT, (F) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE PROPERTIES OF ANY LOAN PARTY, EXCEPT TO THE EXTENT THAT THE LOSS, DAMAGE OR CLAIM IS DIRECTLY ATTRIBUTABLE TO (i) AN INTENTIONAL AND AFFIRMATIVE ACT BY ANY PERSON TO BE INDEMNIFIED THAT CONSTITUTES NEGLIGENCE OR OTHER MISCONDUCT OF SUCH PERSON, OR (ii) ANY ACTION OR INACTION OF ANY PERSON TO BE INDEMNIFIED SUBSEQUENT TO THE EXERCISE OF VOTING OR OTHER OWNERSHIP RIGHTS OR THE TAKING OF ANY FORECLOSURE ACTION WITH RESPECT TO THE CAPITAL STOCK OF SUCH LOAN PARTY THAT CONSTITUTES NEGLIGENCE OR OTHER MISCONDUCT OF SUCH PERSON, TO THE EXTENT SUCH PERSON IS A "PERSON IN CONTROL" UNDER ANY ENVIRONMENTAL LAW, OR (G) ANY INVESTIGATION, LITIGATION OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; BUT EXCLUDING ANY OF THE FOREGOING TO THE EXTENT ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS 83 90 THE EXPRESS INTENTION OF THE PARTIES HERETO THAT (EXCEPT AS PROVIDED IN SUBCLAUSE (F) ABOVE) EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE THE REPAYMENT OF THE LOANS. Section 13.3 Limitation of Liability. None of the Agent, the Documentation Agent, any Lender or any Affiliate, officer, director, employee, attorney or agent thereof shall be liable for any error of judgment or act done in good faith, or be otherwise liable or responsible under any circumstances whatsoever (including such Person's negligence, except as contemplated by Section 13.2(F)), except for such Person's gross negligence, willful misconduct, intentional fraud or violation of the law. None of the Agent, the Documentation Agent, any Lender or any Affiliate, officer, director, employee, attorney or agent thereof shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue any of them upon, any claim for any special, incidental or consequential damages suffered or incurred by the Borrower or any other Loan Party in connection with, arising out of or in any way related to this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. The Borrower hereby waives, releases and agrees not to sue the Agent, the Documentation Agent or any Lender or any of their respective Affiliates, officers, directors, employees, attorneys or agents for exemplary or punitive damages in respect of any claim in connection with, arising out of or in any way related to this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Section 13.4 No Duty. All attorneys, accountants, appraisers and other professional Persons and consultants retained by the Agent, the Documentation Agent and the Lenders shall have the right to act exclusively in the interest of the Agent, the Documentation Agent and the Lenders and shall have no duty of disclosure, duty of loyalty, duty of care or other duty or obligation of any type or nature whatsoever to the Borrower or any of the Borrower's shareholders or any other Person other than the Agent, the Documentation Agent, and the Lenders. Section 13.5 No Fiduciary Relationship. The relationship between the Borrower and each Lender is solely that of debtor and creditor, and neither the Agent, the Documentation Agent nor any Lender has any fiduciary or other special relationship with the Borrower or any other Loan Party, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between the Borrower and any Lender, or any other Loan Party and any Lender, to be other than that of debtor and creditor. No joint venture or partnership is created by this Agreement among the Lenders or among the Borrower or any other Loan Party and the Lenders. Section 13.6 No Waiver; Cumulative Remedies. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any 84 91 right, power or privilege under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law. Section 13.7 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns in accordance with this Agreement. Neither the Borrower nor any other Loan Party may assign or transfer any of its rights or obligations under this Agreement or any other Loan Document without the prior written consent of the Agent and all of the Lenders. Any Lender may sell participations in all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitment and the Revolving Credit Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment) shall remain unchanged, (ii) such Lender shall remain solely responsible to the Borrower for the performance of such obligations, (iii) such Lender shall remain the holder of its Note for all purposes of this Agreement, (iv) the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents, and (v) such Lender shall not sell a participation that conveys to the participant the right to vote or give or withhold consents under this Agreement or any other Loan Document, other than (if and to the extent that such Lender so agrees) the right to vote upon or consent to the following, to the extent any of the following affect the rights of such participant (A) any increase of such Lender's Commitment (other than an increase resulting from an assignment to or in favor of such Lender from another Lender in accordance with this Agreement), (B) any reduction of the principal amount of, or interest to be paid on, the Loans of such Lender, (C) any reduction of any commitment fee or other amount payable to such Lender under any Loan Document if and to the extent that such reduction would decrease the fee or other amount payable to the participant, (D) any postponement of any date for the payment of any amount payable in respect of the Loans of such Lender, (E) any release of a material portion of the Collateral from the Liens created by the Security Documents and not otherwise expressly authorized by the Loan Documents, and (F) any release of any Loan Party from liability under the Loan Documents other than as expressly authorized by the Loan Documents. (b) The Borrower and each of the Lenders agree that any Lender (the "Assigning Lender") may at any time assign to one or more Eligible Assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment, Loans and Letters of Credit) (each an "Assignee"); provided, however, that (i) except with respect to a Lender's assignment to any of its bank Affiliates or to another Lender, the Borrower has consented to such assignment, such consent shall not be unreasonably withheld, (ii) each such assignment may be of a varying percentage of the Assigning Lender's rights and obligations under this Agreement and the other Loan Documents and may 85 92 relate to some but not all of such rights and/or obligations, (iii) except in the case of an assignment of all of a Lender's rights and obligations under this Agreement and the other Loan Documents, the amount of the Commitment and Loans of the Assigning Lender being assigned pursuant to each assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment), shall in no event be less than the lesser of (A) an aggregate amount equal to $5,000,000 (calculated based upon the sum of the Revolving Credit Loans Commitment assigned (or, if such Commitment has terminated or expired, the aggregate outstanding principal amount of the Revolving Credit Loans and the Letter of Credit Liabilities assigned), or (B) an aggregate amount equal to five percent (5%) of the sum of the aggregate outstanding Revolving Credit Loans Commitments (or, if such Commitments have terminated or expired, the aggregate outstanding principal amount of the Revolving Credit Loans and the Letter of Credit Liabilities), and (iv) the parties to each such assignment shall execute and deliver to the Agent for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance, together with the Note subject to such assignment, and the Assigning Lender and/or the Assignee shall pay the Agent a processing and recordation fee of $2,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, or, if so specified in such Assignment and Acceptance, the date of acceptance thereof by the Agent, (1) the Assignee thereunder shall be a party hereto as a "Lender" and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and under the Loan Documents, and (2) the Assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights, from and after the effective date of such Assignment and Acceptance, and be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a Lender's rights and obligations under the Loan Documents, such Lender shall cease to be a party thereto, provided that such Lender's rights under Article 4, Section 13.1 and Section 13.2 accrued through the date of assignment shall continue). (c) By executing and delivering an Assignment and Acceptance, the Assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (ii) such Assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of its obligations under the Loan Documents; (iii) such Assignee confirms that it has received a copy of the other Loan Documents, together with copies of the financial statements referred to in Section 7.2 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Assignee will, independently and without reliance upon the Agent or such Assigning Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own 86 93 credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such Assignee confirms that it is an Eligible Assignee; (vi) such Assignee appoints and authorizes the Agent to take such action as agent on its behalf and exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (d) The Agent shall maintain on behalf of the Lenders at its Principal Office a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes under the Loan Documents. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. Upon Borrower's request therefor, from time to time, Agent will provide Borrower with a list of the Lenders who are then Loan Parties as set forth in the Register. (e) Upon its receipt of an Assignment and Acceptance executed by an Assigning Lender and Assignee representing that it is an Eligible Assignee, together with the Note subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt written notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its expense, shall execute and deliver to the Agent in exchange for each surrendered Note evidencing particular Loans, a new Note evidencing such Loans payable to the order of such Eligible Assignee in an amount equal to such Loans assigned to it and, if the Assigning Lender has retained any Loans, a new Note evidencing such Loans payable to the order of the Assigning Lender in the amount of such Loans retained by it (each such promissory note shall constitute a "Note" for purposes of the Loan Documents). Such new Notes shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit C hereto. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 13.7, disclose to the Assignee or participant or proposed Assignee or participant any information relating to the Borrower or any of its Subsidiaries furnished to such Lender by or on behalf of the Borrower or any of its respective Subsidiaries; provided that each such actual or proposed Assignee or participant shall agree to be bound by the provisions of Section 13.18. Section 13.8 Survival. All representations and warranties made or deemed made in this Agreement or any other Loan Document or in any document, statement or certificate furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents and the making of the Loans, and no investigation by the Agent or any Lender or any closing shall affect the representations and warranties or the right of the Agent or 87 94 any Lender to rely upon them. Without prejudice to the survival of any other obligation of the Borrower hereunder, the obligations of the Borrower under Article 4 and Sections 13.1 and 13.2 shall survive repayment of the Loans and Reimbursement Obligations and termination of the Commitments. Section 13.9 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. Section 13.10 Amendments. No amendment or waiver of any provision of this Agreement, the Notes or any other Loan Document, nor any consent to any departure therefrom, shall in any event be effective unless the same shall be agreed or consented to in writing by the Required Lenders and each Loan Party which is a party thereto, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders and the Borrower, do any of the following: (a) increase the Commitments of the Lenders or subject the Lenders to any additional obligations; (b) reduce the principal of, or interest on, the Loans, the Reimbursement Obligations or any fees or other amounts payable hereunder to the Lenders; (c) postpone any scheduled date fixed for any payment (including, without limitation, any mandatory prepayment) of principal of, or interest on, the Loans, the Reimbursement Obligations or any fees or other amounts payable hereunder to the Lenders ; (d) change the Commitment Percentages or the aggregate unpaid principal amount of the Loans or the number or interests of the Lenders which shall be required for the Lenders or any of them to take any action under this Agreement; (e) change any provision contained in Section 3.2, Section 9.15 or this Section 13.10 or modify the definition of "Required Lenders" contained in Section 1.1; or (f) except as expressly authorized in Section 5.4 of this Agreement, release any Collateral from any of the Liens created by the Security Documents or release any Guaranty of all or any portion of the Obligations; and provided, further, however, that, except in the case of the automatic acceleration of maturity of the Loans and the automatic termination of the Commitments pursuant to Section 11.2 as a result of the occurrence of an Event of Default under Section 11.1(e) or Section 11.1(f), after any acceleration of the maturity of the Loans by the Agent pursuant to Section 11.2(a) or any termination of the Commitments by the Agent pursuant to Section 11.2(b) without the consent of the Required Lenders, the acceleration of the maturity of the Loans may be rescinded and the Commitments may be reinstated with the prior written consent of (i) all of the Lenders where the acceleration of the maturity of the Loans resulted from an Event of Default under Section 11.1(a), and (ii) the Required Lenders in all other circumstances. Notwithstanding anything to the contrary contained in this Section 13.10, no amendment, waiver or consent shall be made with respect to Article 12 hereof without the prior written consent of the Agent. 88 95 Section 13.11 Maximum Interest Rate. (a) No interest rate specified in this Agreement or any other Loan Document shall at any time exceed the Maximum Rate nor shall the amount of interest contracted for, charged, received, taken, collected, reserved or applied exceed the maximum amount permitted by applicable law. If at any time the interest rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate, thereby causing the interest accruing on such Obligation to be limited to the Maximum Rate, then, to the extent permitted by law, any subsequent reduction in the Contract Rate for such Obligation shall not reduce the rate of interest on such Obligation below the Maximum Rate until the aggregate amount of interest accrued on such Obligation equals the aggregate amount of interest which would have accrued on such Obligation if the Contract Rate for such Obligation had at all times been in effect. (b) Notwithstanding anything to the contrary contained in this Agreement or the other Loan Documents, none of the terms and provisions of this Agreement or the other Loan Documents shall ever be construed to create a contract or obligation to pay interest at a rate in excess of the Maximum Rate; and neither the Agent, the Documentation Agent, the Managing Agent, the Arranger, the Issuing Bank, any Co-Agent nor any Lender nor any other Person shall ever charge, receive, take, collect, reserve or apply, as interest on the Obligations, any amount in excess of the Maximum Rate or the maximum amount permitted by applicable law or any unearned interest in violation of applicable law. The parties hereto agree that any interest, charge, fee, expense or other obligation provided for in this Agreement or in the other Loan Documents which constitutes interest under applicable law shall be, ipso facto and under any and all circumstances, limited or reduced to an amount equal to the lesser of (i) the amount of such interest, charge, fee, expense or other obligation that would be payable in the absence of this Section 13.11(b) or (ii) an amount, which when added to all other interest payable under this Agreement and the other Loan Documents, equals the Maximum Rate and in no event exceeds the maximum amount permitted by applicable law. If, notwithstanding the foregoing, the Agent, the Documentation Agent, the Managing Agent, the Arranger, the Issuing Bank or any Lender ever contracts for, charges, receives, takes, collects, reserves or applies as interest any amount in excess of the Maximum Rate, such amount which would be deemed excessive interest shall be deemed a partial payment or prepayment of principal of the Obligations and treated hereunder as such; and if the Obligations, or applicable portions thereof, are paid in full, any remaining excess shall promptly be paid to the Borrower. In determining whether the interest paid or payable, under any specific contingency, exceeds the Maximum Rate, the Borrower, the Agent, the Documentation Agent, the Managing Agent, the Arranger, the Issuing Bank, any Co-Agent and the Lenders shall, to the maximum extent permitted by applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the Obligations, or applicable portions thereof, so that the interest rate does not exceed the Maximum Rate at any time during the term of the Obligations; provided that, if the unpaid principal balance is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Rate to the maximum extent permitted by applicable law, the Agent, the Documentation Agent, the Managing 89 96 Agent, the Arranger, the Issuing Bank, each Co-Agent and/or the Lenders, as appropriate, shall refund to the Borrower the amount of such excess and, in such event, the Agent, the Documentation Agent, the Managing Agent, the Arranger, the Issuing Bank, each Co-Agent, and the Lenders shall not be subject to any penalties provided by any laws for contracting for, charging, receiving, taking, collecting, reserving or applying interest in excess of the Maximum Rate. (c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas 1925, as amended, the Borrower agrees that such Chapter 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not govern or in any manner apply to the Obligations. Section 13.12 Notices. All notices and other communications provided for or in connection with this Agreement and the other Loan Documents to which the Borrower is a party shall be given or made by telecopy or in writing and telecopied, mailed by certified mail return receipt requested or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof (or, with respect to a Lender that becomes a party to this Agreement pursuant to an assignment made in accordance with Section 13.7, in the Assignment and Acceptance executed by it); or, as to any party, at such other address as shall be designated by such party in a notice to each other party given in accordance with this Section 13.12. Notices by Borrower under this Agreement may be given to Agent on behalf of all Lenders at Agent's then most current address specified in accordance herewith. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid; provided, however, that notices with respect to Borrowings to the Agent shall be deemed given when received by the Agent. Section 13.13 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE U.S. THE BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS AND OF ANY TEXAS STATE COURT SITTING IN HOUSTON, TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING BY CERTIFIED MAIL ADDRESSED TO THE CHIEF FINANCIAL OFFICER OR GENERAL COUNSEL OF THE BORROWER OF COPIES OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SET FORTH UNDERNEATH ITS SIGNATURE HERETO. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION 90 97 WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORM. Section 13.14 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 13.15 Severability. Any provision of this Agreement held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be invalid or illegal. Section 13.16 Headings. The headings, captions and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 13.17 Construction. Each of the Borrower, the Agent, the Documentation Agent, the Managing Agent, the Issuing Bank and the Arranger and each Lender acknowledges that it has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the parties hereto. Section 13.18 Confidentiality. Each of the Agent, the Documentation Agent, the Managing Agent and each Lender (each a "Recipient") agrees to exercise its reasonable efforts to keep any non-public information delivered or made available by any Loan Party to it confidential from anyone other than Persons employed by such Recipient who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans and who shall be advised of and bound by the provisions of this Section 13.18; provided that nothing herein shall prevent any Recipient from disclosing such information (a) to any other Recipient, (b)upon the order of any court or administrative agency, (c) upon the request or demand of any regulatory agency or authority having jurisdiction over such Recipient, (d) which has been publicly disclosed by a Person other than a Recipient, (e) in connection with any litigation to which such Recipient or its Affiliates may be a party, (f) to the extent reasonably required in connection with the exercise of any remedy under the Loan Documents, (g) to such Recipient's legal counsel, independent auditors and such Recipient's Affiliates, provided that each such Person agrees to be bound by the provisions of this Section 13.18; and (h) to any actual or proposed participant or Assignee of all or any part of such Recipient's rights hereunder, so long as such actual or proposed participant or Assignee agrees to be bound by the provisions of this Section 13.18; provided, however, that to the extent practicable and unless otherwise prohibited by any Governmental Requirement, any Recipient disclosing any non-public information pursuant to clauses (b) or (e) shall endeavor in good faith to give the Borrower prior written notice of such disclosure. Section 13.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN 91 98 ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE AGENT, THE DOCUMENTATION AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF. Section 13.20 Approvals and Consent. In any instance under this Agreement or the other Loan Documents where the approval, consent or exercise of judgment of the Agent or any Lender is requested or required, no approval or consent of the Agent or any Lender shall be effective unless the same shall be in writing and the same shall be effective only in the specific instance and for the specific purpose for which given. 92 99 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. BORROWER: -------- PARACELSUS HEALTHCARE CORPORATION By: /s/ DEBORAH H. FRANKOVICH ---------------------------------------- Deborah H. Frankovich Vice President and Treasurer Address for Notices: ------------------- 515 West Greens Road, Suite 800 Houston, Texas 77067 Telephone No.: 713-873-6623 Telecopy No.: 713-873-6689 Attention: James G. VanDevender Executive Vice President and Chief Financial Officer and Robert C. Joyner Senior Vice President, General Counsel and Secretary S-1 100 Address: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Agency Management Services 555 South Flower Street, 11th Floor Los Angeles, California 90071 By: /s/ WYATT R. RITCHIE Attention: Ruth Edwards --------------------------------- Telephone: (213) 228-2678 Name: WYATT R. RITCHIE Telecopy: (213) 228-2299 ------------------------------- Title: Managing Director ------------------------------ Address: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender and as Credit Products - Healthcare Services the Issuing Bank 555 South Flower Street, 11th Floor Los Angeles, California 90071 Attention: Ruth Edwards By: /s/ WYATT R. RITCHIE Telephone: (213) 228-2678 --------------------------------- Telecopy: (213) 228-2756 Name: WYATT R. RITCHIE ------------------------------- Title: Managing Director ------------------------------ S-2 101 LENDERS: ------- REVOLVING CREDIT LOANS BANK OF AMERICA NATIONAL TRUST AND - ---------------------- SAVINGS ASSOCIATION, as a Lender and as the COMMITMENT: Issuing Bank - ----------- $62,000,000 By: /s/ WYATT R. RITCHIE ---------------------------------------- Name: WYATT R. RITCHIE -------------------------------------- Title: Managing Director ------------------------------------- Address for Notices: ------------------- Agency Management Services 555 South Flower Street, 11th Floor Los Angeles, California 90071 Telephone: 213-228-2678 Telecopy: 213-228-2756 Attention: Ruth Edwards Vice President S-3 102 REVOLVING CREDIT LOANS BANQUE PARIBAS, as Documentation Agent - ---------------------- and as a Lender COMMITMENT: - ----------- By: /s/ GLENN E. MEALEY ---------------------------------- $50,000,000 Glenn E. Mealey Vice President By: /s/ TIMOTHY A. DONNON ---------------------------------- Name: Timothy A. Donnon -------------------------------- Title: Regional General Manager ------------------------------- Address for Notices: ------------------- Banque Paribas 1200 Smith Street, Suite 3100 Houston, Texas 77002 Telephone No.: 713-659-4811 Telecopy No.: 713-659-3832 Attention: Corporate Banking Group Lending Office for Base Rate Loans: ---------------------------------- Banque Paribas 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Leah Hughes Operations Officer Lending Office for Eurodollar Loans: ----------------------------------- Banque Paribas 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Leah Hughes Operations Officer
S-4 103 REVOLVING CREDIT LOAN NATIONSBANK OF TEXAS, N.A., as Managing - --------------------- Agent and as a Lender COMMITMENT: - ----------- By: /s/ ELIZABETH GOULD, V.P. $42,750,000 ------------------------------------ Elizabeth Gould Vice President Address for Notices: ------------------- 444 South Flower Street, Suite 4100 Los Angeles, California 90071-2901 Telephone: 213-236-4912 Telecopy: 213-624-5815 Attention: Brad DeSpain Vice President
S-5 104 REVOLVING CREDIT LOAN AMSOUTH OF ALABAMA - --------------------- COMMITMENT: - ----------- By:/s/ W. PAGE BARNES $17,750,000 ---------------------------------------- Name: W. Page Barnes Title: Senior Vice President-Manager Address for Notices: ------------------- 1900 5th Avenue North 7th Floor, M-Sonat Tower Birmingham, Alabama 35203 Telephone: 205-326-4081 Telecopy: 205-326-4790 Attention: -------------------------------- -------------------------------- S-6 105 REVOLVING CREDIT LOAN BANK OF NEW YORK - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ LISA Y. BROWN -------------------------------------- Lisa Y. Brown Vice President Address for Notices: ------------------- 10990 Wilshire Boulevard, Suite 1125 Los Angeles, California 90024 Telephone: 310-996-8656 Telecopy: 310-996-8667 Attention: Lisa Y. Brown Vice President S-7 106 REVOLVING CREDIT LOAN THE BANK OF NOVA SCOTIA - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ DANA MALONEY -------------------------------------- Dana Maloney Relationship Manager Address for Notices: ------------------- 600 Peachtree Street, N.E., Suite 2700 Atlanta, Georgia 30308-2214 Telephone: 404-877-1524 Telecopy: 404-888-8998 Attention: Dana Maloney Relationship Manager S-8 107 REVOLVING CREDIT LOAN CREDIT LYONNAIS NEW YORK BRANCH, - --------------------- COMMITMENT: As Co-Agent and as a Lender - ----------- $25,000,000 By: /s/ F. TAVANGAR -------------------------------------- Farboud Tavangar Vice President Address for Notices: ------------------- 1301 Avenue of the Americas New York, New York 10019-6022 Telephone: 212-261-7685 Telecopy: 212-973-2738 Attention: Farboud Tavangar Vice President S-9 108 REVOLVING CREDIT LOAN CORESTATES BANK, N.A. - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ GEOFFREY C. SMITH -------------------------------------- Geoffrey C. Smith Commercial Officer Address for Notices: ------------------- 1399 Chestnut Street, FC1-8-3-22 Philadelphia, Pennsylvania 19101-7618 Telephone: 215-786-4363 Telecopy: 215-973-2738 Attention: Geoffrey C. Smith Commercial Officer S-10 109 REVOLVING CREDIT LOAN FUJI BANK LIMITED - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ DAVID KELLEY ------------------------------------------ David Kelley Senior Vice President Address for Notices: ------------------- One Houston Center, Suite 4100 1221 McKinney Street Houston, Texas 77010 Telephone: 713-650-4844 Telecopy: 713-759-0048 Attention: David Kelley Senior Vice President S-11 110 REVOLVING CREDIT LOAN FLEET NATIONAL BANK - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ VIRGINIA C. STOLZENTHALER ------------------------------------------ Virginia C. Stolzenthaler Vice President Address for Notices: ------------------- 75 State Street, Mail Stop: MABOFO4A Boston, Massachusetts 02109 Telephone: 617-346-1647 Telecopy: 617-346-1634 Attention: Virginia C. Stolzenthaler Vice President S-12 111 REVOLVING CREDIT LOAN KEY BANK OF UTAH - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ MICHAEL B. HOBBS ----------------------------------------- Michael B. Hobbs Vice President Address for Notices: ------------------- 50 South Main, Suite 2006 Salt Lake City, Utah 84130 Telephone: 801-535-1047 Telecopy: 801-535-1120 Attention: Michael B. Hobbs Vice President S-13 112 REVOLVING CREDIT LOAN THE LONG-TERM CREDIT - --------------------- COMMITMENT: BANK OF JAPAN, LTD. - ----------- $17,750,000 By: /s/ T. MORGAN EDWARDS. II ------------------------------------------ Morgan Edwards Deputy General Manager Address for Notices: ------------------- Los Angeles Agency 350 South Grand Avenue, Suite 3000 Los Angeles, California 90071 Telephone: 213-689-6355 Telecopy: 213-622-6908 Attention: Takaomi Tomioka Vice President S-14 113 REVOLVING CREDIT LOAN MELLON BANK, N.A. - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ LINDA L. DASH AVP ------------------------------------------ Linda L. Dash Assistant Vice President Address for Notices: ------------------- 2 Mellon Bank Center, Room 152-0270 Pittsburgh, Pennsylvania 15259-0001 Telephone: 412-234-2780 Telecopy: 412-234-9010 Attention: Linda L. Dash Assistant Vice President S-15 114 REVOLVING CREDIT LOAN PNC BANK, N.A. - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ KAREN M. GEORGE ------------------------------------------ Karen M. George Assistant Vice President Address for Notices: ------------------- National Healthcare Group 1 PNC Plaza, 5th Floor, P1-POPP-5-3 249 5th Avenue Pittsburgh, Pennsylvania 15222-2707 Telephone: 412-762-6552 Telecopy: 412-762-2784 Attention: Karen M. George Assistant Vice President S-16 115 REVOLVING CREDIT LOAN TORONTO-DOMINION (TEXAS), INCORPORATED - --------------------- COMMITMENT: As Co-Agent and as a Lender - ----------- $25,000,000 By: /s/ FREDERIC B. HAWLEY ----------------------------------- Frederic B. Hawley Vice President Address for Notices: ------------------- 909 Fannin, Suite 1700 Houston, Texas 77010 Telephone: 713-653-8281 Telecopy: 713-951-9921 Attention: Frederic B. Hawley Vice President S-17 116 REVOLVING CREDIT LOAN UNION BANK OF CALIFORNIA, N.A. - --------------------- COMMITMENT: - ----------- $17,750,000 By: /s/ LYNN E. VINE ------------------------------------------ Lynn E. Vine Vice President Address for Notices: ------------------- Corporate Banking Division 550 South Hope Street, 3rd Floor Los Angeles, California 90071 Telephone: 213-243-3509 Telecopy: 213-243-3552 Attention: Lynn E. Vine Vice President S-18 EX-10.17 7 AMEND. #1 TO SUPPLEMENTAL EXEC. RETIREMENT PLAN 1 EXHIBIT 10.17 AMENDMENT NO. 1 TO ERROR! BOOKMARK NOT DEFINED.PARACELSUS HEALTHCARE CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1. Section 1.7 of the Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan (the "SERP") is hereby amended by adding the following clause thereto: PROVIDED, HOWEVER, that subject to and effective immediately prior to the closing of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, whereby Champion is to become a wholly owned subsidiary of the Company (the "Merger"), "Change in Control" shall mean the first to occur of the following: (A) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person (as such term is defined in the Company's Shareholder Protection Rights Agreement to be adopted at the Effective Time of the Merger) or any person that is not bound by the Shareholder Agreement of the Company to be entered into in connection with the Merger (the "Shareholder Agreement") becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the undiluted total voting power of the Company's then outstanding securities eligible to vote for the election of members of the Board (the "Company Voting Securities"); PROVIDED, HOWEVER, that no event described in the immediately preceding clause shall be deemed to constitute a Change in Control by virtue of any of the following: (I) an acquisition of Company Voting Securities by the Company and/or one or more direct or indirect majority-owned subsidiaries of the Company; (II) an acquisition of Company Voting Securities by any employee benefit plan sponsored or maintained by the Company or any corporation controlled by the Company; (III) an acquisition by any underwriter temporarily holding securities pursuant to an offering of such securities; or (IV) any acquisition by the Executive or any "group" (as such term is defined in Rule 3d-5 under the Exchange Act) of persons including the Executive; or 2 (B) individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority thereof; PROVIDED, HOWEVER, that any person becoming a director subsequent to the beginning of such twenty-four (24) month period, whose election, or nomination for election, by the Company's shareholders was approved by either (i) the Board of Directors of the Company (the "Board") consistent with the terms of the Shareholder Agreement, during the period the Shareholder Agreement is in effect, or (ii) a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (B), considered as though such person were a member of the Incumbent Board; PROVIDED, FURTHER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation other than (I) a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, represent immediately after such merger or consolidation at least 60% of the combined voting power of the then outstanding voting securities of either the Company or the other entity which survives such merger or consolidation or any parent of such other entity, or (II) a merger or consolidation effected to implement a recapitalization or reincorporation of the Company (or similar transaction) in which no person acquires more than 25% of the Company Voting Securities; or (D) the stockholders of the Company approve (i) a plan of complete liquidation or dissolution of the Company or (ii) an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 3 2. Section 1.27 of the SERP is hereby clarified to read in its entirety as follows: 1.28 "Lump Sum Payment Method" shall mean the Actuarial Equivalent of the Participant's Vested SERP Benefit, payable in a lump sum on the Retirement Date, Disability Date, Termination Date or thirty (30) days after the date of death, as the case may be. 3. Section 3.1(c) of the SERP is hereby clarified to read in its entirety as follows: (c) Notwithstanding Subsections 3.1(a) and (b) above, on or after a Post-Participation Change in Control, the Vested SERP Benefit of an affected Participant shall be 100% of the SERP Benefit, calculated assuming 15 Years of Service. EX-10.34 8 LICENSE AGREEMENT 1 EXHIBIT 10.34 LICENSE AGREEMENT This LICENSE AGREEMENT ("the Agreement") is entered into as of the 16th day of August, 1996 by and between DR. MANFRED GEORGE KRUKEMEYER ("Licensor") and PARACELSUS HEALTHCARE CORPORATION, a California corporation ("Licensee"). W I T N E S S E T H: WHEREAS, Licensor is the owner of the tradename PARACELSUS (the "Tradename") and the related trademark "PHC Paracelsus Healthcare Corporation" and design as such trademark appears on Exhibit A hereto (the "Trademark") (together with the Tradename, the "Licensed Marks"). WHEREAS, Licensor currently owns all of the outstanding shares of common stock, no stated par value, of Licensee and has authorized Licensee to use the Licensed Marks in connection with the provision of certain healthcare services as described below. WHEREAS, Licensee desires to confirm in writing its right to use the Licensed Marks and Licensor, subject to certain terms and conditions, is willing to continue to license to Licensee the right to use the Licensed Marks in connection with healthcare services, including without limitation, the management of hospitals, skilled nursing facilities, home health agencies and medical office buildings, and all services incidental thereto (the "Licensed Services") in the United States of America (the "Territory"). NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. GRANT OF LICENSE 1.1. Subject to the terms and provisions hereof, Licensor hereby grants to Licensee: (a) a perpetual, royalty-free, exclusive (even as against Licensor) and transferable (in accordance with the provisions of Section 6 hereof) right and license to use and register the Tradename in the Territory as all or part of a corporate name or "d/b/a". (b) a perpetual, royalty-free, exclusive (even as against Licensor) and transferable (in accordance with the provisions of Section 6 hereof) right and license to use the Trademark in connection with the Licensed Services in the Territory. 2 2. QUALITY STANDARDS 2.1. The quality of the Licensed Services offered under the Licensed Marks in the Territory by Licensee and all advertising and promotional material bearing the Licensed Marks shall conform at a minimum to quality standards heretofore established by Licensor and Licensee and existing as of the date of this Agreement. 2.2. Upon Licensor's reasonable request from time to time but not more than twice annually, Licensee shall permit Licensor to visit Licensee's offices, work sites, or other places of business at reasonable times and upon at least 5 days notice from Licensor, for inspection by Licensor of activities, files, documents and other records relating to the Licensed Services for the purpose of determining Licensee's compliance with the standards required by the terms of this Agreement including without limitation with respect to the quality of the services being offered under the Licensed Marks, in the Territory. 2.3. Licensee may use the Licensed Marks only in the form in which they are currently being used or as otherwise approved in writing by Licensor, such approval not to be unreasonably withheld or delayed. 2.4. In the event that the Licensee is not in material conformance with the quality standards set forth above, Licensor shall so inform Licensee in writing and Licensee shall undertake to conform with such standards. If, after a ninety (180) day period from Licensor's initial notice of material non-conformance, the Licensee does not conform to the quality standards set forth above, then Licensor may terminate this Agreement; provided, however, that if the quality problem is not capable of resolution within ninety (180) days, and if, within such period, Licensee promptly commences and diligently pursues remedial efforts to rectify the quality problem and provides Licensor with a reasonable written plan of and schedule for prompt rectification of the quality problem, then Licensor shall only have the right to terminate if after an additional ninety (180) day period, such quality defects are not remedied. 3. OWNERSHIP AND PROTECTION 3.1. Licensee acknowledges that Licensor owns the Licensed Marks in the Territory and the goodwill associated therewith. All use of the Licensed Marks by Licensee pursuant to this Agreement and any goodwill generated thereby, shall inure to the benefit of Licensor and shall not vest in Licensee any title to or right or presumptive right to continue such use. 3.2. Licensee shall not (a) challenge Licensor's title or rights in and to the Licensed Marks in the Territory, or (b) contest the fact that Licensee's rights under this Agreement are solely those of a licensee and shall cease upon expiration or earlier termination of this 3 Agreement. Licensee shall not file or prosecute any trademark or service mark application or applications to register the Licensed Marks in the Territory. 3.3. Licensor shall maintain all registrations and prosecute all applications for the Licensed Marks in the Territory, and Licensee shall pay all fees and Licensee and Licensor shall file all documents necessary to do so. Licensee and Licensor each shall cooperate with each other and take such action as reasonably requested by the other to maintain or prosecute such registrations and applications, including executing documents and providing appropriate specimens. 4. INFRINGEMENTS 4.1. In the event Licensee becomes aware of any infringement or unauthorized use of any of the Licensed Marks, Licensee shall promptly notify Licensor of such infringement or unauthorized use. Licensor shall have the sole initial right to take, and to determine whether or not to take, any action(s) it deems appropriate in its sole discretion with respect to any unauthorized use, infringement, or dilution of the Licensed Marks and Licensee shall cooperate with Licensor in connection with any such actions. If Licensor declines to take or fails to reasonably prosecute or pursue action with respect to a particular unauthorized use, infringement or dilution, then Licensee may undertake such action at Licensee's own expense and in Licensee's own name. Licensor will cooperate with Licensee in any such action, including joining in any action if necessary to maintain standing. All recovery in the form of legal damages shall belong to the party that brought or undertook the action after reimbursement to the other party of its respective expenses incurred in cooperating in such claim or legal action. 5. TERMINATION 5.1. Upon termination of this Agreement, Licensee shall, as soon as reasonably practicable: (i) change its corporate name or d/b/a as soon as practicable to delete therefrom all references to the Tradename and (ii) cease all use of, and destroy and/or effectively remove, the Licensed Marks and all references thereto from all remaining advertising, promotional, display and other materials, and shall thereafter refrain from further use of the Licensed Marks or any further reference to the Licensed Marks directly or indirectly. 5.2. Upon the termination of this Agreement, all rights granted to Licensee hereunder together with any interest in and to the Licensed Marks which Licensee or its sublicensees may purport to have acquired, shall forthwith, without further act or instrument, be assigned to and revert to Licensor. 4 6. ASSIGNMENT AND SUBLICENSING 6.1. Licensee shall have the right to sublicense or assign any of the rights granted hereunder, or any part thereof, to any subsidiary or affiliate of Licensee. 6.2. Licensee shall not otherwise assign any of its rights or obligations hereunder except in connection with the sale or transfer of all or substantially all of the business related to the Licensed Marks. Licensor shall not assign any of its rights or obligations hereunder, except (a) in the case of the death of Licensor, to Licensor's executors, administrators, testamentary trustees, heirs, devisees, intestates and legatees ("Heirs") and (b) to any one of Licensor's current or future spouse, parents, siblings or descendants of such parents', siblings' or spouses (the "Family Members"); provided that such Heir and Family Member, as the case may be, simultaneously agree to be bound as a Licensor to all of the obligations of the Licensor under this Agreement; provided further that any assignee of Licensor's rights or obligations hereunder is also the assignee of the Licensed Marks. 7. MISCELLANEOUS 7.1. All notices, requests, consents, and other communications hereunder shall be in writing and shall be deemed to have been properly given or sent (i) on the date when such notice, request, consent, or communication is personally delivered or (ii) five (5) days after the same was sent, if sent by certified or registered mail or (iii) three (3) days after the same was sent, if sent by overnight courier delivery or confirmed telecopier transmission, as follows: (a) if to Licensee, to: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Attention: Robert C. Joyner Senior Vice President and General Counsel Telecopier No.: (713) 873-6686 with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, CA 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 5 (b) if to Licensor, to: Dr. Manfred George Krukemeyer AM Natruper Holz 69 D-49076 Osnabruck Federal Republic of Germany Telecopier No.: (011) 49-541-966-4006 with a copy to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, CA 91101 Telecopier No.: (818) 578-6380 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Telecopier No.: (011) 49-541-331-1616 Anyone entitled to notice hereunder may change the address to which notices or other communications are to be sent to it by notice given in the manner contemplated hereby. 7.2. Nothing herein contained shall be construed to place the parties in the relationship of partners or joint venturers, and no party hereto shall have any power to obligate or bind any other party hereto in any manner whatsoever, except as otherwise provided for herein. 7.3. None of the terms hereof can be waived or modified except by an express agreement in writing signed by the party to be charged. The failure of any party hereto to enforce, or the delay by any party in enforcing, any of its rights hereunder shall not be deemed a continuing waiver or a modification thereof and any party may, within the time provided by applicable law, commence appropriate legal proceedings to enforce any and all of such rights. Any party hereto may employ any of the remedies available to it with respect to any of its rights hereunder without prejudice to the use by it in the future of any other remedy with respect to any of such rights. No person, firm, or corporation, other than the parties hereto shall be deemed to have acquired any rights by reason of anything contained in this Agreement. 7.4. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. Any attempt by Licensor or Licensee to transfer any of its rights or obligations under this Agreement, whether by assignment, sublicense or otherwise, other than as explicitly permitted pursuant to this 6 Agreement, shall constitute an event of default, but shall otherwise be null and void. 7.5. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas applicable to contracts made and to be wholly performed therein without regard to its conflicts of law rules, and any applicable laws of the United States. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Texas and the Federal courts of the United States of America located in the State of Texas solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suite or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Texas State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 7.1, shall be valid and sufficient service thereof. 7.6. The provisions hereof are severable, and if any provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such provision, or part thereof in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction, or any other provision in this Agreement in any jurisdiction. To the extent legally permissible, an arrangement which reflects the original intent of the parties shall be substituted for such invalid or unenforceable provision. 7.7. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7.8. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 7.9. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused the same to be executed by a duly authorized officer as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION ("Licensee") By \s\ ---------------------------- Name: Title: \s\ MANFRED G. KRUKEMEYER ---------------------------- Dr. Manfred George Krukemeyer ("Licensor") 8 EXHIBIT A REGISTRATION MARK NUMBER COUNTRY OWNER - ---------------- ------------------ ---------------- -------------- PHC Paracelsus Healthcare Corporation and Design 1,528,932 United States Dr. Manfred G. Krukemeyer EX-10.36 9 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.36 PARACELSUS SHAREHOLDER REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of August 16, 1996, by and among PARACELSUS HEALTHCARE CORPORATION, a California corporation (together with its permitted successors and assigns, the "Company"), and Park Hospital GmbH, a German corporation (the "Paracelsus Shareholder"). WHEREAS, in connection with that certain Amended and Restated Merger Agreement dated as of May 29, 1996 (as further amended from time to time in accordance with the terms thereof, the "Merger Agreement"), by and among the Company, Champion Healthcare Corporation, a Delaware corporation, and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, the Company has agreed to provide the Paracelsus Shareholder with the registration rights set forth in this Agreement; NOW, THEREFORE, the parties hereto, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be bound hereby, agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Affiliate: With respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Agreement: See the introductory clauses hereof. Business Day: Any day that is not a Saturday, a Sunday, a legal holiday or a day on which banking institutions in the States of New York or Texas are not required to be open. Company: See the introductory clauses hereof. Company Common Stock: The common stock, no stated value per share, of the Company or any other shares of capital stock of the Company into which such stock shall be reclassified or changed. After the date hereof, if the Company Common Stock has been so reclassified or changed, or if the Company pays a dividend or makes a distribution on the Company Common Stock in shares of capital stock, or subdivides (or combines) its outstanding shares of the Company Common Stock into a greater (or smaller) number of shares of the Company Common Stock, a share of the Company Common Stock shall be deemed to be such number of shares of capital stock and amount of other securities to which a holder of a share of the Company Common Stock outstanding immediately prior to such reclassification, exchange, dividend, distribution, subdivision or combination would be entitled. Company Notice: See Section 2(b) hereof. Delay Period: See Section 2(c) hereof. 2 Demand Notice: See Section 2(a) hereof. Demand Registration: See Section 2(b) hereof. Effectiveness Period: See Section 2(c) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. indemnified party: See Section 8(c) hereof. indemnifying party: See Section 8(c) hereof. Losses: See Section 8(a) hereof. Merger Agreement: See the introductory clauses hereof. Paracelsus Shareholder: See the introductory clauses hereof. Permitted Transferee: Any person to which the Paracelsus Shareholder may transfer its Shares under the terms of the Shareholder Agreement between the Paracelsus Shareholder and the Company, dated as of August 16, 1996. person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. Piggyback Registration: See Section 3(a) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A or any term sheet meeting the requirements of Rule 434), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Registrable Shares: Each Share until (i) a registration statement covering such Share has been declared effective by the SEC and such Shares have been disposed of pursuant to such effective registration statement, or (ii) such Share has been transferred other than pursuant to Rule "4(1-1/2)" (or any similar private transfer exemption) under the Securities Act. Registration Statement: Any registration statement of the Company under the Securities Act that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 3 Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shareholders: The Paracelsus Shareholder and any transferee who holds Registrable Shares. Shares: All shares of Company Common Stock beneficially owned immediately after the effective time of the merger contemplated by the Merger Agreement by the Paracelsus Shareholder, and any shares of Company Common Stock hereafter acquired by the Paracelsus Shareholder if at the time of such acquisition the Paracelsus Shareholder beneficially owns any Registrable Shares. underwritten registration or underwritten offering: A registration or offering in which securities of the Company are sold to an underwriter for reoffering to the public. SECTION 2. Demand Registration. (a) The Shareholders shall have the right, by written notice (the "Demand Notice") given by the Shareholders who hold at least a majority of the then existing Registrable Shares to the Company so long as this Agreement has not been terminated in accordance with Section 9.1 hereof, to request that the Company register under and in accordance with the provisions of the Securities Act all or part of the Registrable Shares designated by such holders; provided, that at the time of the Demand Notice the market value of the Registrable Shares to be registered in accordance therewith exceeds in the aggregate $25 million, provided, however, that if the Shareholders in the aggregate own Registrable Shares, the market value of which does not exceed $25 million, then the Demand Notice shall apply to all of such Registrable Shares; and provided, further, that no one Demand Notice may be given if a Demand Notice was given during the eighteen-month period ending immediately prior to such Demand Notice and the Company filed a Registration Statement relating to all the shares covered by such prior Demand Notice, which registration statement becomes effective in accordance with the provisions hereof, and the Company otherwise complied with its obligations under this Agreement with respect to such prior Demand Notice. All Demand Notices shall specify the amount of Registrable Shares to be registered and the intended methods of disposition thereof. The Shareholders shall be entitled in the aggregate to five Demand Registrations pursuant to this Section 2 unless a Demand Registration did not become effective or was not maintained effective for a period (whether or not continuous) of at least 180 days (subject to Section 2(e) hereof) or such shorter period at the end of which all Registrable Shares covered by such Demand Registration have been sold pursuant thereto, in which case the Shareholders will be entitled in the aggregate to one additional Demand Registration pursuant hereto for each instance in which the condition set forth above had not been satisfied. (b) The Company shall file with, and shall use reasonable best efforts to cause to be declared effective by, the SEC within 90 days of the date on which the Company first receives the Demand Notice given by the Shareholders pursuant to Section 2 hereof, a Registration Statement 4 under the Securities Act relating to the number of Registrable Shares specified in such Demand Notice (a "Demand Registration"); provided, that the Company shall have the right for a reasonable period of time not in excess of 90 days (exercisable by delivery of notice to the Shareholders of Registrable Shares included in such Registration Statement) to delay the filing of such Registration Statement if, in the Company's good faith exercise of its reasonable business judgment (i) such registration and offering would adversely affect or interfere with a pending bona fide corporate transaction involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b-6 under the Exchange Act; provided, that the Company may so delay the filing of such Registration Statement with respect to any one Demand Registration twice, but no more than twice, in any twelve-month period. (c) The Company agrees to use reasonable best efforts to keep any Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of Registrable Shares for a period of 180 days (subject to Section 2(e) hereof) from the date on which the SEC declares such Registration Statement effective or such shorter period which will terminate when all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement. The foregoing notwithstanding, the Company shall have the right to suspend the use of the Registration Statement for a reasonable length of time not exceeding with respect to any one Demand Registration an aggregate of 90 days (a "Delay Period") if and only if in the good faith exercise of the Company's reasonable business judgment (i) such use would adversely affect or interfere with a pending bona fide corporate transaction involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of any shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b-6 under the Exchange Act; provided, that the Company may so suspend sales with respect to any one Demand Registration, twice, but no more than twice, in any twelve-month period; and provided, further, that the foregoing delay provisions of this sentence shall not apply for any period longer than the shortest period for which similar provisions are imposed by any other registration rights or similar agreement between the Company and another party. The Company shall provide written notice to the Shareholders of the beginning and end of each Delay Period and the Shareholders shall cease all disposition efforts with respect to Registrable Shares held by them immediately upon receipt of notice of the beginning of any Delay Period. The period for which the Company is required to maintain the effectiveness of the Registration Statement shall be extended by the aggregate number of days of all Delay Periods. Such period, including the extension thereof required by the preceding sentence, is hereafter referred to as the "Effectiveness Period." (d) In the case of a proposed offering pursuant to a Demand Registration, the Company may, in its sole discretion, include shares of Company Common Stock in such Demand Registration (whether for the account of the Company or otherwise, including without limitation shares of Company Common Stock held by security holders, if any, who have piggyback registration rights with respect thereto) on the same terms and conditions as the Registrable 5 Shares. Notwithstanding the foregoing, if the Company or, in case of any underwritten public offering, the managing underwriter or underwriters participating in such offering conclude that the total amount of shares of Company Common Stock requested to be included in such Demand Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of all holders other than the Company and the Shareholders shall be reduced (to zero if necessary) pro rata on the basis of the number of shares of Company Common Stock requested to be registered by each such holder. If, after such cut back, the Company or such underwriter concludes that the total amount of securities to be included in such Demand Registration still materially and adversely affects the success of such offering, then the amount of securities to be offered for the account of the Company shall be reduced (to zero if necessary). (e) If any Demand Registration pursuant to this Section 2 is requested to be a "shelf" registration pursuant to Rule 415 under the Securities Act, the Company shall file a Registration Statement under Rule 415 under the Securities Act and shall keep such Registration Statement filed in respect thereof continuously effective for a period ending on the earlier of (i) two years from the date on which the SEC declares such Registration Statement effective under the Securities Act (subject to the extension pursuant to Section 4 hereof), and (ii) the date on which all the Registrable Securities covered by such Registration Statement have been sold pursuant to such Registration Statement. Upon the occurrence of any event that would cause such Registration Statement (i) to contain an untrue or alleged untrue statement of material fact, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) not to be effective and usable for resale of Registrable Securities during the period that such Registration Statement is required to be effective and usable, the Company shall promptly file an amendment to such Registration Statement, in the case of clause (i), to correct any such misstatement or omission and, in the case of either clause (i) or (ii), use all reasonable efforts to cause such amendment to be declared effective and such Registration Statement to become usable as soon as practical thereafter. SECTION 3. Piggyback Registration. (a) Right to Piggyback. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering of Company Common Stock (other than a registration statement (i) on Form S-4 or S-8 or any successor forms thereto, or (ii) filed solely in connection with an exchange offer or dividend reinvestment plan) whether or not for its own account, then the Company shall give written notice of such proposed filing to the Shareholders at least 15 Business Days before the anticipated filing date. Such notice shall offer the Shareholders the opportunity to register such amount of Registrable Shares as they may request (a "Piggyback Registration"). Subject to Section 3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within ten Business Days after notice has been received by the applicable holder. The Shareholders shall be permitted to withdraw all or part of the Registrable Shares from a Piggyback Registration by giving written notice to the Company at least one Business Day prior to the later of the expected or actual effective date of such Piggyback Registration. (b) Priority on Piggyback Registrations. The Company shall permit the Shareholders to include all such Registrable Shares on the same terms and conditions as any similar securities, if any, of the Company included therein. Notwithstanding the foregoing, if the Company or an underwriter 6 participating in such offering concludes in good faith that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of the Shareholders shall be reduced in the following manner: (i) if such Piggyback Registration was initiated as a result of a primary registration on behalf of the Company, the amount of securities to be offered for the account of the Shareholders and other holders of securities who have piggyback registration rights with respect thereto shall be reduced (to zero if necessary) pro rata on the basis of the number of capital stock equivalents requested to be registered by each such holder of securities with piggyback registration rights participating in such offering; and (ii) if such Piggyback Registration was initiated as a result of an underwritten secondary registration on behalf of holders of securities of the Company other than the Shareholders, the Company shall include in such registration: (x) first, up to the full number of common stock equivalents of such persons exercising "demand" registration rights, and (y) second, the number of securities to be offered for the account of the Shareholders and other holders of securities who have piggyback registration rights with respect thereto in excess of the amount of securities such persons exercising "demand" registration rights propose to sell (allocated pro rata among the Shareholders and other holders of such securities on the basis of the number of common stock equivalents requested to be registered by such holders). SECTION 4. Hold-Back Agreements. (a) The Shareholders agree, if requested by the Company or the managing underwriter in connection with a public offering of equity securities of the Company (whether for the account of the Company or otherwise), not to effect any public sale or distribution of any shares of Company Common Stock, including a sale pursuant to Rule 144 (except as part of such underwritten registration), during a period equivalent to that requested by the Company or such underwriter, provided that such period shall not exceed 90 days. (b) The Company agrees, if requested by the holders of a majority of the Registrable Shares being sold or the managing underwriter, if any, in connection with a Demand Registration of such Registrable Shares, not to effect any public sale or public distribution of any equity securities of the Company (except as part of such registration or pursuant to a bona fide employee option, bonus or other benefit plan), during a period equivalent to that requested by the Shareholders or such underwriter, if any, provided that such period shall not exceed (i) 180 days with respect to the first public offering hereunder by holders of Registrable Shares after the date hereof and (ii) 90 days with respect to each such registration thereafter. SECTION 5. Registration Procedures. In connection with the registration obligations of the Company and in accordance with Sections 2 and 3 hereof, the Company will use its best efforts to effect such registrations to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: 7 (a) Prepare and file with the SEC a Registration Statement or Registration Statements on such form which shall be available for the sale of the Registrable Shares by the holders thereof in accordance with the intended method or methods of distribution thereof, and use reasonable best efforts to cause such Registration Statement to become effective as soon as practicable after such filing and to remain effective as provided herein; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference), the Company shall, upon the written request of participating Shareholders, furnish or otherwise make available to such holders of the Registrable Shares covered by such Registration Statement, their counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of such holders, their counsel and such underwriters, if any, provided, however, that the Company shall not be required to deliver to such holders a copy of any such document that has not been materially changed from a copy of such document that was previously delivered to such holders. The Company shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto (including such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) to which the holders of a majority of the Registrable Shares covered by such Registration Statement, their counsel or the managing underwriters, if any, shall reasonably object in writing on a timely basis unless, in the opinion of the Company, such filing is necessary to comply with applicable law. (b) Prepare and file with the SEC such amendments (including post-effective amendments) to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement; and cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the Securities Act. (c) Notify the Shareholders registering shares as part of such Registration Statement, their counsel and the managing underwriters, if any, promptly and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related Prospectus or for additional information regarding the Shareholders registering shares as part of such Registration Statement, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 5(j) below cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (vi) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed to be incorporated therein by reference so that in the case of the Registration Statement it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 8 (d) Use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction. (e) If requested by a Shareholder, furnish to counsel for the Shareholders and each managing underwriter, if any, without charge, one conformed copy of each Registration Statement as declared effective by the SEC and of each post-effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, each amended preliminary prospectus, each final Prospectus and each post-effective amendment or supplement thereto, as the Shareholder may reasonably request in order to facilitate the disposition of the Registrable Shares covered by each Registration Statement in conformity with the requirements of the Securities Act. (f) Prior to any public offering of Registrable Shares, use reasonable best efforts to register or qualify such Registrable Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions in the United States as any holders of the Registrable Shares to which such public offering relates shall reasonably request in writing; and do any and all other reasonable acts or things necessary or advisable to enable the Shareholders to consummate the disposition in such jurisdictions of such Registrable Shares covered by the Registration Statement, provided, however, that the Company shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to execute or file a consent to general service of process in any such jurisdiction where it has not theretofore done so or to take any action that would subject it to service of process or taxation in any such jurisdiction where it is not then subject. (g) Except during any Delay Period, upon the occurrence of any event contemplated by Sections 5(c)(ii) or 5(c)(vi) above, prepare a supplement or post-effective amendment to each Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (h) Use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange or quoted on each automated interdealer quotation system, if any, on which the shares of Company Common Stock are then listed or quoted. (i) On or before the effective date of the Registration Statement, provide the transfer agent of the Company for the Registrable Shares with printed certificates for the Registrable Shares, which are in a form eligible for deposit with The Depositary Trust Company. (j) If requested by the holders of a majority of the Registrable Shares being sold, enter into one or more customary "firm commitment" or "best efforts" underwriting agreements, engagement letters, agency agreements or similar agreements, as appropriate, and in such connection, whether or not any such agreement is entered into and whether or not the registration 9 is an underwritten registration, the Company shall (i) make such representations and warranties to the holders of such Registrable Shares and the underwriters, if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and if true, confirm the same if and when requested, (ii) use its reasonable efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and counsel to such holders of the Registrable Shares being sold), addressed to each such selling holder of Registrable Shares and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (iii) use its reasonable efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each such selling holder of Registrable Shares (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures substantially to the effect set forth in Section 8 hereof with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder. (k) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, or any similar rule promulgated under the Securities Act, no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days after the end of any twelve (12) month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Shares are sold to underwriters in a "firm commitment" or "best efforts" underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said twelve (12) month periods. The Company may require each seller of Registrable Shares as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Shares as the Company may, from time to time, request in writing and as, in the opinion of counsel for the Company, is required by law to effect such registration. If any such information with respect to a seller or such distribution of Registrable Shares is not furnished within a reasonable period of time after receipt of such request, the Company may exclude such Shareholder's Registrable Shares from such Registration Statement. Each seller of Registrable Shares agrees to notify the Company as promptly as practicable following its discovery of any inaccuracy or change in information so furnished in writing by such seller to the Company or of the occurrence of any event that causes any prospectus relating to such registration to contain an untrue statement of a material fact or omit to state any material fact regarding such seller or the distribution of such Registrable Shares that is required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. 10 Each holder of Registrable Shares agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi) hereof, that such holder shall forthwith discontinue disposition of such Registrable Shares covered by such Registration Statement or Prospectus until receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(g) hereof, or until such holder is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amended or supplemented Prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such Prospectus and, if requested by the Company, such holder shall deliver to the Company (at the expense of the Company) all copies then in its possession, other than permanent file copies then in such holder's possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each holder of Registrable Shares further agrees not to utilize any material other than the applicable current Prospectus in connection with the offering of Registrable Shares pursuant to a Demand Registration or otherwise hereunder. SECTION 6. Registration Expenses. (a) Whether or not any Registration Statement becomes effective, the Company shall pay all costs, fees and expenses incident to the Company's performance of or compliance with this Agreement, including without limitation (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or Blue Sky laws, (iii) printing expenses (including without limitation expenses of printing certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter, if any, or by the holders of a majority of the Registrable Shares included in any Registration Statement), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Company and one special counsel for the sellers of Registrable Shares (subject to the provisions of Section 6(b) hereof), and (vi) fees and disbursements of all independent certified public accountants of the Company (including without limitation expenses of any "cold comfort" letters required in connection with this Agreement) and all other persons retained by the Company in connection with the Registration Statement. In addition, the Company shall pay its internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed. Notwithstanding the foregoing, each participating Shareholder shall pay all commissions, fees or discounts payable to brokers, dealers or underwriters and all transfer taxes in connection with the sale of its Registrable Shares. (b) In connection with any Demand Registration or Piggyback Registration (including any "shelf" registration in connection therewith) hereunder, the Company shall reimburse the holders of the Registrable Shares being registered in such registration for the reasonable fees and disbursements of not more than one counsel (together with appropriate local counsel, if required) chosen by the holders of a majority of all of such Registrable Shares being registered in such registration. SECTION 7. Underwritten Registrations. 11 (a) Subject to Section 7(b) hereof, the Shareholders shall have the right, by written notice, to request that any Demand Registration be made pursuant to an underwritten offering. (b) If any of the Registrable Securities are to be sold in an underwritten offering pursuant to a Demand Registration, the institution or institutions that shall manage or lead the offering or placement shall be selected by the holders of a majority of the Registrable Shares being sold; provided, that such institution or institutions shall be reasonably satisfactory to the Company. In connection with any Piggyback Registration, no Shareholder shall be entitled to participate unless and until it shall enter into an underwriting or other agreement with such lead institutions for such offering in such form as the Company and such lead institutions shall reasonably determine. SECTION 8. Indemnification. (a) Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the officers, directors and agents and employees of each of them, each Person who controls each such holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparing, investigating or defending such claim and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or based upon (i) any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon information furnished in writing to the Company by such holder expressly for use therein and (ii) any violation or alleged violation by the Company of the Securities Act, Exchange Act or any other federal or state securities laws, rule or regulation applicable to the Company and relating to the action or inaction by the Company in connection with any such registration nor qualification; provided, however, that the Company shall not be liable to any holder of Registrable Shares to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (x) such holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such holder of a Registrable Share to the person asserting the claim from which such Losses arise and (y) the Prospectus would have corrected in all material respects such untrue statement or alleged untrue statement or such omission or alleged omission; and provided further, that the Company shall not be liable in any such case to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Prospectus, if (x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in all material respects in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such holder thereafter fails to deliver such Prospectus as so amended or supplemented, prior to or concurrently with the sale of a Registrable Share to the person asserting the claim from which such Losses arise. (b) Indemnification by Holder of Registrable Shares. In connection with any Registration Statement in which a holder of Registrable Shares is participating, such holder of Registrable 12 Shares shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement or Prospectus and agrees to indemnify, to the full extent permitted by law, the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling persons, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is contained in any information so furnished in writing by such holder to the Company expressly for use in such Registration Statement or Prospectus and that such information was relied upon by the Company in preparation of such Registration Statement or Prospectus or amendment, supplement or preliminary prospectus. (c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an "indemnified party"), such indemnified party shall give prompt written notice to the party from which such indemnity is sought (the "indemnifying party") of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced materially by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party's expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (l) the indemnifying party agrees in writing to pay such fees and expenses, (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party, or (3) in the judgment of counsel to such indemnified party a conflict of interest is reasonably likely to exist between such indemnified party and any other of such indemnified parties with respect to such proceeding (in which case the indemnified party shall have the right to employ counsel and to assume the defense of such claim or proceeding); provided, however, that the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The indemnifying party shall not, without the written consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder. 13 (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms) or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provision of this Section 8(d), an indemnifying party that is a selling holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. SECTION 9. Miscellaneous. 9.1 Termination. This Agreement and the obligations of the Company hereunder shall terminate on the earliest of (i) the tenth anniversary of the date hereof and (ii) the first date on which no Registrable Shares shall exist. 9.2 Notices. All notices or communications hereunder shall be in writing (including telecopy or similar writing), addressed as follows: To the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Attention: Robert C. Joyner, Senior Vice President and General Counsel Facsimile: (713) 873-6686 With a copy to: 14 Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Facsimile: (213) 687-5600 To the Paracelsus Shareholder: Park Hospital GmbH AM Natruper Holz 69 D-49076 Osnabruck Federal Republic of Germany Attention: Dr. Manfred George Krukemeyer Telecopier No.: (011) 49-541-966-4006 With a copy to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, California 91101 Facsimile: (818) 578-6380 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Facsimile: (011) 49-541-331-1616 Any such notice or communication shall be deemed given (i) when made, if made by hand delivery, (ii) one business day after being deposited with a next-day courier, postage prepaid, or (iii) three business days after being sent certified or registered mail, return receipt requested, postage prepaid, in each case addressed as above (or to such other address as such party may designate in writing from time to time). 9.3 Separability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. 9.4 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Paracelsus Shareholder, except that the foregoing limitation will not apply to: (a) any sale, transfer, assignment, pledge, hypothecation or other disposition thereof (a "Transfer") made to the Company; and 15 (b) any Transfer to a Permitted Transferee; provided, that such transferee agrees in writing to be bound by the terms of this Agreement as if such person were the Paracelsus Shareholder. 9.5 Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof. This Agreement may be amended at any time by mutual written agreement of the parties hereto. 9.6 Publicity. Each of the Shareholders and the Company agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party, except to the extent that the Shareholders or the Company is advised by counsel that such release or announcement is necessary or advisable under applicable law or the rules or regulations of any securities exchange, in which case the party required to make the release or announcement shall to the extent practicable provide the other party with an opportunity to review and comment on such release or announcement in advance of its issuance. 9.7 Expenses. Except as otherwise specifically provided in Section 6 hereof, whether or not the transactions contemplated hereby are consummated, except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. 9.8 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.9 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. 9.10 Governing Law; Venue. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of incorporation of Paracelsus, without reference to rules relating to conflicts of law. 9.11 Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day. 9.12 No Inconsistent Agreements. The Company has not, as of the date hereof, and shall not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Shares in this Agreement or otherwise conflicts with the provisions hereof. 9.13 Participation by Shareholders. Each Shareholder hereby agrees that it may not participate in any offering hereunder unless it (i) agrees to sell the Registrable Shares to be included by it therein in the manner and upon the terms and conditions provided in any underwriting or other 16 agreement approved by the persons entitled hereunder to determine the method of distribution thereof and (ii) completes and executes such questionnaires, powers of attorney, indemnities, underwriting agreements or other similar documents reasonably required in accordance with the terms hereof or any agreement contemplated by the foregoing clause (i). 9.14 Compliance with Shareholder Agreement. Any sale of Registrable Shares pursuant to the registration rights provided for herein by any Shareholder bound by the terms of the Shareholder Agreement, dated as of August 16, 1996, between the Paracelsus Shareholder and the Company must comply with the applicable provisions of such agreement. 9.15 Amendment. This Agreement, as to any amendment of rights, may be amended, and the Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act given by the Shareholders who hold at least fifty percent (50%) of the then existing Registrable Shares. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement is sought. 9.16 Independent Rights. The rights and remedies of each Shareholder hereunder shall be independent of the rights and remedies of any other Shareholder, except as otherwise expressly provided herein. Without limiting the foregoing, if the Company or any other person has any rights, claims or defenses against any holder of Registrable Shares, such rights, claims or defenses shall not apply with respect to any other Shareholder, except as otherwise expressly provided herein. The taking of any action or the failure to take any action by any Shareholder with respect to the subject matter of this Agreement shall not, and shall not be deemed to, constitute the taking of any action or the failure to take any action by any other holder, except as expressly set forth in this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. PARACELSUS HEALTHCARE CORPORATION By: /s/ Robert C. Joyner ----------------------------- Name: Robert C. Joyner Title: Vice President and Secretary PARK HOSPITAL GmbH By: /s/ Dr. Manfred G. Krukemeyer ----------------------------- Name: Dr. Manfred George Krukemeyer Title: Chairman EX-10.37 10 VOTING AGREEMENT - PARK HOSPITAL GMBH 1 EXHIBIT 10.37 VOTING AGREEMENT THIS VOTING AGREEMENT is made and entered into as of August 16, 1996, by and between Park Hospital GmbH, a German corporation (the "Paracelsus Shareholder"), and each of the persons named on Exhibit A hereto (each a "Shareholder" and, collectively, the "Shareholders"). WHEREAS, Paracelsus Healthcare Corporation, a California corporation ("Paracelsus"), PC Merger Sub, Inc., a Delaware corporation ("Merger Sub"), and Champion Healthcare Corporation, a Delaware corporation ("Champion"), have entered into an agreement with respect to a merger of Champion and Merger Sub (the "Merger Agreement"); and WHEREAS, pursuant to the Merger Agreement, the Paracelsus Shareholder and Paracelsus will enter into a Shareholder Agreement (the "Shareholder Agreement") at or prior to the closing of the transactions contemplated by the Merger Agreement, and WHEREAS, the Merger Agreement and the Shareholder Agreement were agreed to in reliance upon the execution and delivery of this Agreement by the Shareholders; and WHEREAS, as a condition to the Merger Agreement, Paracelsus and the Paracelsus Shareholder have requested that each Shareholder agree, and in order to induce Paracelsus to enter into the Merger Agreement and the Paracelsus Shareholder to enter into the Shareholder Agreement, each Shareholder has agreed to take such actions in the respect to the shares of common stock, no stated par value per share, of Paracelsus (the "Paracelsus Common Stock") beneficially owned (as defined below) by him as of the date hereof or at any time hereafter (the "Paracelsus Shares") as are provided herein, and the Paracelsus Shareholder has agreed to vote the Paracelsus Shares beneficially owned by it as provided herein; NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and agreements contained herein, and intending to be legally bound, the parties hereto agree as follows: 1. Voting Agreements. Each Shareholder agrees to vote, or cause to be voted, all Paracelsus Shares beneficially owned by him and his respective affiliates and associates (as defined below) (i) with the Paracelsus Shareholder to approve any approved Shareholder Proposal (as such term is defined in the Shareholder Agreement) of the Paracelsus Shareholder and any related actions contemplated by such Shareholder Proposal or that may be required in furtherance thereof (including without limitation voting against any action, agreement or transaction that may impede, interfere with, delay or otherwise adversely affect any such approved Shareholder Proposal as determined by the Paracelsus Shareholder) and (ii) as the Paracelsus Shareholder is required to vote under the provisions of the Shareholder Agreement with respect to any Shareholder Proposal and any Approved Acquisition Proposal (as such term is defined in the Shareholder Agreement). 2. Agreement to Sell Shares. Each of the Shareholders hereby agrees to sell, or cause to be sold (including by tender or otherwise), all Paracelsus Shares beneficially owned by him and his respective affiliates and associates (a) to the Paracelsus Shareholder in any approved Shareholder Proposal for which such Shareholders are required to vote under Section 1(a)(i) above, upon the terms and conditions contemplated by such Shareholder Proposal; and (b) to the acquiror under any Approved Acquisition Proposal for which such 2 Shareholders are required to vote under Section 1(a)(ii) above, upon the terms and conditions contemplated by such Approved Acquisition Proposal. 3. Term of Agreement. This Agreement shall remain in effect for so long as the provisions of Section 7 of the Shareholder Agreement with respect to Shareholder Proposals and Approved Acquisition Proposals are in effect in accordance with its terms with respect to the Paracelsus Shareholder under the Shareholder Agreement. 4. Representations and Warranties. Each Shareholder hereby represents and warrants to the Paracelsus Shareholder as follows: (a) Authority Relative to this Agreement. Such Shareholder has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by such Shareholder and this Agreement constitutes a valid and binding agreement of such Shareholder, enforceable against such Shareholder in accordance with its terms. (b) Ownership of Shares. Such Shareholder beneficially owns all of shares of Paracelsus Common Stock indicated opposite such Shareholder's name on Exhibit A hereto, which constitute all the shares of Paracelsus Common Stock beneficially owned by such Shareholder or subject to options beneficially owned by him as of the date hereof. Except pursuant to the Right of First Refusal Agreement dated August 16, 1996, by and among the Paracelsus Shareholder, Dr. Manfred George Krukemeyer, Mr. R.J. Messenger, Mr. Ronald R. Patterson and the Shareholders, there are no other restrictions on the voting rights or rights of disposition pertaining to such shares of Paracelsus Common Stock beneficially owned by such Shareholder. (c) No Conflicts. Neither the execution and delivery of this Agreement nor the consummation by such Shareholder of the transactions contemplated hereby will conflict with or constitute a violation of or default under any contract, commitment, agreement, arrangement or restriction of any kind to which such Shareholder is a party or by which such Shareholder is bound. 5. Representations and Warranties of the Paracelsus Shareholder. The Paracelsus Shareholder hereby represents and warrants to the Shareholders as follows: (a) Authority Relative to this Agreement. The Paracelsus Shareholder has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Paracelsus Shareholder and, assuming that this Agreement has been duly and validly authorized, executed and delivered by each Shareholder, this Agreement constitutes a valid and binding agreement of the Paracelsus Shareholder, enforceable against the Paracelsus Shareholder in accordance with its terms. 6. No Inconsistent Agreements. Each of the Shareholders hereby agrees, without the prior written consent of the Paracelsus Shareholders, except pursuant to the terms hereof, not to (i) grant any proxies, deposit any Stockholder Shares into a voting trust or enter into a voting agreement with respect to any Stockholders Shares that would prevent or disable the Shareholder from performing his obligations under this Agreement or (ii) take any other action that would make any representation or warranty of the Shareholder contained herein untrue or incorrect or have the 3 effect of preventing or disabling the Shareholder from performing his obligations under this Agreement. 7. Entire Agreement and Venue. This Agreement (a) constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof; (b) shall not be assigned by operation of law or otherwise without the prior written consent of the other parties hereto, except that the Paracelsus Shareholder may assign, in its sole discretion, all or any of its rights, interests and obligations hereunder to any director or indirect wholly owned subsidiary of Acquiror; (c) shall not be amended, altered or modified in any manner whatsoever, except by a written instrument executed by all of the parties hereto; and (d) shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Texas (without giving effect to the provisions thereof relating to conflicts of law). The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Texas and the Federal courts of the United States of America located in the State of Texas solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Texas State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 12, shall be valid and sufficient service thereof. 8. Remedies. (a) Specific Performance. The parties acknowledge that it would be impossible to fix money damages for violations of the provisions of this Agreement (other than the obligation of the Paracelsus Shareholder to vote its Paracelsus Shares under Section 1(b)(ii) above, which is solely covered by Section 8(b) below) and that such violations will cause irreparable injury for which adequate remedy at law is not available and, therefore, this Agreement must be enforced by specific performance or injunctive relief. The parties hereto agree that any party may, in its sole discretion, apply to any court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection or defense to the imposition of such relief. Nothing herein shall be construed to prohibit any party from bringing any action for damages in addition to an action for specific performance or an injunction for a breach of this Agreement. (b) Liquidated Damages. In the event that the Paracelsus Shareholder shall fail to discharge its obligation to vote its Paracelsus Shares under Section 1(b)(ii) hereof, the Paracelsus Shareholder shall be liable to each Shareholder who as of the date hereof beneficially owns options outstanding as of the date hereof under the Founder's Stock Option Plan and actually exercises such options in an amount equal to the difference between (i) the reasonable costs actually incurred by any such holder in exercising any or all of such options and (ii) the costs, if 4 any, that would reasonably have been incurred by such holder with respect to such exercise in the event the amendments referenced in Section 1(b) hereof had been approved at the special meeting of Champion stockholders. The shareholders sole remedy for the failure to discharge the obligation referenced in this Section 8(b) will be the liquidated damages provided for in this Section 8(b). 9. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors, assigns, heirs, executors, administrators and other legal representatives; provided, that this Agreement shall not be assigned without the prior written consent of the other party hereto, except that the Paracelsus Shareholder may assign, in its sole discretion, all or any of its rights, interests and obligations hereunder to any direct or indirect wholly owned subsidiary of the Paracelsus Shareholder. Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 11. Definitions. Unless the context otherwise requires, the following terms shall have the following respective meanings: (a) "beneficial owner" has the meaning set forth in Rule 13d-3(a) and (b) of the Rules and Regulations to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and "beneficially owned" shall have a correlative meaning; provided, however, that for purposes of this Agreement the Paracelsus Shares beneficially owned by a person shall mean the Paracelsus Shares beneficially owned by such person as of the date hereof, or beneficially owned by such person at any time hereafter (including without limitation Paracelsus Shares that may be acquired pursuant to the exercise of an option or other right regardless of when such option is exercisable or by way of dividend, distribution, exchange, merger, consolidation, recapitalization, reorganization, stock split, grant of proxy or otherwise); (b) "person" means a corporation, association, partnership, joint venture, organization, business, individual, trust, estate or any other entity or group (within the meaning of Section 13(d)(3) of the Exchange Act); and (c) the terms "affiliates" and "associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act. 12. Notices. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of three business days after receipt by certified or registered mail, postage prepaid, addressed at the following addresses (or at such other address as the parties hereto shall specify by like notice): (a) If to the Paracelsus Shareholder, to: AM Natruper Holz 69 D-49076 Osnabruck 5 Federal Republic of Germany Facsimile: (011) 49-541-966-4006 Attention: with a copy to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, CA 91101 Facsimile: (818) 578-6380 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Facsimile: (011) 49-541-331-1616 (b) If to any of the Shareholders, to their respective addresses noted on Exhibit A hereto. 13. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 14. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. 15. Further Assurances. Each Shareholder will execute and deliver all such further documents and instruments and take all such further actions as may be necessary in order to consummate the transactions contemplated hereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PARK HOSPITAL GMBH By: /s/ Dr. Manfred G. Krukemeyer ----------------------------- Name: Dr. Manfred George Krukemeyer Title: Chairman SHAREHOLDERS: /s/ Charles R. Miller ----------------------------- Name: Charles R. Miller 6 /s/ James G. VanDevender -------------------------------------- Name: James. G. Vandevender 7 EXHIBIT A NAME OF SHAREHOLDER NUMBER OF AND SECURITIES AS OF ADDRESS FOR NOTICE CLASS OF SECURITIES THE DATE HEREOF ------------------ ------------------- --------------- Charles R. Miller Common Stock 531,776 shares 515 West Greens Road Options to acquire Common Stock 543,250 Suite 800 Houston, TX 77067 ------------- Total 1,075,026 James G. VanDevender Common Stock 62,666 shares 515 West Greens Road Options to acquire Common Stock 567,334 Suite 800 Houston, TX 77067 ------------- Total 630,334
EX-10.38 11 SERVICES AGREEMENT - DR. M. G. KRUKEMEYER 1 EXHIBIT 10.38 SERVICES AGREEMENT AGREEMENT (the "Agreement") made as of this 17th day of July, 1996 between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Dr. Manfred George Krukemeyer. WHEREAS, the Company desires to benefit from the experience and ability of Dr. Krukemeyer as a provider of management and strategic advisory services (the "Services") to the Company following the closing of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, whereby Champion will become a wholly owned subsidiary of the Company (the "Merger"); and WHEREAS, Dr. Krukemeyer is willing to commit himself to provide the Services to the Company on the terms and conditions provided herein. NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Retention as Service-Provider. Subject to the closing of the Merger, the Company shall retain Dr. Krukemeyer and Dr. Krukemeyer shall serve the Company as an independent service-provider on the terms and conditions set forth herein. 2. Service Period. The period (the "Service Period") during which Dr. Krukemeyer shall provide the Services to the Company shall commence on the date of closing (the "Closing Date") of the Merger and shall end on the date that is ten (10) years following the Closing Date, or, if earlier, on the date of Dr. Krukemeyer's death or permanent disability; provided, however, that in the event the Merger is abandoned or otherwise does not close, the Agreement will thereupon terminate without further obligation by either party hereto. For purposes of this Agreement, any determination of permanent disability shall be made by a physician selected by the Company and reasonably acceptable to Dr. Krukemeyer, whose approval shall not be unreasonably withheld; provided, however, that the selection of such physician (i) shall be made in consultation with Dr. Krukemeyer and (ii) shall not (x) unreasonably require Dr. Krukemeyer to travel in order to be examined, (y) result in an unreasonable infringement of Dr. Krukemeyer's privacy, or (z) otherwise result in any unreasonable hardship to Dr. Krukemeyer. 3. Duties. During the Service Period, Dr. Krukemeyer shall provide such Services to the Company as may be reasonably requested by the Company and agreed to by Dr. Krukemeyer. 4. Place of Performance. Dr. Krukemeyer may perform his duties hereunder at such locations as are acceptable to Dr. Krukemeyer and the Company or by telephone consultation, written communication and/or by fax or other suitable means as appropriate. Dr. Krukemeyer shall be permitted flexibility to schedule the provision of the Services. 5. Compensation. As compensation for the Services to be rendered by Dr. Krukemeyer, the Company shall pay Dr. Krukemeyer a fee, payable quarterly in advance, at the rate of U.S. $1 million per year during the Service Period. Such compensation payments shall continue to be made in full through the end of the Service Period notwithstanding any condition of temporary 2 disability or other event which may render Dr. Krukemeyer temporarily unable to provide the Services at any time or from time to time during the Service Period. 6. Successors; Binding Agreement. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 7. Notice. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): If to Dr. Krukemeyer: Dr. Manfred George Krukemeyer AM Nastruper Holz 69 4500 Osnabruck D-49076 Osnabruck Federal Republic of Germany Telecopier No. (011) 49-541-966-4006 with a copy to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, CA 91101 Telecopier No.: (818) 578-6380 and to: Dr. Meyer uu Locebick Sozietat Dr. H. Mertens Telecopier No. (011) 49-541-331-1616 Attention: If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel 3 with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Telecopier No.: (213) 687-5600 Attention: Thomas C. Janson, Jr. 8. Withholding. All amounts payable hereunder shall be subject to such withholding taxes, if any, as may be required by law. Prior to making the payments required hereunder, the Company will in good faith discuss with Dr. Krukemeyer's advisors the appropriate withholding level. 9. Modification of Agreement; Governing Law; Venue. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Dr. Krukemeyer and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 7 shall be valid and sufficient service thereof. 10. Validity. The validity or enforceability of any provision or provisions of this Agreement shall not be affected by the invalidity or unenforceability of any other provision of this Agreement and such valid and enforceable provisions shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 12. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter contained herein and supersedes all prior agreements, promises, 4 covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any other prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. PARACELSUS HEALTHCARE By: \s\ Ronald J. Messenger ----------------------------------- Name: R. J. Messenger Title: President & Chief Executive Officer \s\ Dr. Manfred G. Krukemeyer -------------------------------------------- Dr. Manfred George Krukemeyer EX-10.39 12 INSURANCE AGREEMENT - DR. M. G. KRUKEMEYER 1 EXHIBIT 10.39 INSURANCE AGREEMENT AGREEMENT (the "Agreement") made as of this 17th day of July, 1996 between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Dr. Manfred George Krukemeyer. WHEREAS, the Company desires to provide certain life insurance and permanent disability benefits to Dr. Krukemeyer. NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term of Agreement. The term of this Agreement (the "Term") shall commence on the date of closing (the "Closing Date") of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, whereby Champion will become a wholly owned subsidiary of the Company (the "Merger"), and shall expire on the date that is ten (10) years following the Closing Date; provided, that in the event the Merger is abandoned or otherwise does not close, the Agreement shall thereupon automatically terminate without further obligation by either party hereto. 2. Permanent Disability Benefit. In the event of Dr. Krukemeyer's permanent disability prior to the expiration of the Term, the Company shall provide for the payment to Dr. Krukemeyer of a permanent disability benefit, payable quarterly in advance, commencing as of the date on which Dr. Krukemeyer is determined to be so permanently disabled (the "Permanent Disability Determination Date") and continuing through the remainder of the Term, at the rate of U.S. $1 million per year (each such payment, a "Disability Payment"); provided, however, that in the event of Dr. Krukemeyer's death on or after the Permanent Disability Determination Date and prior to the expiration of the Term, (i) the Disability Payments shall continue to be made through the remainder of the Term to Dr. Krukemeyer's estate or as otherwise directed by him, or alternatively, (ii) upon the written election of Dr. Krukemeyer's estate, the Company shall provide for the payment to Dr. Krukemeyer's estate (or as otherwise directed by Dr. Krukemeyer), in lieu of any further Disability Payments, within thirty (30) business days following the date of such death, of a lump-sum amount in cash equal to the present value, determined as of the date of such death in accordance with a reasonable and prevailing rate of interest as agreed to by the Company and Dr. Krukemeyer's estate, of any remaining Disability Payments otherwise payable through the remainder of the Term; provided, that in no event shall benefits be payable under both Section 2 and Section 3 hereof. For purposes of this Agreement, any determination of permanent disability shall be made by a physician selected by the Company and reasonably acceptable to Dr. Krukemeyer, whose approval shall not be unreasonably withheld; provided, however, that the selection of such physician (i) shall be made in consultation with Dr. Krukemeyer and (ii) shall not (x) unreasonably require Dr. Krukemeyer to travel in order to be examined, (y) result in an unreasonable infringement of Dr. Krukemeyer's privacy, or (z) otherwise result in any unreasonable hardship to Dr. Krukemeyer. 3. Death Benefit. In the event of Dr. Krukemeyer's death during the Term and prior to the occurrence of any Permanent Disability Determination Date, the Company shall provide for the payment to Dr. Krukemeyer's estate (or as otherwise directed by Dr. Krukemeyer), of a death 2 benefit, payable quarterly in advance, commencing as of the date of Dr. Krukemeyer's death and continuing through the remainder of the Term at the rate of U.S. $1 million per year (the "Death Benefit"); provided, however, that upon the written election of Dr. Krukemeyer's estate, the Company shall instead provide for the payment, within thirty (30) business days following the date of such death, of a lump-sum amount in cash equal to the present value of the Death Benefit, determined as of the date of such death in accordance with a reasonable and prevailing rate of interest as agreed to by the Company and Dr. Krukemeyer's estate. 4. Insurance. The Company shall have the right to discharge its obligations under Sections 2 and 3 through the purchase of insurance. Dr. Krukemeyer shall reasonably cooperate with the Company and any insurance carrier with respect to medical examinations and any other commercially reasonable and standard conditions to the issuance of such insurance; provided, however, that the Company's obligations to provide the benefits described in Sections 2 and 3 shall remain in full force and effect regardless of (i) a determination for any reason that Dr. Krukemeyer is uninsurable, (ii) any conditions imposed by any potential insurer with respect to the issuance of such insurance, or (iii) any other term or condition affecting the ability of the Company to acquire such insurance, the cost thereof or otherwise. 5. Successors; Binding Agreement. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 5 or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law. 6. Notice. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): If to Dr. Krukemeyer or any Beneficiary hereunder:: Dr. Manfred George Krukemeyer AM Natruper Holz 69 D-49076 Osnabruck Federal Republic of Germany Facsimile: (011) 49-541-966-4006 with a copy to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, CA 91101 Facsimile: (818) 578-6380 3 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Facsimile: (011) 49-541-331-1616 Attention: If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel Facsimile: (713) 873-6686 with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Facsimile: (213) 687-5600 7. Withholding. All amounts payable hereunder shall be subject to such withholding taxes, if any, as may be required by law. Prior to making any payments required hereunder, the Company will in good faith discuss with Dr. Krukemeyer's advisors (or, as applicable, with the advisors of the beneficiary of any amounts payable hereunder (each, a "Beneficiary")) the appropriate withholding level. 8. Modification of Agreement; Governing Law and Venue. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Dr. Krukemeyer (or, after his death, any Beneficiary (including but not limited to Dr. Krukemeyer's estate)) and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto (or, as applicable, by any Beneficiary) at any time of any breach by the other party hereto or by such Beneficiary of, or compliance with, any condition or provision of this Agreement to be performed by such other party or Beneficiary shall be deemed a waiver of any similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to 4 assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 6 shall be valid and sufficient service thereof. 9. Validity. The validity or enforceability of any provision or provisions of this Agreement shall not be affected by the invalidity or unenforceability of any other provision of this Agreement, and such valid and enforceable provisions shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 11. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any other prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ Ronald J. Messenger --------------------------------- Name: R. J. Messenger Title: Chief Executive Officer \s\ Dr. Manfred G. Krukemeyer ------------------------------------------ Dr. Manfred George Krukemeyer EX-10.40 13 NON-COMPETE AGREEMENT - DR. M. G. KRUKEMEYER 1 EXHIBIT 10.40 NON-COMPETE AGREEMENT THIS NON-COMPETE AGREEMENT (this "Agreement") is entered into as of August 16, 1996, between Dr. Manfred George Krukemeyer (the "Shareholder") and Paracelsus Healthcare Corp., a California corporation ("Paracelsus"). WHEREAS, Paracelsus, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation ("Merger Sub"), have entered into an Agreement and Plan of Merger dated as of April 12, 1996, as amended and restated as of May 29, 1996 (as so amended and restated, the "Merger Agreement"), providing for, among other things, the merger (the "Merger") of Merger Sub with and into Champion pursuant to the terms and conditions of the Merger Agreement, and setting forth certain representations, warranties, covenants and agreements of the parties thereto in connection with the Merger; and WHEREAS, upon consummation of the Merger, the Shareholder will continue to Beneficially Own Voting Securities of Paracelsus constituting a majority of the Total Voting Power of Paracelsus; NOW, THEREFORE, for good and valuable consideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Certain Definitions. (a) For the purposes of this Agreement, capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Shareholder Agreement (as defined in the Merger Agreement). 2. Representations of the Shareholder. As of the date hereof, the Shareholder represents and warrants to Paracelsus that: (a) such Shareholder Beneficially Owns all of the outstanding shares of common stock, no par value per share, of Paracelsus ("Paracelsus Common Stock"); (b) such Shareholder does not Beneficially Own any shares of common stock, par value $.01 per share, of Champion ("Champion Common Stock") or any shares of Series C Preferred Stock or Series D Preferred Stock of Champion (collectively, the "Champion Capital Stock"); (c) this Agreement has been duly executed and delivered by the Shareholder and, assuming due execution by Paracelsus, this Agreement is a legal, valid and binding obligation, enforceable against the Shareholder in accordance with its terms; and (d) The execution, delivery and performance by the Shareholder of this Agreement do not and will not contravene or conflict with any provision of any law, regulation, judgment, injunction, order or decree binding upon the Shareholder or any agreement, contract or other instrument to which the Shareholder is a party, other than any such contraventions or conflicts that would not prevent or materially delay the performance of the Shareholder's obligations hereunder. 3. Representations of Paracelsus. As of the date hereof, Paracelsus represents and warrants to the Shareholder that the execution, delivery and performance of this Agreement by it has been 2 duly and validly authorized by all necessary corporate action on its part and, assuming due execution by the Shareholder, that this Agreement is a legal, valid and binding obligation, enforceable against Paracelsus in accordance with its terms. 4. Non-Compete. (a) Non-Competition. In consideration of the benefits of this Agreement, the Shareholder Agreement and the Merger Agreement to the Shareholder and in order to induce Paracelsus to enter into this Agreement, the Shareholder Agreement and the Merger Agreement and Champion to enter into the Merger Agreement, the Shareholder hereby covenants and agrees that during the period from the date of the Shareholder Agreement to the date of termination of each and every provision of the Shareholder Agreement with respect to the Shareholder and each and every Affiliate or Associate of the Shareholder or the relinquishment of all rights relating to the nomination of, and resignation of, all director nominees of the Shareholder and the Shareholder's Affiliates and Associates (the "Term") neither the Shareholder nor any Affiliates of the Shareholder shall, without the prior written consent of Paracelsus, directly or indirectly, compete with Paracelsus or any of its Subsidiaries in the business (which specifically does not include any ancillary hospital service businesses related to such business, including, without limitation, dietary, maintenance, security and other related service businesses) of owning, leasing or managing hospitals and ambulatory care centers (the "Business") in the Restricted Area (as defined below) or have any interest, directly or indirectly, in any entity engaged in the Business in the Restricted Area. Nothing in this Section shall prohibit the Shareholder from (i) owning, directly or indirectly, control of a Person (the "Subject Company") if the Subject Company is not primarily engaged, directly or indirectly, in the Business in the Restricted Area and, within twelve months after such acquisition, the Shareholder causes the Subject Company to divest any business or assets of the Subject Company that engage in the Business in the Restricted Area or (ii) owning, directly or indirectly, not more than 5% of any class of voting securities of a publicly traded Person that is engaged, directly or indirectly, in the Business in the Restricted Area. The Shareholder specifically agrees that this covenant is an integral part of the inducement of Champion and Paracelsus to consummate the transactions contemplated by the Merger Agreement and that it shall be specifically enforceable by Paracelsus' successors and permitted assigns. (b) Restricted Area. The covenants contained in Section 4(a) shall be construed as a series of separate covenants, one for each county or state of the United States of America (together, the "Restricted Area"). (c) Blue Penciling. If any provision contained in this Section shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, but this Section shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Each of the Shareholder and Paracelsus agrees that in the event that either the length of time or geographical area set forth in this Section is deemed too restrictive by any court of competent jurisdiction, the covenants and agreements in this Section shall be enforceable for such time and within such geographical area as such court may deem reasonable under the circumstances. (d) Non-Solicitation. The Shareholder hereby covenants and agrees that following the Closing Date neither it nor any of its Affiliates shall, without the prior written consent of Paracelsus, directly or indirectly, solicit for employment any current key employee or officer of Paracelsus or any of its Subsidiaries; provided, that the foregoing restriction shall not apply to 3 employees no longer employed by Paracelsus or its Subsidiaries or to employees who respond to general solicitations of employment not specifically directed toward such key employees or officers of Paracelsus or its Subsidiaries. 5. Additional Agreements. Neither the termination of this Agreement nor the Transfer by the Shareholder of Beneficial Ownership of any Voting Securities of Paracelsus shall relieve the Shareholder of any liabilities or obligations to Paracelsus that arose or accrued under the terms of this Agreement prior to the date of such termination or Transfer. 6. Specific Performance. Each party hereto acknowledges that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the granting of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it shall not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with any other party's seeking or obtaining such equitable relief. 7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall not be assignable (by operation of law or otherwise) without the written consent of all other parties hereto; provided, that in the event of a merger where Paracelsus is not the surviving corporation, (x) this Agreement shall be assigned to and shall inure to the benefit of and be binding upon such surviving corporation and (y) any reference herein to Paracelsus shall be deemed to be a reference to such surviving corporation; provided, further, that in the event of a merger where Paracelsus is the surviving corporation, this Agreement shall continue in full force and effect. 8. Entire Agreement; Amendment; Waiver. This Agreement supersedes all prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof and contains the entire agreement among the parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provisions hereof may be modified or waived, or any consents granted hereunder, except, with respect to Paracelsus, by an instrument in writing signed by Paracelsus and approved by the unanimous vote of all of the Independent Directors and, with respect to the Shareholder, by the Shareholder. No waiver of any provisions hereof by any party shall be deemed a waiver of any other provisions hereof by any such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party. 9. Miscellaneous. (a) Governing Law and Venue. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Texas and the Federal courts of the United States of America located in the State of Texas solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that 4 such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Texas State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 9(b), shall be valid and sufficient service thereof. (b) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given (i) on the first business day following the date received, if delivered personally or by telecopy (with telephonic confirmation of receipt by the addressee), (ii) on the business day following timely deposit with an overnight courier service, if sent by overnight courier specifying next day delivery and (iii) on the first business day that is at least five days following deposit in the mails, if sent by first class mail, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to the Shareholder, to: Dr. Manfred George Krukemeyer AM Natruper Holz 69 D-49076 Federal Republic of Germany Facsimile: (011) 49-541-966-4006 with copies to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, California 91101 Facsimile: (818) 578-6387 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Facsimile: (011) 49-541-331-1616 If to Paracelsus, to: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Facsimile: (713) 873-6680 Attention: Robert C. Joyner Vice President and General Counsel 5 with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Facsimile: (213) 687-5600 (c) Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. (d) Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall together constitute the same agreement. (e) Termination. This Agreement shall terminate automatically without any action by any party upon termination of each and every provision of the Shareholder Agreement with respect to the Shareholder and each and every Affiliate and Associate of the Shareholder or the relinquishment of all rights relating to the nomination of, and the resignation of all director nominees of the Shareholder and the Shareholder's Affiliates and Associates except as otherwise agreed by the unanimous vote of all of the Independent Directors then in office. (f) Headings. All Section headings and the recitals herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom. (g) Other Agreements. The parties hereto agree that there is not and has not been any other agreement, arrangement or understanding between the parties hereto with respect to the matters set forth herein. (h) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT; PROVIDED, THAT THE FOREGOING SHALL NOT IN ANY WAY RESTRICT OR LIMIT ANY HOLDER OF VOTING SECURITIES OF PARACELSUS FROM BRINGING A SHAREHOLDER DERIVATIVE ACTION TO SEEK OR COMPEL THE DIRECTORS OF PARACELSUS TO CAUSE PARACELSUS TO ENFORCE ANY OBLIGATIONS OF THE SHAREHOLDER HEREUNDER OR TO EXERCISE ANY RIGHTS OR REMEDIES OF PARACELSUS HEREUNDER. 6 (i) No Waiver of Opportunities. Nothing in this Agreement shall waive or shall be construed to waive the right of Paracelsus or any of its Subsidiaries to pursue a claim against any Person for loss of, or a failure to present or provide to Paracelsus or any Subsidiary of Paracelsus, any present or future corporate opportunities; provided, that the parties intend that the foregoing provision shall not (A) affect in any manner the contractual obligations under this Agreement or be deemed to impose any additional obligations on any party except such obligations that may arise by operation of law or (B) expand or limit the interpretation of any provisions hereof including, without limitation, Section 4(a) and 4(d). IN WITNESS WHEREOF, Paracelsus and the Shareholder have executed and delivered this Agreement, or a counterpart hereof, as of the date first written above. PARACELSUS HEALTHCARE By: \s\ Ronald J. Messenger ------------------------------------ Name: R. J. Messenger Title: President & Chief Executive Officer THE SHAREHOLDER By: \s\ Dr. Manfred G. Krukemeyer ------------------------------------ Name: Dr. Manfred George Krukemeyer EX-10.41 14 SHAREHOLDER AGREEMENT - PARACELSUS 1 EXHIBIT 10.41 SHAREHOLDER AGREEMENT THIS SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of August 16, 1996, between Park Hospital GmbH, a German corporation (the "Shareholder"), and Paracelsus Healthcare Corp., a California corporation ("Paracelsus"). WHEREAS, Paracelsus, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation ("Merger Sub"), have entered into an Agreement and Plan of Merger, dated as of April 12, 1996, as amended and restated as of May 29, 1996 (as so amended and restated the "Merger Agreement"), providing for, among other things, the merger (the "Merger") of Merger Sub with and into Champion pursuant to the terms and conditions of the Merger Agreement, and setting forth certain representations, warranties, covenants and agreements of the parties thereto in connection with the Merger; and WHEREAS, upon consummation of the Merger, the Shareholder will continue to Beneficially Own Voting Securities of Paracelsus constituting a majority of the Total Voting Power of Paracelsus; NOW, THEREFORE, for good and valuable consideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Certain Definitions. (a) For the purposes of this Agreement, the following terms shall have the following meanings: "Affiliate" and "Associate" when used with reference to any Person shall have the meanings assigned to such terms in Rule 12(b)-2 of the Exchange Act as in effect on the date hereof; provided, that Paracelsus and its Subsidiaries and existing directors and executive officers of Champion and Paracelsus who become and remain directors and executive officers of Paracelsus shall not, solely as a result of holding such office, be deemed Affiliates or Associates of any Investor for purposes of this Agreement. "Acquisition Proposal" shall mean any bona fide offer or proposal for (i) a merger or other business combination (other than a Surviving Company Merger) involving Paracelsus, (ii) the acquisition of any Voting Securities representing more than 50% of the Total Voting Power of Paracelsus after giving effect to such Acquisition Proposal or (iii) the acquisition of all or substantially all of the assets of Paracelsus. "Approved Acquisition Proposal" shall mean an Acquisition Proposal that is approved and recommended (and, immediately prior to consummation of such Acquisition Proposal, that continues to be recommended) by a vote of 75% of the entire Board and by a majority of the Independent Directors. A Person shall be deemed the "Beneficial Owner" and to have "Beneficial Ownership" of, and to "Beneficially Own," any Voting Securities as to which such Person or any of such Person's Affiliates or Associates is or may be deemed to be the beneficial owner pursuant to Rule 13d-3 or 13d-5 under the Exchange Act, as such rules are in effect on the date of this Agreement, as well as any Voting Securities as to which such Person or any of such Person's Affiliates or Associates has the right to become Beneficial Owner (whether such right is exercisable immediately or only after the passage of time or the occurrence of conditions) pursuant to any agreement, 2 arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than the rights under the Rights Plan), warrants or options, or otherwise; provided, however, that the Shareholder shall not be deemed to be the "Beneficial Owner" and to have "Beneficial Ownership" of, and to "Beneficially Own," any voting securities of Paracelsus by virtue of the Right of First Refusal Agreement dated the date hereof between the Shareholder and certain persons until such moment in time as the Shareholder or any Affiliate or Associate of the Shareholder acquires any such Voting Securities in a closing pursuant thereto; provided, further, that a Person shall not be deemed the "Beneficial Owner", or to have "Beneficial Ownership" of, or to "Beneficially Own", any Voting Security (i) solely because such Voting Security has been tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered Voting Security is accepted for payment or exchange or (ii) solely because such Person or any of such Person's Affiliates or Associates has or shares the power to vote or direct the voting of such Voting Security pursuant to a revocable proxy or consent given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act, except if such power (or the arrangements relating thereto) is then reportable under Item 6 of Schedule 13D under the Exchange Act (or any similar provision of a comparable or successor report). For purposes of this Agreement, in determining the percentage of the outstanding Voting Securities with respect to which a Person is the Beneficial Owner, all shares as to which such Person is deemed the Beneficial Owner shall be deemed outstanding. "Board" shall mean the Board of Directors of Paracelsus. "Closing Date" shall mean the date upon which the Closing (as defined in the Merger Agreement) shall occur. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Group" shall have the meaning assigned to such term in Rule 13(d)-3 of the Exchange Act as in effect on the date hereof. "Independent Directors" shall mean those directors of the Board who are not Shareholder Directors, Transferee Directors or officers of Paracelsus or any of its Subsidiaries; provided that, only for the purpose of determining an individuals qualification to vote on a particular matter, each such individual also must not have (and must not be an Affiliate of any Person who has) any material financial interest with respect to the particular matter under consideration. "Investor" shall mean the Shareholder and any Permitted Transferee. "Minority Shareholders" shall mean Beneficial Owners of Voting Securities who are not an Investor, Affiliates or Associates of an Investor or any member of a Group of which an Investor, or Affiliates or Associates of the Investor, are members with respect to Shares (in each case for each Investor and Affiliates and Associates of such Investor only for so long as this Agreement is in effect with respect to the respective Investor). 3 "Minority Shares" shall mean the Shares Beneficially Owned by Minority Shareholders. "Permitted Transferee" shall mean a permitted transferee under Section 5(a), the proviso of Section 5(c), Section 5(f), Section 5(g), Section 5(h) or Section 5(i). "Person" shall mean an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a governmental or political subdivision or an agency or instrumentality thereof. "Qualified Parties" shall mean any (i) trust described in Section 664 of the Code (or any substantially similar entity under non-U.S. tax laws) of which the Investor or Family Members of the Investor are income beneficiaries and (ii) any charitable organization described in Section 501(c)(3) of the Code (or any substantially similar entity under non-U.S. tax laws), in both cases that is or simultaneously agrees to be bound as an Investor under this Agreement. "Rights Plan" shall have the meaning assigned thereto in the Merger Agreement. "Shareholder" shall, in addition to the meaning ascribed thereto in the first paragraph hereof, mean any Investor that immediately prior to becoming an Investor hereunder is (i) a Wholly-Owned Subsidiary of the Shareholder or (ii) Beneficially Owns 100% of the Total Voting Power of the Shareholder; provided that Dr. Manfred George Krukemeyer (x) continues to Beneficially Own 100% of the Total Voting Power of such Investor and (y) guarantees to Paracelsus the performance of all obligations of such Investor under this Agreement. "Shares" shall mean the shares of common stock, no par value per share, of Paracelsus, to be issued in the Merger. "Subsidiary" shall mean, with respect to any Person, any entity at least 50% of the Voting Securities of which are owned directly or indirectly by such Person. "Surviving Company Merger" shall mean any merger or other business combination or reorganization (i) where the transaction has been approved by a unanimous vote of the entire Board or (ii) where the holders of Voting Securities of Paracelsus prior to such transaction will beneficially own (solely for the purpose of this definition, as determined pursuant to Rule 13d-3 or Rule 13d-5 of the Exchange Act) in the aggregate at least 60% of the surviving corporation's Total Voting Power immediately giving effect to such transaction. "Transfer" shall mean any direct or indirect sale, transfer, assignment, pledge, hypothecation, mortgage, or other disposition, including those by operation or succession of law, merger or otherwise, or any encumbrance (other than encumbrances arising by operation of law). "Total Voting Power" shall mean the non-diluted aggregate number of votes that may be cast by the holders of outstanding Voting Securities. "Voting Securities" shall mean all securities entitled to vote in the ordinary course in the election of directors or of Persons serving in a similar governing capacity, including the voting rights attached to such securities and rights or options to acquire such securities. 4 "Wholly-Owned Subsidiary" shall mean, with respect to any Person, a Subsidiary all of the Voting Securities of which are owned, directly or indirectly, by such Person. (b) For the purposes of this Agreement, the following terms shall have the meanings assigned to them in the corresponding Sections of this Agreement: "Acceptance Notice" Section 7(b) "Amended Proposal Notice" Section 7(a) "Champion Capital Stock" Section 2(b) "Champion Common Stock" Section 2(b) "Eligible Person" Section 9(a) "Fair Proposal" Section 6 "Fair Value" Section 6(b) "Family Members" Section 5(h) "Heirs" Section 5(h) "Initiation Date" Section 6(a) "Investor Appraiser" Section 6(a) "Higher Appraised Amount" Section 6(c) "Lower Appraised Amount" Section 6(c) "Mutually Appraised Amount" Section 6(c) "Mutually Designated Appraiser" Section 6(c) "Offer Price" Section 7(a) "Paracelsus Appraiser" Section 6(a) "Paracelsus Common Stock" Section 2(a) "Price" Section 6(c) "Proposal Notice" Section 7(a) "Shareholder Directors" Section 9(a) "Shareholder Proposal" Section 7(a) 5 "Transferee Directors" Section 9(g) 2. Representations of the Shareholder. As of the date hereof, the Shareholder represents and warrants to Paracelsus that: (a) such Shareholder Beneficially Owns all of the outstanding shares of common stock, no par value per share, of Paracelsus ("Paracelsus Common Stock"); (b) such Shareholder does not Beneficially Own any shares of common stock, par value $.01 per share, of Champion ("Champion Common Stock") or any shares of Series C Preferred Stock or Series D Preferred Stock of Champion (collectively, the "Champion Capital Stock"); (c) this Agreement has been duly executed and delivered by the Shareholder and, assuming due execution by Paracelsus, this Agreement is a legal, valid and binding obligation, enforceable against the Shareholder in accordance with its terms; and (d) The execution, delivery and performance by the Shareholder of this Agreement do not and will not contravene or conflict with any provision of any law, regulation, judgment, injunction, order or decree binding upon the Shareholder or any agreement, contract or other instrument to which the Shareholder is a party, other than any such contraventions or conflicts that would not prevent or materially delay the performance of the Shareholder's obligations hereunder. 3. Representations of Paracelsus. As of the date hereof, Paracelsus represents and warrants to the Shareholder that the execution, delivery and performance of this Agreement by it has been duly and validly authorized by all necessary corporate action on its part and, assuming due execution by the Shareholder, that this Agreement is a legal, valid and binding obligation, enforceable against Paracelsus in accordance with its terms. 4. Standstill Provisions. An Investor shall not, and shall not suffer or permit any Affiliates or Associates of such Investor to, whether acting alone or in concert with others: (a) make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" (as such terms are used in Regulation 14A promulgated under the Exchange Act) to vote or consent with respect to any Voting Securities of Paracelsus in any way that is inconsistent with the provisions of this Agreement; (b) unless Paracelsus shall be in material breach of Section 9, become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act) in opposition to a Board slate of Paracelsus nominated by the Board; (c) initiate or propose the approval of one or more shareholder proposals with respect to Paracelsus as described in Rule 14a-8 under the Exchange Act, or induce or attempt to induce any other Person to initiate any shareholder proposal with respect to Paracelsus; 6 (d) except in accordance with Section 9 or solely in connection with the termination of an executive employment contract, seek election to or seek to place a representative on the Board or seek the removal of any member of the Board; (e) in any way that is inconsistent with the terms of this Agreement, (i) solicit, seek to effect, negotiate with or provide non-public information to any other Person with respect to, (ii) make any statement or proposal, whether written or oral, to the Board or any director or officer of Paracelsus with respect to or (iii) otherwise make any public announcement or proposal whatsoever with respect to, any form of business combination transaction (with any Person) involving Paracelsus or the acquisition of a substantial portion of the equity securities or assets of Paracelsus or any Subsidiary of Paracelsus, including a merger, consolidation, tender offer, exchange offer or liquidation of Paracelsus's assets, or any restructuring, recapitalization or similar transaction with respect to Paracelsus or any material Subsidiary of Paracelsus; provided, however, that the foregoing shall not (x) apply to any discussion between or among the Investor and Paracelsus or any of their respective Affiliates, Associates, officers, employees agents or representatives or (y) in the case of clause (ii) above, be interpreted to limit the ability of the Investor, or any Shareholder Director or Transferee Director to make any such statement or proposal or to discuss any such proposal with any officer or director of or advisor to Paracelsus or advisor to the Board unless, in either case, it would reasonably be expected to require Paracelsus to make a public announcement regarding such discussion, statement or proposal; (f) form, join or participate in or encourage the formation of a Group with respect to any Voting Securities of Paracelsus, other than a Group consisting solely of the Investors, Paracelsus and Affiliates and Associates of the Investors and Paracelsus; provided, that, except in connection with a Fair Proposal in accordance with Section 6, no Investor nor Affiliates or Associates of such investor shall in any case form, join or participate in or encourage the formation of any Group of which the members, together with all of such members' respective Affiliates and Associates, will, together with the Investor and the Affiliates and Associates of the Investor, Beneficially Own 66-2/3% or more of the Total Voting Power of Paracelsus; (g) except in compliance with Section 5, deposit any Voting Securities of Paracelsus into a voting trust or subject any such Voting Securities to any arrangement or agreement with respect to the voting thereof, other than any such trust, arrangement or agreement (i) the only parties to, or beneficiaries of, which are the Investor, Qualified Parties, Paracelsus or Affiliates and Associates of the Investor or Paracelsus and (ii) the terms of which do not require or expressly permit any party thereto to act in a manner inconsistent with this Agreement; provided that all of the Voting Securities deposited into any such trust or subjected to any arrangement or agreement, the parties to or beneficiaries of which include Qualified Parties, shall be deemed to be Beneficially Owned by the respective Investor for all purposes of this Agreement; or (h) publicly disclose any intention, plan or arrangement inconsistent with the terms of this Agreement, or make any such disclosure privately if it would reasonably be expected to require Paracelsus to make a public announcement regarding such intention, plan or arrangement. 5. Voting Security Transfers. An Investor shall not, and shall not suffer or permit any Affiliates or Associates of such Investor to, Transfer, in any single transaction or group of related transactions, any Voting Securities, except for a Transfer that complies with any of the following subsections: 7 (a) to any Person who owns 100% of the Total Voting Power of the Investor and to any Wholly-Owned Subsidiary of the Investor or any such Person; provided, that (i) such transferee becomes a party to this Agreement as an Investor and (ii) in the case of a Transfer to a Wholly-Owned Subsidiary, the Person who is not a Wholly-Owned Subsidiary of any Person and who Beneficially Owns 100% of the Total Voting Power of the Wholly-Owned Subsidiary of the Transferring Investor guarantees to Paracelsus the performance of all obligations of such transferee under this Agreement; (b) to any Person such that, after such Transfer, such Person, together with the Affiliates and Associates of such Person, will not Beneficially Own, after giving effect to such Transfer, Voting Securities of Paracelsus constituting 25% or more of the Total Voting Power of Paracelsus; provided that, so long as this Agreement is in effect with respect to such Investor, except in connection with a Fair Proposal in accordance with Section 6 or a Shareholder Proposal in accordance with Section 7, such Investor, or any Affiliates or Associates of the Investor, shall not in any case, form, join or participate in or encourage the formation of a Group with such Person, or any Affiliates or Associates of such Person, of which the members, together with all of such members' respective Affiliates and Associates, will, together with such Investor and all Affiliates and Associates of such Investor, Beneficially Own 25% or more of the Total Voting Power of Paracelsus; (c) in a bona fide pledge of such Voting Securities to a financial institution to secure borrowings as permitted by applicable laws, rules and regulations; provided, that, if such pledge results in a pledge of more than 25% of the Total Voting Power of Paracelsus to such financial institution, such financial institution agrees to be bound by the obligations of the Investor under this Agreement (but shall not have any of the rights of an Investor under this Agreement until such pledgee acquires such Voting Securities upon foreclosure pursuant to the terms of the pledge agreement, in which case such pledgee may transfer such Voting Securities in accordance with this Section as if such pledgee were an Investor hereunder and cause a transferee to have all rights and obligations of a Permitted Transferee hereunder); (d) to underwriters in connection with an underwritten public offering of such Voting Securities on a firm commitment basis registered under the Securities Act of 1933, as amended, pursuant to which the sale of such Voting Securities will be in a manner to effect a broad distribution; (e) to Paracelsus or a Wholly-Owned Subsidiary of Paracelsus; (f) to a Person so long as either immediately after or simultaneously with the acquisition of such Voting Securities, such Person or an Affiliate of such Person makes an Acquisition Proposal to acquire all outstanding Shares at the same price and on equivalent terms offered to the Investor and the Investor's Affiliates and Associates that is made in compliance with the Exchange Act and the rules and regulations thereunder; provided, that (i) other than with respect to the Shares to be Transferred by the Investor or the Investor's Affiliates or Associates, such Person may not purchase any Shares in the Acquisition Proposal and the Acquisition Proposal may not otherwise be consummated unless it is approved and recommended (and, immediately prior to consummation of the Acquisition Proposal, continues to be recommended) by a majority of the Independent Directors, (ii) if the Acquisition Proposal is a tender or exchange offer that is approved and recommended (and, immediately prior to consummation of the Acquisition Proposal, continues to be recommended) by a majority of the Independent Directors, 8 the terms of such tender shall provide that such Person shall, and such Person shall be required to, accept for payment and purchase all Shares validly tendered and not withdrawn upon expiration of the offer if a majority of the Minority Shares are validly tendered and not withdrawn upon expiration of the offer and (iii) such Person shall agree to be bound as an Investor by all obligations of the Investor under this Agreement and shall remain so obligated notwithstanding the termination of this Agreement with respect to any other Investor in accordance with Section 16(e). In addition to the foregoing, for a period of one year from the Closing Date, other than with respect to the Shares to be Transferred by the Investor or the Investor's Affiliates or Associates, (A) if the Acquisition Proposal is not a tender or exchange offer, the Acquisition Proposal may not be consummated unless it is approved by holders of a majority of the Minority Shares at a meeting duly called therefor, in addition to any vote required by law, or (B) if the Acquisition Proposal is a tender or exchange offer, such Person may not accept for payment or purchase any Shares in connection with the offer unless a majority of the Minority Shares have been tendered and not withdrawn upon expiration of the offer; (g) to any Qualified Parties; provided, that (i) at the time of such Transfer, the Investor or the Family Members of the Investor constitute a sufficient number of the directors or trustees, as the case may be, of such Qualified Parties to permit approval of matters by such Qualified Parties without the approval of any other director or trustee of such Qualified Parties; (h) in the case of a Transfer by an Investor who is a natural Person, a Transfer (A) in the case of the death of such Investor, to such Investor's executors, administrators, testamentary trustees, heirs, devisees, intestates and legatees ("Heirs") and (B) to such Investor's current or future spouse, parents, siblings or descendants of such parents', siblings' or spouses (the "Family Members"); provided that such Heirs and Family Members, as the case may be, simultaneously agree to be bound as an Investor to all of the obligations of the Investor under this Agreement; or (i) to any Person in connection with an Approved Acquisition Proposal or Surviving Company Merger. 6. Prohibited Acquisitions and Circumstances Permitting Acquisitions. An Investor shall not, and shall not suffer or permit any Affiliates or Associates of the Investor to, acquire, or agree or offer to purchase or otherwise acquire, in a transaction or group of related transactions, any Voting Securities of Paracelsus such that the Investor, together with the Affiliates and Associates of the Investor, after giving effect to such transaction or transactions, will Beneficially Own 66-2/3% or more of the Total Voting Power of Paracelsus, except pursuant to a Fair Proposal (as hereinafter defined). For the purposes of this Agreement, a "Fair Proposal" shall mean (i) an Acquisition Proposal by such Investor (or such Investor's Affiliates or Associates) that is approved by the unanimous vote of the Independent Directors or (ii) a transaction to acquire all of the outstanding Shares that complies with all of the following provisions of this Section: (a) Appraisers. The Investor shall make a written request expressing the Investor's desire to acquire Beneficial Ownership of Voting Securities to the Board. Promptly after the Board's receipt of such written request, the Independent Directors will designate an investment banking firm (the date of such designation, the "Initiation Date") of recognized national standing that does not Beneficially Own (excluding securities held on behalf of third parties) a material amount of the securities of Paracelsus (the "Paracelsus Appraiser") and the Investor will designate an investment banking firm of recognized national standing that does not Beneficially Own (excluding securities held on behalf of third parties) a material amount of the securities of Paracelsus (the 9 "Investor Appraiser"), in each case to determine the fair value (determined in accordance with the procedures described below) per Share. (b) Definition of Fair Value. The Investor acknowledges that the consideration that would constitute fair value per Share is the price per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including the Shares held by the Investor and Affiliates and Associates of the Investor) in an arm's-length transaction, assuming that Paracelsus was being sold in a manner reasonably designed to solicit all possible participants and permit all interested parties an opportunity to participate and to achieve the best value reasonably available to the Shareholders at that time, taking into account all then existing circumstances. Each of the investment banking firms referred to in this Section will be instructed to determine fair value per Share in this manner. (c) Determination of Price. Within 30 days after the Initiation Date, the Paracelsus Appraiser and the Investor Appraiser will each determine its initial view as to the fair value per Share and consult with one another with respect thereto. By the 45th day after the Initiation Date, the Paracelsus Appraiser and the Investor Appraiser will each have determined its final view as to the fair value per Share. At that point, if the difference between the Higher Appraised Amount (as defined below) and the Lower Appraised Amount (as defined below) is not greater than 10% of the Higher Appraised Amount, the price per Share (the "Price") will be the average of those two views. Otherwise, the Paracelsus Appraiser and the Investor Appraiser will agree upon and jointly designate a third investment banking firm of recognized national standing that does not Beneficially Own (excluding securities held on behalf of third parties) a material amount of the securities of Paracelsus (the "Mutually Designated Appraiser") to determine such fair value. The Mutually Designated Appraiser will, no later than the 60th day after the Initiation Date, determine such fair value (the "Mutually Appraised Amount"), and the Price will be (x) the Mutually Appraised Amount, if such amount falls within the range of values that is greater than one-third and less than two-thirds of the way between the Lower Appraised Amount and the Higher Appraised Amount, or (y) the average of the Mutually Appraised Amount and the other Appraised Amount (Lower or Higher) that is closest to the Mutually Appraised Amount, if the Mutually Appraised Amount does not fall within that range; provided, that if the Price so determined is less than the Lower Appraised Amount or more than the Higher Appraised Amount, the Price shall be the Lower Appraised Amount or the Higher Appraised Amount, as the case may be. During such 60 day period, Paracelsus will not, subject to fiduciary duties and applicable law, enter into or recommend to its shareholders any other Acquisition Proposal. As used herein, "Lower Appraised Amount" means the lower of the respective final views of the Paracelsus Appraiser and the Investor Appraiser as to fair value per Share and "Higher Appraised Amount" means the higher of such respective final views. (d) Fair Proposal. (i) Once the Price is determined as provided above, the Investor will have 15 days to notify the Board whether he desires to proceed with a Fair Proposal at the Price. (ii) If the Investor decides not to proceed with a Fair Proposal, (x) he shall promptly notify the Board in writing of such fact (it being understood that the failure to notify the Board within 15 days shall constitute notification to the Board that the Investor and the Affiliates and Associates of the Investor do not desire to proceed with a Fair Proposal) and (y) the Investor and 10 the Affiliates and Associates of the Investor shall not make a written request for an Acquisition Proposal to the Board under this Section for a period of six months from the date the Investor notifies (or is deemed to notify) the Board of his intent not to proceed with a Fair Proposal, provided that the Investor and the Investor's Affiliates and Associates shall not at any time be restricted from making a written request for an Acquisition Proposal to the Board under this Section at a price that is equal to or in excess of the last determined Price or from exercising their rights under Section 7. (iii) If the Investor decides to proceed with a Fair Proposal, the Investor may pay or cause to be paid the Price in cash or non-cash consideration or any combination of cash and non-cash consideration that the Investor Appraiser and the Paracelsus Appraiser mutually agree within 15 days will have an aggregate market value, on a fully distributed basis, of not less than the Price; provided, that in the event such appraisers shall fail to reach such agreement, they shall within five business days designate the Mutually Agreed Appraiser to make such determination within ten days after such designation, whose determination shall be final. (e) Meeting of Shareholders; Tender Offer. If the Investor determines to proceed with a Fair Proposal as set forth above, the Investor and Paracelsus agree that each will enter into an agreement with the other therefor (containing customary terms and conditions applicable in a situation in which the acquiror has an ownership position comparable to the Investor's ownership interest in Paracelsus) and, if the Fair Proposal is not to be consummated pursuant to a tender or exchange offer for all of the outstanding Shares, will cause a meeting of shareholders of Paracelsus to be held as soon as practicable to consider and vote thereon; provided, that, for a period of one year following the Closing Date, no Fair Proposal may be consummated unless (i) if the Fair Proposal is not a tender or exchange offer, it is approved by the affirmative vote of the holders of a majority of the Minority Shares at a meeting duly called therefor, in addition to any vote required by law, or (ii) if the Fair Proposal is a tender or exchange offer, a majority of the Minority Shares have been validly tendered and not withdrawn and are accepted for payment as of the expiration date (as may be extended) of the offer. In the event that the Fair Proposal is not approved or insufficient Shares are tendered to consummate the Fair Proposal in accordance with the terms hereof within 180 days from the Initiation Date (which period may be extended by a vote of 75% of the entire Board and a majority of the Independent Directors of the Board), the Investor shall terminate the Fair Proposal and shall not make a written request for an Acquisition Proposal to the Board under this Section for a period of one year from the Initiation Date; provided that the Investor and the Investor's Affiliates and Associates shall not at any time be restricted from exercising their rights under Section 7. Paracelsus agrees, subject to fiduciary duties and in accordance with applicable law, to promptly call and to take all other action necessary to hold the shareholder meeting referred to above. (f) Judgment of Independent Directors. Notwithstanding anything to the contrary in the foregoing Sections 6(a)-(e), in the event that the Independent Directors unanimously determine, in the good faith exercise of their fiduciary duties, based upon the facts and the circumstances existing at the time of such determination, that is in the best interests of Paracelsus and the holders of the Shares that the Independent Directors approve and recommend, in accordance with the terms hereof, an Acquisition Proposal at a lower price than the Price, then such unanimously approved Acquisition Proposal shall be a Fair Proposal and the price at which the Investor may consummate the Acquisition Proposal hereunder shall be the price so determined by the Independent Directors. 11 7. Right of First Offer. (a) Notification. After the Effective Time (as defined in the Merger Agreement), Paracelsus will not enter into or recommend any Approved Acquisition Proposal without first notifying the Shareholder in writing (a "Proposal Notice") of such Approved Acquisition Proposal and providing the Shareholder (including for purposes of this Section 7, Affiliates of such Shareholder) the opportunity (as hereinafter provided) to consummate an Acquisition Proposal on terms substantially equivalent to and, if the Approved Acquisition Proposal is a cash offer, at a cash price or, if the Approved Acquisition Proposal includes non-cash consideration, at a price (in either case, the "Offer Price") equal to the sum of the amount of any cash plus the fair market value of any other consideration offered in such prospective Approved Acquisition Proposal, as the same may be amended or modified from time to time (a "Shareholder Proposal"). The Proposal Notice shall set forth the identity of the proposed purchaser and the material terms of the proposed Approved Acquisition Proposal. In the event that the proposed Approved Acquisition Proposal is amended or modified, Paracelsus shall promptly notify the Shareholder in writing (an "Amended Proposal Notice"); provided that, if the Shareholder does not provide an Acceptance Notice (as defined below) after receipt of a Proposal Notice or any required Amended Proposal Notice, no Amended Proposal Notice will be required unless the terms of such amendments or modifications are less favorable in any material respects to Paracelsus than those contained in the Proposal Notice or any prior Amended Proposal Notices. Any required Amended Proposal Notice shall set forth the identity of the proposed purchaser and the material terms of the amended or modified proposed Approved Acquisition Proposal. (b) Response. Within 6 business days after receipt of the Proposal Notice or any required Amended Proposal Notice, the Shareholder shall notify (an "Acceptance Notice") the Board in writing of his good faith intention to enter into negotiations regarding a Shareholder Proposal pursuant to subsection (c) below. The failure to notify the Board in such period shall constitute notice of the Shareholder's intention not to pursue a Shareholder Proposal. If the Shareholder fails to deliver an Acceptance Notice after the Proposal Notice or, if applicable, the Amended Proposal Notice, (i) the Independent Directors and the Board shall have the right to approve and recommend the Approved Acquisition Proposal to the shareholders of Paracelsus and (ii) Paracelsus shall have the right to enter into such agreements and take such actions in furtherance of consummating, and to consummate, the Approved Acquisition Proposal at the Offer Price at any time within one year from the date the Approved Acquisition Proposal was first made to Paracelsus. (c) Negotiation. For a period of 15 days from the date of the last Acceptance Notice, the Shareholder shall have the non-exclusive right to negotiate the Shareholder Proposal in good faith with the Independent Directors of the Board and their representatives. If at the end of that 15 day period, a majority of the Independent Directors shall in the good faith exercise of their fiduciary duties determine that the competing Approved Acquisition Proposal is superior to the Shareholder Proposal or if the Shareholder Proposal is accepted and is then terminated in accordance with its terms, (i) the Independent Directors and the Board shall have the right to approve and recommend such competing Approved Acquisition Proposal to the shareholders of Paracelsus and (ii) Paracelsus shall have the right to enter into such agreements and take such actions in furtherance of consummating, and to consummate, such competing Approved Acquisition Proposal at the Offer Price at any time within one year from the date the Acquisition Proposal was first made to Paracelsus. 12 (d) Non-Cash Valuation. If the consideration offered by the prospective purchaser or transferee or, if permitted, offered by the Shareholder, includes non-cash consideration, Paracelsus and the Shareholder shall in good faith seek to agree upon the value of such non-cash consideration. If Paracelsus and the Shareholder fail to agree on such value within 15 days following receipt by the Shareholder of the Proposal Notice, then the Independent Directors and the Shareholder shall appoint a nationally recognized investment banking firm mutually acceptable to the Independent Directors and the Shareholder which shall resolve the issues in dispute; provided, that if the Independent Directors and the Shareholder cannot agree on an investment banking firm then each shall appoint a nationally recognized investment banking firm which together shall within five business days mutually agree on another nationally recognized investment banking firm to which the items in dispute shall be referred and which shall make a final and binding determination within ten days. The value of any securities shall be the fair market value of such securities and the value of any property other than securities shall be the fair market value of such property. If a determination under this paragraph (d) is required, any deadline for acceptance provided for in this Section shall be postponed until the third business day after the date of such determination. The Shareholder and Paracelsus shall share equally in payment of all expenses of such investment banking firms. All determinations made pursuant to this paragraph (c) shall be final and binding on the Paracelsus and the Shareholder. (e) Limitation. It is agreed and understood that the provisions of this Section shall inure to the benefit of only Paracelsus and the Shareholder and not to the benefit of any Investor other than the Shareholder. 8. Agreement to Sell Voting Securities. Subject to the rights of the Shareholder to propose, negotiate and consummate a Shareholder Proposal in accordance with Section 7, the Shareholder agrees that the Shareholder will, and will cause any Affiliates or Associates of the Shareholder to, sell in, tender into and vote in favor of, as the case may be, any Approved Acquisition Proposal and any Shareholder Proposal approved by the Independent Directors in accordance with Section 7 all Voting Securities of Paracelsus Beneficially Owned by the Shareholder or any Affiliate or Associate of the Shareholder. It is agreed and understood that the provisions of this Section shall not be binding upon any Investor other than the Shareholder so long as, if the Shareholder continues to be subject to this Agreement, such Investor is not an Affiliate or Associate of the Shareholder. 9. Board Representation. (a) The Board; Shareholder Directors. The Board as of the Effective Time shall number nine directors and may be increased by the Board pursuant to the terms of this clause (a) and the by-laws of Paracelsus. The Board shall be divided into three classes, with the number of directors divided as equally as possible among those classes. The Shareholder may request that Paracelsus include, and Paracelsus shall include, as nominees for the Board slate recommended by the Board, up to four persons designated by the Shareholder who are Eligible Persons (the "Shareholder Directors"), one of whom shall be a Class I director with an original term expiring in 1997, one of whom shall be a Class II director with an original term expiring in 1998 and two of whom shall be Class III directors with original terms expiring in 1999. If the Shareholder, together with the Affiliates and Associates of the Shareholder, shall cease to Beneficially Own (i) 35% of the Total Voting Power of Paracelsus, each Investor agrees to vote, and to use its best efforts to cause its respective Shareholder Directors and Transferee Directors (as defined below) to vote, immediately to increase the size of the Board to 10 directors, (ii) 32.5% of the Total Voting Power 13 of Paracelsus, each Investor agrees to vote, and to use its best efforts to cause its respective Shareholder Directors and Transferee Directors to vote, immediately to increase the size of the Board to 11 directors and (iii) 30% of the Total Voting Power of Paracelsus, each Investor agrees to vote, and to use its best efforts to cause its respective Shareholder Directors and Transferee Directors to vote, immediately to increase the size of the Board to 12 directors; provided that each Investor hereby agrees that any vacancies created by any such enlargement of the Board shall be in Class III, Class II and Class I, respectively, and the nominees to such vacancies shall be Independent Directors. For the purposes hereof, an "Eligible Person" shall mean (x) the Shareholder and (y) any other person (A) other than a person whose election to the Board, in the written opinion of counsel for Paracelsus, is reasonably likely to violate or be in conflict with, or result in any material limitation on the ownership or operation of any business or assets of Paracelsus or its Subsidiaries under, any statute, law, ordinance, regulation, rule, judgment, decree or order of any court or governmental or regulatory authority and (B) who has agreed in writing with Paracelsus, subject to his or her fiduciary duties, to comply with the provisions of this Section. (b) Committees; Quorum. Each committee of the Board shall contain such numbers of Shareholder Directors or Transferee Directors so that the number of Shareholder Directors and Transferee Directors, when taken together, on each such committee shall be as nearly as possible proportional to the total number of Shareholder Directors and Transferee Directors on the Board; provided that the forgoing shall not apply to the audit committee (which shall be comprised solely of Independent Directors) or the compensation committee (which shall be comprised of one Independent Director and one director who is not an employee of Paracelsus or its Subsidiaries and, for so long as the Shareholder is entitled to nominate Shareholder Directors pursuant to this Agreement, one Shareholder Director). The quorum required for the transaction of business by the Board shall include at least one Shareholder Director or one Transferee Director and one director who is an Independent Director, or their designees, attending in person or, if necessary, via teleconference call. (c) Resignation. Upon the Shareholder ceasing to Beneficially Own, together with all Affiliates and Associates of the Shareholder at least 10% of the Total Voting Power of Paracelsus, Paracelsus may request that all or any of the Shareholder Directors then on the Board resign as directors of Paracelsus, and upon such request by Paracelsus, the Shareholder shall use his best efforts to cause such Shareholder Directors, except Dr. Manfred George Krukemeyer, who shall resign at the next annual shareholder meeting for election to his class, to resign immediately and relinquish all rights and privileges as a member of the Board. Upon the Shareholder ceasing to Beneficially Own, together with all Affiliates and Associates of the Shareholder, at least 25% of the Total Voting Power of Paracelsus, Paracelsus may request that all or any of the Shareholder Directors then on the Board resign as directors of Paracelsus at the next annual shareholder meeting for election to their respective class, and upon such request by Paracelsus, the Shareholder shall use his best efforts to cause such Shareholder Directors to resign at such respective times and thereupon relinquish all rights and privileges as a member of the Board. Upon termination of this Agreement with respect to any Permitted Transferee, Paracelsus may request that all of the Transferee Directors then on the Board resign as directors of Paracelsus, and upon such request by Paracelsus, the Permitted Transferee shall use best efforts to cause such Transferee Directors to resign immediately and relinquish all rights and privileges as a member of the Board. 14 (d) Non-Independent and non-Shareholder Directors. Two members of the Board may be directors who are not Independent Directors, Shareholder Directors or Transferee Directors. (e) Independent Directors. Immediately following the Effective Time, three members of the Board will be Independent Directors as set forth in the Merger Agreement, and each of such Independent Directors shall be elected to one of the three classes of the Board. Vacancies among the Independent Directors occurring prior to the expiration of their respective terms of office or created for Independent Directors as a result of increasing the size of the Board as provided in clause (a) of this Section shall be filled by a vote of 75% of the entire remaining Board or, in the event that the Board cannot so agree, by the unanimous agreement of the Independent Directors then in office. Independent Directors to be nominated for election at each annual meeting of Paracelsus will be nominated by a vote of 75% of the entire Board or, in the event that the Board cannot so agree, by the unanimous agreement of the Independent Directors then in office. (f) Efforts to Nominate and Elect Directors. Paracelsus shall nominate and shall use its best efforts to take and cause to be taken all necessary action (corporate and other) to elect to the Board the individuals required to be nominated for election as directors in accordance with the terms hereof. The Investor shall nominate and shall use its best efforts, and shall use best efforts to cause the Shareholder Directors and Transferee Directors, as the case may be, and the Affiliates and Associates of the Investor to use their respective reasonable efforts, to take and cause to be taken all necessary action (corporate and other), which efforts shall include the voting of all Voting Securities Beneficially Owned by the Investor and the Affiliates and Associates of the Investor and voting, subject to his or her fiduciary duties, as a Shareholder Director or Transferee Director, to nominate and elect to the Board the individuals nominated by the Board in accordance with any nomination provisions hereof then in effect and the terms of any employment contracts between Paracelsus and its executive officers so long as such employment agreements remain in effect. (g) Transferee Directors. If the Investor consummates a Transfer to a Permitted Transferee who shall become an Investor hereunder, such Investor shall have the right, upon written notice to Paracelsus, to enter into such agreements and understandings with such Permitted Transferee so that such Investor relinquishes the right to nominate Shareholder Directors or Transferee Directors, as the case may be, and such Permitted Transferee shall be entitled to nominate, in place of the relinquished Shareholder Directors or Transferee Directors, as the case may be, such number of persons for whom the Investor has in such written notice relinquished the right to nominate who are Eligible Persons (such persons from time to time being the "Transferee Directors"); provided, that (i) the number of Shareholder Directors or Transferee Directors, as the case may be, entitled to be nominated by such Investor under this Agreement shall be reduced by the number of directors relinquished in favor of the Permitted Transferee and (ii) in no event will all or any one or any combination of the Investors, together with their respective Affiliates and Associates, at any time have more than four representatives on the Board, whether pursuant to the terms hereof, any right of director appointment as set forth in any employment agreement between any such representative and Paracelsus or otherwise. 10. Additional Agreements. 15 (a) No Amendment or Waiver. The Investor shall not, and shall cause Affiliates and Associates of such Investor not to, publicly request Paracelsus or any of its agents or representatives, directly or indirectly, to amend or waive any provision of this Agreement. (b) Rights Plan. The Shareholder acknowledges that the Rights Plan shall be adopted by Paracelsus. (c) No Relief of Liabilities. No Transfer by the Investor of Beneficial Ownership of any Voting Securities of Paracelsus shall relieve the Investor of any liabilities or obligations to Paracelsus that arose or accrued prior to the date of such Transfer. (d) Securities Subject to Agreement; Ineffective Transfers. All Voting Securities of Paracelsus that are Beneficially Owned by the Investor and the Affiliates and Associates of such Investor shall be subject to this Agreement. No Transfer or acquisition of any Voting Securities of Paracelsus in violation of any provision of this Agreement shall be effective to pass any title to, or create any interest in favor of, any Person, but the Investor, in attempting to effect or in permitting or suffering such Transfer or acquisition (otherwise than inadvertently and in good faith, without any knowledge thereof), shall be deemed to have committed a material breach hereof. (e) Further Assurances. Paracelsus and each Investor shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. (f) Investor Voting on Other Matters. Unless such action is recommended by the Board, the Investor shall not, and shall cause the Affiliates and Associates of the Investor not to, vote any Voting Securities of Paracelsus to amend or repeal the Restated Articles of Incorporation of Paracelsus or the By-laws of Paracelsus or to call or request any special meeting of Paracelsus' shareholders. The Investor shall cause all Voting Securities of Paracelsus owned by the Shareholder and all Affiliates and Associates of such Investor to be represented, in person or by proxy, at all meetings of holders of Voting Securities of which the Investor has actual notice, so that such Voting Securities may be counted for the purpose of determining the presence of a quorum at such meetings. 11. Legends. (a) The Investor agrees that all certificates representing the Voting Securities subject to this Agreement shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDER AGREEMENT DATED AUGUST 16, 1996 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY) WHICH PROVIDES, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS ON TRANSFER THEREOF. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT SHALL BE VOID." (b) Upon termination with respect to the Investor of this Agreement in accordance with its terms and upon request by such Investor, Paracelsus shall issue new certificates with the foregoing legend removed. 16 12. Specific Performance. Each party hereto acknowledges that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the granting of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it shall not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with any other party's seeking or obtaining such equitable relief. 13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall not be assignable (by operation of law or otherwise) without the written consent of all other parties hereto; provided, that in the event of a Surviving Company Merger where Paracelsus is not the surviving corporation, (x) this Agreement shall be assigned to and shall inure to the benefit of and be binding upon such surviving corporation and (y) any reference herein to Paracelsus shall be deemed to be a reference to such surviving corporation; provided, further, that the rights and obligations under this Agreement (excluding Section 7) may be assigned by an Investor to a Permitted Transferee in accordance with the terms of the Transfer to such Permitted Transferee, which assignment shall not terminate any portion of this Agreement with respect to such assignor except in accordance with Section 15(e). 14. Entire Agreement; Amendment; Waiver. This Agreement shall supersede all prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof and contains the entire agreement among the parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provisions hereof may be modified or waived, except by an instrument in writing signed by Paracelsus and approved by the unanimous vote of the Independent Directors and, with respect to each Investor, by such Investor. No waiver of any provisions hereof by any party shall be deemed a waiver of any other provisions hereof by any such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party. 15. Miscellaneous. (a) Governing Law and Venue. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF INCORPORATION OF PARACELSUS, WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. The parties hereby irrevocably submit to the jurisdiction of the courts of the state of incorporation of Paracelsus and the Federal courts of the United States of America located in the state of incorporation of Paracelsus solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a State or Federal court. The parties 17 hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 15(b), shall be valid and sufficient service thereof. (b) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given (i) on the first business day following the date received, if delivered personally or by telecopy (with telephonic confirmation of receipt by the addressee), (ii) on the business day following timely deposit with an overnight courier service, if sent by overnight courier specifying next day delivery and (iii) on the first business day that is at least five days following deposit in the mails, if sent by first class mail, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to the Shareholder, to: Dr. Manfred George Krukemeyer AM Natruper Holz 69 D-49076 Osnabruck Federal Republic of Germany Facsimile: (011)49-541-966-4006 with copies to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, California 91101 Facsimile: (818) 578-6387 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Facsimile: (011) 49-541-331-1616 If to Paracelsus, to: Paracelsus Healthcare Corporation 515 West Greens Road Suite 800 Houston, Texas 77067 Facsimile: (713) 873-6686 Attention: Robert C. Joyner Vice President and General Counsel 18 with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Facsimile: (213) 687-5600 (c) Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. (d) Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall together constitute the same agreement. (e) Termination. With respect to a particular Investor (but not with respect to any other Person who may at such time be bound by the terms hereof), this Agreement shall terminate automatically without any action by any party upon the earliest to occur of (i) the Investor, together with all Affiliates and Associates of such Investor, ceasing to Beneficially Own at least 25% of the Total Voting Power of Paracelsus (but Sections 9 (c), (d) and (f) shall not, with respect to the Shareholder, terminate until the Shareholder, together with all Affiliates and Associates of the Shareholder, ceases to Beneficially Own at least 10% of the Total Voting Power of Paracelsus) and (ii) the Investor, together with all Affiliates and Associates of such Investor, Beneficially Owning at least 90% of the Total Voting Power of Paracelsus; provided that in the event of a termination pursuant to clause (ii) of this subsection, the Investor shall remain obligated to and shall promptly acquire all of the remaining Voting Securities of Paracelsus (other than any such Voting Securities properly exercising any appraisal or dissenters rights) at a price equal to or in excess of any price paid by the Investor or Affiliates or Associates of such Investor for such Voting Securities in the 90-day period preceding such acquisition; provided, further, that in the event of a termination pursuant to clause (i) of this subsection, the Investor shall remain subject to the obligations of Sections 9(c), 9(d) and 9(f). (f) Headings. All Section headings and the recitals herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom. (g) Other Agreements. The parties hereto agree that there is not and has not been any other agreement, arrangement or understanding between the parties hereto with respect to the matters set forth herein. 19 (h) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT; PROVIDED, THAT THE FOREGOING SHALL NOT IN ANY WAY RESTRICT OR LIMIT ANY HOLDER OF VOTING SECURITIES OF PARACELSUS FROM BRINGING A SHAREHOLDER DERIVATIVE ACTION TO SEEK OR COMPEL THE DIRECTORS OF PARACELSUS TO CAUSE PARACELSUS TO ENFORCE ANY OBLIGATIONS OF AN INVESTOR HEREUNDER OR TO EXERCISE ANY RIGHTS OR REMEDIES OF PARACELSUS HEREUNDER. IN WITNESS WHEREOF, Paracelsus and each Investor have executed and delivered this Agreement, or a counterpart hereof, as of the date first written above or, where applicable, across from the Investor's signature on such counterpart. PARACELSUS HEALTHCARE CORPORATION By: /s/ Dr. Manfred G. Krukemeyer ----------------------------- Name: Dr. Manfred G. Krukemeyer Title: Chairman PARK HOSPITAL GMBH By: /s/ Dr. Manfred G. Krukemeyer ----------------------------- Name: Dr. Manfred G. Krukemeyer Title: Chairman As Guarantor of the obligations of the Shareholder: \s\ Dr. Manfred G. Krukemeyer - ------------------------------- Dr. Manfred George Krukemeyer EX-10.42 15 DIVIDEND AND NOTE AGREEMENT 1 EXHIBIT 10.42 DIVIDEND AND NOTE AGREEMENT THIS DIVIDEND AND NOTE AGREEMENT (this "Agreement") is entered into as of August 16, 1996, between Park Hospital GmbH, a German corporation (the "Shareholder") and Paracelsus Healthcare Corp., a California corporation ("Paracelsus"). WHEREAS, On August 14, 1996 Paracelsus declared a dividend of $21,113,387, plus $3,574.26 for each day from and including July 31, 1996 to the date the dividend is paid to holders of record of Paracelsus Common Stock (as defined below) as of such date; NOW, THEREFORE, for good and valuable consideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Certain Definitions. (a) For the purposes of this Agreement, capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Shareholder Agreement between Park Hospital GmbH and Paracelsus entered into as of August 16, 1996. 2. Representations of the Shareholder. As of the date hereof, the Shareholder represents and warrants to Paracelsus that: (a) such Shareholder Beneficially Owns all of the outstanding shares of common stock, no par value per share, of Paracelsus ("Paracelsus Common Stock"); (b) this Agreement has been duly executed and delivered by the Shareholder and, assuming due execution by Paracelsus, this Agreement is a legal, valid and binding obligation, enforceable against the Shareholder in accordance with its terms; and (c) The execution, delivery and performance by the Shareholder of this Agreement do not and will not contravene or conflict with any provision of any law, regulation, judgment, injunction, order or decree binding upon the Shareholder or any agreement, contract or other instrument to which the Shareholder is a party, other than any such contraventions or conflicts that would not prevent or materially delay the performance of the Shareholder's obligations hereunder. 3. Representations of Paracelsus. As of the date hereof, Paracelsus represents and warrants to the Shareholder that the execution, delivery and performance of this Agreement by it has been duly and validly authorized by all necessary corporate action on its part and, assuming due execution by the Shareholder, that this Agreement is a legal, valid and binding obligation, enforceable against Paracelsus in accordance with its terms. 4. Agreements. (a) No Relief of Liabilities. Neither the termination of this Agreement nor the Transfer by the Shareholder of Beneficial Ownership of any Voting Securities of Paracelsus shall relieve the Shareholder of any liabilities or obligations to Paracelsus that arose or accrued prior to the date of such termination or Transfer. (b) Further Assurances. Paracelsus and the Shareholder shall execute and deliver such additional instruments and other documents and shall take such further actions as may be 2 necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. (c) Shareholder Action. The Shareholder agrees that he shall promptly after the execution hereof and receipt of the dividend referred to in the whereas clause invest $7,185,467 in Paracelsus in return for the Shareholder Subordinated Note. For the purposes hereof, the "Shareholder Subordinated Note" shall mean the subordinated note of Paracelsus issued to the Shareholder containing substantially the terms described in Annex A hereto. In addition, the Shareholder agrees to cause all of the voting securities of Paracelsus that are Beneficially Owned by the Shareholder and his Affiliates and Associates to be released from any pledge or encumbrance (other than those arising under or permitted by the Shareholder Agreement) promptly after the receipt of such dividend. 5. Specific Performance. Each party hereto acknowledges that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the granting of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it shall not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with any other party's seeking or obtaining such equitable relief. 6. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall not be assignable (by operation of law or otherwise) without the written consent of all other parties hereto; provided, that in the event of a merger where Paracelsus is not the surviving corporation, (x) this Agreement shall be assigned to and shall inure to the benefit of and be binding upon such surviving corporation and (y) any reference herein to Paracelsus shall be deemed to be a reference to such surviving corporation; provided, further, that in the event of a merger where Paracelsus is the surviving corporation, this Agreement shall continue in full force and effect. 7. Entire Agreement; Amendment; Waiver. This Agreement (including any exhibits hereto) and the Shareholder Agreement supersede all prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof and contains the entire agreement among the parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provisions hereof may be modified or waived, except by an instrument in writing signed by Paracelsus and approved by the unanimous vote of the Independent Directors and, with respect to the Shareholder, by the Shareholder. No waiver of any provisions hereof by any party shall be deemed a waiver of any other provisions hereof by any such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party. 8. Miscellaneous. (a) Governing Law and Venue. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. The parties hereby 3 irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 9(b), shall be valid and sufficient service thereof. (b) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given (i) on the first business day following the date received, if delivered personally or by telecopy (with telephonic confirmation of receipt by the addressee), (ii) on the business day following timely deposit with an overnight courier service, if sent by overnight courier specifying next day delivery and (iii) on the first business day that is at least five days following deposit in the mails, if sent by first class mail, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to the Shareholder, to: Dr. Manfred George Krukemeyer AM Natruper Holz 69 D-49076 Osnabruck Federal Republic of Germany Facsimile: (011) 49-541-966-4006 with copies to: R. J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, California 91101 Facsimile: (818) 578-6387 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Facsimile: (011) 49-54-331-1616 If to Paracelsus, to: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 4 Houston, Texas 77067 Facsimile: (713) 873-6686 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Facsimile: (213) 687-5600 (c) Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. (d) Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall together constitute the same agreement. (e) Termination. This Agreement shall terminate automatically without any action by any party upon the satisfaction by the Shareholder of all obligations under Section 4. (f) Headings. All Section headings and the recitals herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom. (g) Other Agreements. The parties hereto agree that there is not and has not been any other agreement, arrangement or understanding between the parties hereto with respect to the matters set forth herein. (h) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT; PROVIDED, THAT THE FOREGOING SHALL NOT IN ANY WAY RESTRICT OR LIMIT ANY HOLDER OF VOTING SECURITIES OF PARACELSUS FROM BRINGING A SHAREHOLDER DERIVATIVE ACTION TO SEEK OR COMPEL THE DIRECTORS OF PARACELSUS TO CAUSE PARACELSUS TO ENFORCE ANY OBLIGATIONS OF THE SHAREHOLDER HEREUNDER OR TO EXERCISE ANY RIGHTS OR REMEDIES OF PARACELSUS HEREUNDER. 5 IN WITNESS WHEREOF, Paracelsus and the Shareholder have executed and delivered this Agreement, or a counterpart hereof, as of the date first written above. PARACELSUS HEALTHCARE By: /s/ Ronald J. Messenger ----------------------------------- Name: R. J. Messenger Title: President & Chief Executive Officer THE SHAREHOLDER By: /s/ Dr. Manfred G. Krukemeyer ----------------------------------- Name: Dr. Manfred George Krukemeyer 6 ANNEX A SHAREHOLDER SUBORDINATED NOTE Principal Amount: $7,185,467 Maturity: 10 years from the Issue Date Interest Rate: 6.51% per annum Optional Redemption: None Payments: Payments annually on each anniversary of the Issue Date of $1,000,000, consisting of principal and accrued interest Ranking: Subordinated in right of payment to (i) all Senior Indebtedness, to be defined in the same manner as "Senior Indebtedness" under the existing Paracelsus indenture, plus the existing Senior Subordinated Indebtedness and all indebtedness ranking pari passu with such indebtedness (and/or refinancing indebtedness) and (ii) any other indebtedness for borrowed money with an initial principal amount in excess of $50 million which is designated as "Senior Indebtedness" by Paracelsus Events of Default: Same as existing senior subordinated indebtedness EX-10.43 16 EMPLOYMENT AGREEMENT - CHARLES R. MILLER 1 EXHIBIT 10.43 PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Charles R. Miller (the "Executive"). In consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein. In addition, the Executive and the Company hereby agree that subject to and effective as of the closing of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a wholly owned subsidiary of the Company (the "Merger"), this Agreement shall supersede that certain employment agreement (the "Prior Agreement") between the Company and the Executive, dated as of August 4, 1995. 2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date hereof and ending immediately prior to the Effective Time (as defined in the Agreement and Plan of Merger by and among the Company, Champion and PC Merger Sub dated as of April 12, 1996, as amended May 29, 1996, and as such agreement may be amended from time to time (the "Merger Agreement")), the employment of the Executive shall be governed by the terms and conditions set forth in the Prior Agreement. The term of this Agreement (the "Term"), and Executive's employment with the Company hereunder, shall commence at the Effective Time and, unless earlier terminated in accordance with the terms hereof, shall continue until the fifth anniversary of the Effective Time (such initial term of the Agreement referred to as the "Initial Term"); PROVIDED, HOWEVER, that the Term shall automatically be renewed for an additional period of five years (each such period, a "Renewal Period") at the end of the Initial Term and at the end of each Renewal Period, if any, unless either the Company or the Executive provides at least one year's notice to the other of its intention not to renew the Term; and PROVIDED, FURTHER, that if the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close, (x) this Agreement shall automatically terminate without further obligation by either party hereto, (y) the terms and conditions set forth in this Agreement shall not apply and (z) the employment of the Executive shall continue to be governed by the terms and conditions set forth in the Prior Agreement. 2 During the Term, the Executive shall be employed as the President and Chief Operating Officer of the Company serving at the will of the Board of Directors of the Company (the "Board") with, subject to the express terms and conditions hereof, the traditional duties, responsibilities and authority of such office in companies similar in size to the Company. The Executive agrees that he shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and its subsidiaries and shall devote substantially all of his business time, energy and attention to the business of the Company and its subsidiaries. The Executive shall agree to serve and the Company shall use its best efforts to nominate and cause the Executive to be elected as a member of the Board. In addition, for so long as Executive shall serve as a member of the Board, he shall agree to serve as and the Company shall use its best efforts to nominate and cause the Executive to be elected as a member of the Executive Committee of the Board ("Executive Committee"). The Executive agrees to use his authorities as President and as a member of the Board and of the Executive Committee to manage and cause others to manage the Company in accordance with the management guidelines set forth on Exhibit A hereto; PROVIDED, HOWEVER, that nothing in this Section shall require the Executive to violate or breach his duties under the law of the state of incorporation of the Company or any other applicable laws. The Company agrees to use its best efforts to manage and cause others to manage the Company in accordance with the management guidelines set forth in Exhibit A hereto. 3. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY. During the Term, the Company shall pay to the Executive an annual base salary (the "Base Salary") at an initial rate of $500,000 per year, payable in accordance with the Company's normal payroll practices or as the Company and Executive may otherwise agree. The Base Salary shall be reviewed by the Company annually and shall be subject to discretionary increase by the Company from time to time, but shall not be decreased from the rate in effect at any time and from time to time during the Term. (b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan or any similar or successor annual bonus plan of the Company (the "Performance Bonus Plan") and to receive an annual performance bonus upon the achievement of one or more annual performance goals (the "Performance Goals") in accordance with the terms of the Performance Bonus Plan; PROVIDED, that Executive's annual target bonus under the Performance Bonus Plan (the 3 "Annual Target Bonus") shall not be less than 85% of the Base Salary in effect at the time the Performance Goals for such plan year are established. (c) LONG-TERM INCENTIVE. The Executive shall be eligible to participate in any long-term incentive compensation and/or stock option plans maintained from time to time by the Company. In addition, pursuant to prior action of the Stock Option Committee of the Board, Executive has previously been granted (i) options (the "Value Options") to purchase 336,000 shares of Company common stock, no stated par value (the "Common Stock"), at an exercise price of $.01 per share with a term of 10 years from the date of grant and (ii) an option (the "Market Option") to purchase an additional 1,000,000 shares of Common Stock at an exercise price equal to the fair market value (as defined in the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan (the "1996 Stock Incentive Plan")) of the Common Stock on the date of the Effective Time with a term of 10 years from the date of grant. The Value Options will be fully vested on grant and will become fully exercisable at the Effective Time, and the Market Option will generally vest and become exercisable in equal annual installments of 25% on each of the first four anniversaries of the Effective Time; PROVIDED, that neither the Value Options nor the Market Option will become exercisable in whole or in part in the event the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close; and PROVIDED, FURTHER, that the Value Options and the Market Option shall each be subject to the terms of the 1996 Stock Incentive Plan and the stock option agreements to be entered into in connection with the grant of such options. (d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive shall be eligible to participate in employee benefit and fringe benefit plans and programs generally available to the executive officers of the Company and such additional benefits as the Board may from time to time provide. In addition, Executive shall be entitled to receive the personal benefits described in Exhibit B hereto. Reimbursement for business expenses, including travel and entertainment shall be limited to reasonable and necessary expenses incurred by the Executive in connection with the performance of duties on behalf of the Company 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 by the Audit Committee of the Board, including periodic audits by the Internal Audit Department of the Company and/or the Audit Committee. (e) RETIREMENT BENEFITS. Effective as of the Effective Time of the Merger, the Executive shall be entitled to participate in 4 the Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan or any similar or successor plan (the "SERP") and in any tax-qualified and any other supplemental pension plans generally available to the executive officers of the Company; PROVIDED, that employment with Champion and its subsidiaries shall be taken into account for purposes of eligibility, vesting and benefit accrual under the SERP, but not for purposes of determining whether a "Post-Participation Change in Control", as defined in the SERP, has occurred. (f) SIGN-ON BONUS. In connection with the commencement of the Executive's employment with the Company, as soon as practicable after the Effective Time, the Company shall provide the Executive a lump sum cash payment in the amount of $1,200,000. 4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and subject to the payment of any amounts required under Section 5, the Executive's employment with the Company may be terminated (a) by the Company with or without Cause, (as defined below), PROVIDED that no less than 80% of the then members of the Board (excluding, for the purposes of such calculation, the Executive) and no less than 2/3 of the Independent Directors (as defined in the Shareholder Agreement of the Company to be entered into in connection with the Merger (the "Shareholder Agreement")) have approved such termination, (b) by the Executive for or without Good Reason (as defined herein), (c) by reason of the Executive's death or Disability (as defined herein) or (d) by the mutual written consent of the parties hereto. For purposes of this Agreement: (i) "Cause" means (A) acts of embezzlement, theft and fraud established by a preponderance of the evidence; (B) actions which have had or will likely have a material adverse financial effect on the Company as a whole for an extended period of time, where appropriate evidence exists that such actions are directly attributable to the (I) gross management negligence or repeated ineptitude of the Executive and/or (II) deliberate refusal of the Executive to follow the instructions or directions of the Board; (C) conviction of or a plea of guilty or NOLO CONTENDERE to a felony; (D) violation of the noncompete or confidentiality provisions of this Agreement, PROVIDED, that no such violation will be deemed to have occurred if, within 30 days following receipt by Executive of a notice from the Board identifying the violation, the Executive (I) cures the violation and (II) establishes that the violation was unintentional and not reasonably likely to result in harm to the Company, in each case to the reasonable satisfaction of the Board; (E) material incapacitation or repeated absence from work due to reckless and self-abusive behavior or conduct, such as alcoholism and drug abuse, which renders Executive incapable of performing his duties; PROVIDED, that physical or mental disability due to injury or disease shall not be 5 grounds for termination for Cause; (F) material repeated incompetence in performing the duties of the Executive's office, PROVIDED, that such incompetence is: (I) supported by written documentation of such incompetence, (II) occurs after the Executive has been previously counseled by the Board both orally and in writing with respect to specific examples of such incompetence and has been provided the opportunity to respond in kind, and (III) determined to be incurable and to be of such a nature as to have had or which would have been reasonably likely at the time of such commission to have a material adverse effect on the Company as a whole; or (G) a material violation by the Executive of the provisions set forth in Exhibit A hereto; PROVIDED, that the Company provides the Executive with notice of such violation within 30 days of its discovery of such violation and the Executive fails to cure such breach to the reasonable satisfaction of the Board within 10 days of receipt of such notice. For purposes of this Agreement, the Board shall have 60 days to terminate the Executive for Cause following the date on which the Board discovers the existence of a specific set of facts that, in the aggregate, then constitute Cause, after which period no Cause with respect to such specific set of facts shall be deemed to exist; PROVIDED, that the repetition or reoccurrence of the same or a similar set of facts shall constitute a separate ground for termination for Cause. (ii) "Disability" means the Executive's absence from the full-time performance of his duties with the Company for one hundred eighty (180) days or more within any period of 12 consecutive months as a result of the Executive's incapacity due to mental or physical illness; PROVIDED, that during any period prior to the termination of Executive's employment by reason of Disability in which Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay Executive his Base Salary at the rate in effect at the commencement of such period of Disability; (iii) "Good Reason" means, without the Executive's express written consent, the occurrence of any of the following events: (A) a reduction by the Company in the Executive's Base Salary or Annual Target Bonus in effect from time to time; (B) a material reduction in the aggregate level of participation in and/or compensation and benefit opportunities under all other compensation and employee benefit plans in which Executive is entitled to participate from time to time; PROVIDED, HOWEVER, that changes affecting the participation in or benefits under such plans (other than the Performance Bonus Plan, the SERP and the benefits described in Exhibit B) with respect to similarly situated Executives of the Company shall not constitute Good Reason hereunder; (C) a reduction in 6 the Executive's titles, duties or authority with the Company or a material adverse change in Executive's reporting relationships; (D) the relocation of the principal executive offices of the Company to a location that increases the Executive's one-commute thereto by more than 25 miles; (E) the Executive no longer reports to Mr. Messenger or, in the event that Mr. Messenger ceases to be the Chief Executive Officer of the Company ("CEO"), the failure of the Board to appoint the Executive as CEO; (F) notification by the Company of its intention not to renew this Agreement pursuant to the provisions of Section 2; (G) the failure of the Executive to be nominated for election to and elected to serve as a member of the Board or, for so long as he is a member of the Board or, for so long as he is a member of the Board, to be appointed to the Executive Committee; (H) the termination of the Executive's employment by the Executive for any reason within 12 months following a Change in Control (as defined herein); or (I) failure of the Company, Dr. Manfred G. Krukemeyer or Mr. Messenger to comply with any of the provisions set forth in Exhibit A hereto, without regard to whether such terms are enforceable, which is not cured by the Company, Dr. Krukemeyer or Mr. Messenger, as applicable, within 30 days of its or his receipt of a notice specifying the manner in which the Company, Dr. Krukemeyer and/or Mr. Messenger is failing or has failed to comply with the applicable provisions set forth in Exhibit A hereto. (iv) "Change in Control" means the occurrence of any one of the following events: (A) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person (as such term is defined in the Company's Shareholder Protection Rights Agreement to be adopted at the Effective Time) or any person that is not bound by the Shareholder Agreement becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the undiluted total voting power of the Company's then outstanding securities eligible to vote for the election of members of the Board (the "Company Voting Securities"); PROVIDED, HOWEVER, that no event described in the immediately preceding clause shall be deemed to constitute a Change in Control by virtue of any of the following: (I) an acquisition of Company Voting Securities by the Company and/or one or more direct or indirect majority-owned subsidiaries of the Company; (II) an acquisition of Company Voting Securities by any employee benefit plan sponsored or maintained by the Company or any corporation controlled by the Company; (III) an acquisition by any underwriter temporarily holding securities pursuant to an offering of such securities; or (IV) any acquisition by the Executive or any "group" (as such term is defined 7 in Rule 3d-5 under the Exchange Act) of persons including the Executive; or (B) individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority thereof; PROVIDED, HOWEVER, that any person becoming a director subsequent to the beginning of such twenty-four (24) month period, whose election, or nomination for election, by the Company's shareholders was approved by either (i) the Board consistent with the terms of the Shareholder Agreement, during the period the Shareholder Agreement is in effect, or (ii) a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (B), considered as though such person were a member of the Incumbent Board; PROVIDED, FURTHER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, represent immediately after such merger or consolidation at least 60% of the combined voting power of the then outstanding voting securities of either the Company or the other entity which survives such merger or consolidation or any parent of such other entity; or (D) the stockholders of the Company approve (i) a plan of complete liquidation or dissolution of the Company or (ii) an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 5. PAYMENTS UPON TERMINATION OF EXECUTIVE If the employment of the Executive shall be terminated other than by reason of death or Disability (i) by the Company (other than for Cause) or (ii) by the Executive for Good Reason, then the Company shall pay or provide to the Executive (or the Executive's beneficiary or estate): 8 (1) within thirty (30) days following the date of such termination of employment ("Termination Date"), a lump-sum cash amount equal to the sum of (i) the Executive's unpaid Base Salary through the Termination Date; (ii) any accrued but unpaid annual bonus under the Performance Bonus Plan in respect of the annual bonus period preceding the bonus period in which the Termination Date occurs; (iii) any unpaid reimbursable business expenses properly incurred through the Termination Date; and (iv) a bonus payment equal to the Executive's Annual Target Bonus in the year of termination, multiplied by a fraction the numerator of which is the number of months in the bonus year of termination in which the Executive has worked at least one day and the denominator of which is 12; (2) within thirty (30) days following the Termination Date, a lump-sum cash amount equal to the greater of (A) the Executive's then Base Salary payable over the remainder of the Term plus a bonus equal to the Executive's Annual Target Bonus in the year of termination multiplied by a fraction the numerator of which is the number of complete months remaining in the Term and the denominator of which is 12, or (B) 3.0 times the sum of: (i) the Executive's annual rate of Base Salary as of the Termination Date plus (ii) the Annual Target Bonus for the year in which the Termination Date occurs (in each such case, Executive's Base Salary and Annual Target Bonus being determined without taking into account any reductions thereto constituting Good Reason); PROVIDED, HOWEVER, that the Executive shall not be entitled to any severance benefits from the Company or under any Company severance plan, policy or arrangement other than as specified in this Agreement; (3) for a period terminating on the earlier of (A) the commencement of the provision of substantially equivalent benefits by a new employer or (B) the later of (I) the last day of the Term, or (II) thirty-six (36) months following the Termination Date, the Company shall continue to keep in full force and effect (or otherwise provide) all policies of medical, accident, disability and life insurance with respect to the Executive and his dependents with substantially the same level of coverage, upon substantially the same terms and otherwise substantially to the same extent as such policies shall have been in effect immediately prior to the Termination Date, and, as applicable, the Company and the Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the date of termination; (4) for purposes of determining final average compensation (or making any similar calculation) and years of service (for purposes of eligibility, vesting and benefit accrual) under any tax-qualified or supplemental defined benefit retirement plan (including without limitation the SERP), Executive shall be deemed to have remained 9 employed by the Company hereunder until the end of the Term and to have received his then current Base Salary and Annual Target Bonus through the end of the Term; PROVIDED, that to the extent such benefits cannot be accrued under and paid from any tax-qualified pension plan, such benefits shall be accrued under and paid from the SERP or other supplemental plan. (5) all options to purchase Common Stock held by the Executive shall immediately become fully vested and exercisable and shall remain exercisable until the earlier of (A) the date that is 24 months following the Termination Date and (B) the expiration of the stated term of such options; PROVIDED, that the Value Options shall remain exercisable until expiration of their stated term; and (b) If the employment of the Executive shall be terminated (i) by reason of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by the Executive without Good Reason, or (iv) by the mutual written consent of the parties hereto (each a "Nonqualifying Termination"), then the Company shall pay to the Executive (or the Executive's beneficiary or estate) within thirty (30) days following the Termination Date a lump-sum cash amount equal to the sum of the Executive's unpaid Base Salary through the Termination Date plus any bonus payments which have been earned or become payable, to the extent not theretofore paid, plus any unpaid reimbursable business expenses properly incurred through the Termination Date. In addition, Executive (or the Executive's beneficiary or estate) shall have no less than ninety days following the termination of his employment pursuant to a Nonqualifying Termination to exercise any outstanding options to the extent vested and exercisable as of the Termination Date; PROVIDED, that the Value Options shall remain exercisable until the expiration of their stated term. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Notwithstanding anything in this Agreement to the contrary, in the event that any payment or distribution by the Company, by any affiliate of the Company or by any person whose actions result in a Change in Control of the Company (to the extent the Company approves of the arrangements pursuant to which the payment by such person is made to the Executive) to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount 10 such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes and Excise Tax, imposed upon the Gross-Up Payment but before deduction for any federal, state or local income or other tax upon the Payments, the Executive will retain a net amount equal to the sum of (i) the Payments and (ii) an amount equal to the product of any deductions (or portion thereof) disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income for federal income tax purposes and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to (1) pay applicable federal income taxes at the highest applicable marginal rates of federal income taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, (2) pay applicable state and local income taxes at the highest applicable marginal rate of taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (3) have otherwise allowable deductions for federal income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income. (b) Subject to the provisions of Section 6(a), all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive may appoint another nationally recognized public accounting firm reasonably acceptable to the Company to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company and, subject to applicable law and obligations to the Company's stockholders, the Company shall enter into any agreement reasonably requested by the Accounting Firm that is generally recognized as standard in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 6 with respect to any Payment shall be made no later than thirty (30) days 11 following the date of such payment. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Executive's applicable federal income tax return should not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Executive thereafter is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of the Executive. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by the Executive to or for the benefit of the Company. The Executive shall cooperate, to the extent his reasonable expenses in connection therewith are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 7. WITHHOLDING TAXES. The Company shall have the right to withhold from any and all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 8. SUCCESSORS; BINDING AGREEMENT (a) This Agreement is personal in nature and none of the parties hereto shall, without the consent of the other, assign, or transfer this Agreement or any rights or obligations hereunder; PROVIDED, that in the event of the merger, consolidation, transfer or sale of substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties and obligations of the Company hereunder, and all references herein to the "Company" shall refer to such successor. 12 (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts remain payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive's estate. 9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION (a) Except as provided in Sections 10 and 11, all disputes hereunder shall be settled by final, binding arbitration, conducted before a panel of three (3) arbitrators in Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment on the arbitration award may be entered in any court having jurisdiction. The Company shall bear the expenses of such arbitration. (b) If any contest or dispute shall arise under this Agreement involving termination of the Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall advance and reimburse the Executive, on a current basis, all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute; PROVIDED, that the Executive agrees to return any advanced or reimbursed expenses to the extent the arbitrators (or the court, in the case of a dispute described in Section 10 or 11) determine that the Company has prevailed as to the material issues raised in determination of the dispute. (c) The Company's obligation to make any payments provided for in this Agreement to the Executive and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 10. NONCOMPETITION (a) DISCLOSURE. The Executive has disclosed to the Board, in writing, all healthcare-related interests, investments, or business activities, whether as proprietor, stockholder, partner, co-venturer, 13 director, officer, employee, independent contractor, agent, consultant, or in any other capacity or manner whatsoever. The Executive shall promptly notify the Board, in writing, of any changes in or additions to such interests, activities or investments permitted in accordance with the terms of this Agreement, within 15 days of such change or addition. (b) PROHIBITED ACTIVITY. Without the written consent of a majority of the Independent Directors, the Executive may not engage in any of the following actions during the period that is (A) prior to the Executive's termination of employment with the Company, (B) within two years following the termination of his employment with the Company during the Initial Term if such termination is by the Company for Cause or by the Executive other than for Good Reason and (C) within one year following his termination of employment during the Term but after the Initial Term if such termination is by the Company for Cause or by the Executive other than Good Reason. (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, within a radius of 30 miles from any site, facility, or location which is owned, managed or operated by or affiliated with the Company or any of its subsidiaries and affiliates, including physician practices of any kind. For purposes of this Agreement, "Primary Business" shall mean the delivery of integrated healthcare services in markets where the Company or its subsidiaries own hospitals and/or skilled nursing facilities ("SNFs") with the hospital serving as the hub of the local delivery system in conjunction with its physician medical staff. In addition to inpatient acute care, psychiatric care, and skilled nursing care, these services can include (A) individual physician practices and/or physician-based organizations such as primary care and specialty clinics, physician-hospital organizations ("PHOs") or medical service organizations ("MSOs"), or physician medical groups and (B) ambulatory programs such as home health care, ambulatory surgery, psychiatric services, occupational and sports medicine centers, psychiatric after-care and day care programs, and other diagnostic, rehabilitative and treatment services. Some of these services, sites and facilities may be located in satellite areas for the purpose of extending the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital. 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 the Term or to exclude any business or service in which the Company ceases to engage. The definition of "Primary Business" may also be modified to include any business or service into which, as 14 of the Termination Date, the Company definitively intends to expand, regardless of whether such expansion actually occurs after the Executive's termination. For purposes of the preceding sentence, the date on which a modification of the definition of "Primary Business" shall be effective shall be the date on which the Executive is provided written notice of such modification (the "Notice Date"); PROVIDED, HOWEVER, that no such modification as to which notice is provided on or after the Termination Date shall be effective against the Executive; and PROVIDED, FURTHER, that no such modification shall be effective with respect to any interests, investments or business activities engaged in by Executive prior to the Notice Date of such modification and properly disclosed prior to such Notice Date pursuant to Section 10(a); (ii) participate or serve, either directly or indirectly, whether as a proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, 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 him or by any competitor of the Company on whose behalf he is acting as an agent, representative or employee, or convey any confidential information or trade secrets regarding other employees of 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; PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d under the Exchange Act, as a passive investment, of not more than five percent (5%) of the voting stock of any publicly held corporation, nor (ii) the beneficial ownership by Executive of any interest described in the first sentence of Section 10(a) and properly and timely disclosed in accordance with the terms therewith, shall alone constitute a violation of this Agreement. In the event that the Executive engages in the conduct proscribed by this Section 10, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of the Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to compete with the Company or any subsidiary or affiliate in violation of this Agreement 15 and that the Company would by reason of such competition be entitled to preliminary or injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or injunctive relief in such a court prohibiting Executive 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 Executive has violated this Section 10. (c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the parties that the provisions of this Section 10 shall be enforceable to the fullest extent permissible under applicable law and public policy. Accordingly, if this Section 10 or any portion thereof shall be adjudicated to be invalid or unenforceable whether because of the duration and scope of the covenants set forth herein or otherwise, the length and scope of the restrictions set forth in this Section 10 shall be reduced to the extent necessary so that this covenant may be enforced to the fullest extent possible under applicable law. 11 CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment hereunder, and during prior periods of employment with the Company and/or its subsidiaries, he has occupied and will continue to occupy a position of trust and confidence. The Executive shall not, except as may be required to perform his duties hereunder or as required by applicable law, until the expiration of the applicable periods described in Section 10(b) or until such information shall have become public other than by the Executive's unauthorized disclosure, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company, its subsidiaries and affiliates. "Confidential Information" shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not publicly disclosed by the Company or otherwise generally available to members of the public seeking such information and that was learned by the Executive in the course of his employment by the Company, its subsidiaries and affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, its subsidiaries and affiliates, and that such information gives the Company, its subsidiaries and affiliates a competitive advantage. The Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company, its subsidiaries or affiliates or prepared by the Executive during the 16 term of his employment by the Company, its subsidiaries and affiliates. In the event that the Executive engages in any conduct proscribed by this Section 11, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of the Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to disclose or threaten to disclose Confidential Information regarding the Company or any subsidiary or affiliate in violation of this Agreement or otherwise fail to comply with the provisions of this Section 11, and that the Company would, by reason of such disclosure or threatened disclosure or other failure to comply, be entitled to preliminary or permanent injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or permanent injunctive relief in such a court prohibiting Executive from disclosing Confidential Information in violation of this Agreement or otherwise requiring Executive to comply with the provisions of this Section 11 upon an appropriate finding by such court that Executive has violated this Section 11. 12 NOTICE. For the purposes of this Agreement, any notices, demands and all other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): If to Executive: Charles R. Miller c/o Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Telecopy No. (713) 873-6686 With a copy to: Wayne Whitaker Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. 3500 City Center Tower II 301 Commerce Street Fort Worth, Texas 76102-4135 Telecopy No.: (817) 335-6935 If to Company: Paracelsus Healthcare Corporation 515 West Greens Road 17 Suite 800 Houston, Texas 77067 Telecopy No. (713) 878-6686 Attention: Robert C. Joyner, Senior Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 990071 Telecopy No. (213) 687-5600 Attention: Thomas C. Janson 13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in a written document signed by the Executive and such officer of the Company, as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 14. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. 15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas without regard to the principle of conflicts of laws and, at the election of the Executive, the venue of any dispute arising under this Agreement shall be Texas. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 16. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 17. SEVERABILITY. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in 18 violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------------- Name: R.J. Messenger Title: Chief Executive Officer \s\ CHARLES R. MILLER ------------------------------------- Charles R. Miller 20 EXHIBIT A MANAGEMENT RIGHTS TERMS In so much as the Board of Directors and Dr. Manfred Krukemeyer recognize the value to recruiting and retaining the services of a highly qualified executive team and that such objective is in the best interests of the Company and all its stockholders, and further that Messrs. Messenger, Miller, VanDevender and Patterson are instrumental to insuring the success of the merger between Paracelsus and Champion, and that a clear delineation of duties, authority and responsibility is essential to the foregoing, the Board of Directors, Dr. Krukemeyer, and Messrs. Messenger and Miller ("The Parties") agree that the concepts set forth herein will be incorporated in the various merger transaction documents, including employment contracts: Board of Directors Authority and Responsibility - Ron Messenger and Charles Miller shall have the authority to discharge their duties and responsibilities as outlined herein for managing the affairs of the corporation except for those items delineated below which is understood normally requires Board approval. The Board, in its discretion, may delegate any such authority and approval powers as it deems appropriate with respect to the items delineated below to duly constituted committees of the Board excepting those powers and authority which require the action of the Board acting as a whole. 1) Acquisitions & Divestitures of any kind 2) Capital expenditures exceeding $5 million per project ($10 million for construction and/or renovation projects and acquisition of real estate) and $50 million in aggregate, including but not limited to equipment purchases, capitalized leases and acquisition of physician practices, clinic, surgery center, or other healthcare entities 3) Major financings and any offerings of equity or debt 4) Issuance of stock 5) Appointment of corporate officers 6) Stock option plans or stock grants 7) Approval of annual operating and capital budget 8) Employment Agreements for Executive Management 9) Changes or amendments to corporate charter of incorporation or by- laws 21 10) Material change in Company business strategy 11) Liquidation or sale of Company or any subsidiary or merger or other business combination with another company 12) Compensation and benefit levels and incentive plans for executive officers 13) Termination of the: (i) CEO, (ii) President and COO, (iii) CFO The Board shall designate an Executive Committee of the Board which shall be delegated such authority as decided by the Board of Directors for conducting the business of the Company. Members of the Executive Committee shall be: (i) Mr. Messenger, as Chairman, (ii) Mr. Miller, and (iii) Mr. VanDevender. The Executive Committee shall be delegated the authority to act on behalf of the Board on any business issues not otherwise requiring action by the Board as a whole except: 1) Major financings and any offerings of equity or debt 2) Issuance of stock or approval of stock option plans 3) Employment Agreements for (i) CEO, (ii) President & COO, and (iii) CFO 4) Compensation, benefits and incentive plans, including allocation of stock options for (i) CEO, (ii) President & COO, and (iii) CFO 5) Termination of (i) CEO, (ii) President & COO, and (iii) CFO 6) Material change in Company business strategy 7) Changes or amendments to the corporate charter of incorporation or by-laws 8) Liquidation or sale of Company or subsidiary or merger or other business combination with another company 9) Any hospital acquisition transaction involving more than a $30 million expenditure of capital, excluding working capital and/or assumption of debt 10) Divestiture of any hospital 11) Approval of annual operating and capital budget 22 12) Capital expenditures exceeding $5 million per project ($10 million for construction and/or renovation projects and acquisition of real estate) and $50 million in aggregate, including but not limited to equipment purchases, capitalized leases and acquisition of physician practices, clinic, surgery center, or other healthcare entities MR. MESSENGER AUTHORITY AND RESPONSIBILITY - The parties agree that Mr. Messenger shall be Chairman of The Executive Committee of the Board of Directors and serve as Chief Executive Officer of the new company. Except where otherwise noted, decisions with respect to the following shall be reserved exclusively to Mr. Messenger at his sole discretion: 1) serving as liaison with Board of Directors 2) Relocation of corporate offices 3) Capital expenditures, as defined above, which exceed $3 million and up to $5,000,000 4) Employment and compensation status of direct reports to Mr. Messenger (as defined throughout this agreement, references to Messenger "direct reports" shall exclude Mr. Miller) 5) Approval of senior lender participants and agent bank 6) Approval of investment bankers, upon concurrence by Mr. Miller 7) Chairmanship of the Executive Committee of the Board of Directors Any and all proposals to be presented to the Board, or any of its Committees, or the Executive Committee are subject to the review of and approval, disapproval or modification by Mr. Messenger. Mr. Messenger, in his sole discretion and to the extent practicable, may elect to exempt himself, and his direct reports from any changes in corporate policies and procedures which: (i) were not agreed to at the time of the merger, or (ii) reduce or materially affect the agreed upon status or benefits of Mr. Messenger or his direct reports. Mr. Messenger shall develop and be solely responsible for administering and controlling an overhead budget for the Office of the CEO which shall include himself and his direct reports with such budget subject to the approval by the Board of Directors, provided however that such budget does not otherwise breach or circumvent Mr. Miller's authority and responsibility as set forth herein. 23 Any other duties, authority and responsibilities not delineated above, or which are not otherwise reserved specifically to the Board or Mr. Miller, shall be reserved to Mr. Messenger so long as such duties, authority and responsibilities do not otherwise unreasonably abridge Mr. Miller's rights to manage the day-to-day affairs of the new Company as delineated below. MR. MILLER AUTHORITY AND RESPONSIBILITY - The parties have agreed that it is in the best interests of the Company and its stockholders to retain Mr. Miller's services following the merger and that he shall be elected President and Chief Operating Officer of the new company and, along with Mr. VanDevender, be appointed to the Executive Committee of the Board. The parties also agree that Mr. Miller shall be delegated full authority and responsibility for managing the day-to-day affairs of the corporation, subject to the powers and authority reserved exclusively to the Board of Directors and Mr. Messenger as delineated above and the mutual areas of responsibility to be shared by Messrs. Messenger and Miller delineated below. Therefore, the parties agree that Mr. Charles R. Miller in his sole discretion shall have such authority and responsibility as is reasonably required to manage and oversee the day-to-day affairs of the corporation, including but not limited to the following: 1) HOSPITAL, SUBSIDIARY AND BUSINESS UNITS - Complete responsibility for management and decisions associated with the operations of the Company's hospitals, business units, subsidiaries and markets, including but not limited to: (i) determination of staffing levels, (ii) control of expenses, (iii) recruitment, selection and employment of key management, (iv) management and financial reporting and systems, including data processing systems, (v) medical staff issues, including credentialing and modifications to and enforcement of medical staff by-laws, rules and regulations, (vi) quality of care and service, (vii) decisions regarding programs and services to be offered or discontinued, (viii) use or discontinuance of vendors, contractors and consultants, (ix) any and all contracts and the approval, discontinuance or modification thereof, including physician contracts, (x) accounting, budgeting, reimbursement, financial and cash management policies, procedures and systems, (xi) market strategy development and implementation, (xii) composition of local boards, (xiii) policies, by-laws, rules & regulations, (xiv) promotional and marketing activities, and (xv) capital expenditures up to but not exceeding $3 million. 2) CONTRACTS AND LEASES - Approval or disapproval of any and all contracts and leases within Mr. Miller's authority level. 3) CORPORATE OVERHEAD BUDGET & EXPENSES - Complete authority for development, control, administration and management of the 24 Company's corporate overhead budget, after approved by Board, and control of all corporate expenses, excluding the CEO's direct reports and corporate overhead budget. 4) CORPORATE MATTERS - Management and supervision of the Company's corporate activities and operations (excluding Mr. Messenger's direct reports and corporate overhead budget), responsibility for all decisions pertaining thereto, including but not limited to, (i) establishing or changing of job titles, duties and responsibilities, (ii) recruiting, hiring, firing, promoting, demoting, transferring, and relocating employees, (iii) determining compensation levels, incentive plans, and benefit programs, (iv) establishment, revision or discontinuance of Company policies and procedures, (v) legal affairs and related matters, including risk management and insurance, (vi) budgeting, data processing, tax, fiscal, accounting, reimbursement, cash management and corporate finance, including policies, procedures and systems, (vii) management and financial reporting policies, procedures and systems, (viii) construction and renovation projects, (ix) managed care contracting, (x) acquisition and development activities, (xi) physician recruiting and associated physician activities such as practice management, (xii) development and execution of Company business plan and strategies, (xiii) press releases, public relations, and media relations, (xiv) preparation of the Company's annual operating and capital budget, and (xv) investor and banking relations (except as noted below under "Mutual Responsibility"). The parties agree that any duties, responsibilities, functions, or authority not specifically delineated in this section but which would otherwise reasonably be considered integral to managing the day-to-day affairs of the Company and its operations, including its business units, subsidiaries and affiliates, both now and in the future, will be reserved to Mr. Miller as part of this Management Rights Agreement. MUTUAL RESPONSIBILITY - Messrs. Messenger and Miller agree to jointly develop plans and strategies for promoting the Company to the financial community, including but not limited to: (i) preparation of the annual report, (ii) analyst meetings, (iii) road shows, (iv) presentations at conferences, (v) bank meetings and presentations, (vi) mergers, acquisitions, and divestitures, and (vii) media interviews. Further, Messrs. Messenger and Miller will be considered "ex-officio" members of any and all boards of the new company's subsidiary operations and may elect to attend any meetings of such boards at their sole discretion. COVENANT NOT TO BREACH AGREEMENT - The Board of Directors, Dr. Krukemeyer and Mr. Messenger agree not to initiate any actions or 25 decisions which in any way would breach Mr. Miller's duties, authority and responsibility as specified herein, except where the Board's authority or approval is otherwise required. The Board and Dr. Krukemeyer further agree not to initiate any actions or decisions which in any way breach Mr. Messenger's duties, authority and responsibility as specified herein, except where the Board's authority or approval is otherwise required. The parties agree that any breach of the above duties, authority and responsibility of Messrs. Miller and Messenger shall constructively constitute Termination Without Cause as specified in Messrs. Messenger's and Miller's Employment Agreements, unless such breach is waived in writing by Messrs. Messenger and Miller. These "Management Rights Terms" shall be incorporated into the Employment Contracts of Messrs. Messenger and Miller and/or such other documents as is appropriate and shall be in full force and effect through each contract renewal term of Messrs. Messenger and Miller until Mr. Miller shall become CEO of the Company. 26 EXHIBIT B During the Term of the Agreement, the Company shall provide Executive with the following life insurance and disability coverages: (1) The Company shall maintain for Executive's benefit life insurance coverage with a face amount equal to three (3) times the amount of Executive's Base Salary as in effect from time to time; PROVIDED, HOWEVER, that if the Company shall be unable to obtain the full amount of such life insurance coverage at a reasonable cost, the Company may alternatively provide Executive with a lump-sum death benefit, payable within ninety (90) days following the date of Executive's death, in such amount as will, when added to any life insurance coverage actually obtained by the Company, provide Executive's beneficiary(ies) with a net amount, after payment of any Federal and state income taxes, equal to the net, after-tax amount such beneficiary(ies) would have received had the Company obtained the full amount of life insurance coverage provided for above. The Executive shall have the right to name and to change from time to time the beneficiary(ies) under such life insurance coverage (and death benefits, if any). Such life insurance coverage (and death benefit, if any) shall be in addition to any death benefits which may be payable under any accidental death and dismemberment plan, any separate business travel accident coverage, or any pension plan in which the Executive may participate, and such coverage shall also be in addition to any life insurance which Executive himself purchases. (2) LONG-TERM DISABILITY - In the event the Executive becomes disabled (as defined in the long-term disability plan presently maintained by the Company), the Executive is to receive the disability benefits in an amount equal to 60% of his then salary. Any amount payable under any salary continuation plan (including any salary continuation provided under this agreement) or disability plan maintained by the Company, and any amount payable as a Social Security disability benefit or similar benefit to Executive or his immediate family shall be counted towards the Company's fulfillment of such obligation. Disability benefits will be payable monthly commencing thirty (30) days following disability and will continue until Executive is no longer disabled or, if earlier, until he reaches age 65. During the Term of the Agreement, the Company shall also provide Executive with the following additional fringe benefits: 1) VACATIONS AND HOLIDAYS - Executive shall be entitled to such paid vacation time as may be reasonably taken at Executive's discretion so long as such vacation time does not interfere with the efficient discharge of the Executive's duties and responsibilities. Executive shall be entitled to all holidays as delineated annually in the Company's official holiday schedule 27 2) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE - will provide the Executive with the assistance of the Company's regular auditors for the preparation of Executive's United States Federal and State tax returns without charge to Executive. In addition, the Company shall reimburse Executive for the costs incurred by Executive for financial planning services in an amount not to exceed $5,000 annually. 3) ANNUAL PHYSICAL EXAMINATION - The Company shall reimburse Executive 100% of all costs incurred by Executive in obtaining an annual comprehensive physical examination to be conducted by a physician; clinic, or medical group of the Executive's choice and which is located within reasonable proximity to Executive's place of Employment 28 FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company") and Charles R. Miller (the "Executive") RECITALS: WHEREAS, the Company and the Executive entered into that certain Paracelsus Healthcare Corporation Employment Agreement dated as of July 17, 1996, (the "Employment Agreement"), and WHEREAS, the parties desire to amend the Employment Agreement to clearly reflect that Executive will not be forced to relocate. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party, the parties intending to be legally bound hereby agree as follows: 1. Paragraph 4(iii)(D) is hereby deleted in its entirety, and the following is added in its place: "(D) The Constructive Relocation of Executive, defined as (I) reassignment of the executive, (II) relocation of the principal executive offices of the Company, or (iii) assignment of duties, such that any of the foregoing, either individually or in combination would require Executive to either (a) effectively relocate Executive's primary residence or (b) increase Executive's one-way commute by more than 25 miles from Executive's current primary residence." 2. All other terms and conditions not changed hereby shall remain in full force and effect. 29 IN WITNESS WHEREOF, the parties have executed this First Amendment to Paracelsus Healthcare Corporation Employment Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------------- Name: R.J. Messenger Title: Chief Executive Officer \s\ CHARLES R. MILLER ------------------------------------- Charles R. Miller EX-10.44 17 EMPLOYMENT AGREEMENT - R. J. MESSENGER 1 EXHIBIT 10.44 PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and R. J. Messenger (the "Executive"). In consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein. In addition, the Executive and the Company hereby agree that subject to and effective as of the closing of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a wholly owned subsidiary of the Company (the "Merger"), this Agreement shall supersede that certain employment agreement (the "Prior Agreement") between the Company and the Executive, dated as of November 20, 1983, as amended from time to time, and the Prior Agreement shall thereupon automatically terminate without further obligation by either Executive or the Company. 2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date hereof and ending immediately prior to the Effective Time (as defined in the Agreement and Plan of Merger by and among the Company, Champion and PC Merger Sub dated as of April 12, 1996, as amended May 29, 1996, and as such agreement may be amended from time to time (the "Merger Agreement")), the employment of the Executive shall be governed by the terms and conditions set forth in the Prior Agreement. The term of this Agreement (the "Term"), and Executive's employment with the Company hereunder, shall commence at the Effective Time and, unless earlier terminated in accordance with the terms hereof, shall continue until the fifth anniversary of the Effective Time (such initial term of the Agreement referred to as the "Initial Term"); PROVIDED, HOWEVER, that the Term shall automatically be renewed for an additional period of five years (each such period, a "Renewal Period") at the end of the Initial Term and at the end 2 of each Renewal Period, if any, unless either the Company or the Executive provides at least one year's notice to the other of its intention not to renew the Term; and PROVIDED, FURTHER, that if the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close, (x) this Agreement shall automatically terminate without further obligation by either party hereto, (y) the terms and conditions set forth in this Agreement shall not apply and (z) the employment of the Executive shall continue to be governed by the terms and conditions set forth in the Prior Agreement. During the Term, the Executive shall be employed as the Chief Executive Officer of the Company serving at the will of the Board of Directors of the Company (the "Board") with, subject to the express terms and conditions hereof, the traditional duties, responsibilities and authority of such office in companies similar in size to the Company. The Executive agrees that he shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and its subsidiaries and shall devote substantially all of his business time, energy and attention to the business of the Company and its subsidiaries; PROVIDED, HOWEVER, that subject to the provisions of Section 10, Executive may devote a portion of his time while an employee of the Company to international commitments and other personal, philanthropic and business affairs and interests (including but not limited to businesses providing security, catering, cleaning and related services on an international basis to commercial establishments), to the extent such activities do not materially interfere with the performance of his duties and obligations to the Company; and PROVIDED, FURTHER, that Executive may also attend various industry board and other meetings of professional societies of which he is a member, consistent with his past practice while an employee of the Company. In addition, (i) for so long as Executive is a Shareholder Director (as defined in the Shareholder Agreement of the Company to be entered into in connection with the Merger (the "Shareholder Agreement")), Executive shall serve as the Vice Chairman of the Board, and (ii) for so long as Executive shall serve as a member of the Board, he shall serve as Chairman of the Executive Committee of the Board (the "Executive Committee"). The Executive agrees to use his authorities as Chief Executive Officer, as Vice Chairman of the Board and as a member of the Executive Committee to manage and cause others to manage 3 the Company in accordance with the management guidelines set forth on Exhibit A hereto; PROVIDED, HOWEVER, that nothing in this Section shall require the Executive to violate or breach his duties under the law of the state of incorporation of the Company or any other applicable laws. The Company agrees to use its best efforts to manage and cause others to manage the Company in accordance with the management guidelines set forth in Exhibit A hereto. 3. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY. During the Term, the Company shall pay to the Executive an annual base salary (the "Base Salary") at an initial rate of $750,000 per year, payable in accordance with the Company's normal payroll practices or as the Company and Executive may otherwise agree. The Base Salary shall be reviewed by the Company annually and shall be subject to discretionary increase by the Company from time to time, but shall not be decreased from the rate in effect at any time and from time to time during the Term. (b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan or any similar or successor annual bonus plan of the Company (the "Performance Bonus Plan") and to receive an annual performance bonus upon the achievement of one or more annual performance goals (the "Performance Goals") in accordance with the terms of the Performance Bonus Plan; PROVIDED, that Executive's annual target bonus under the Performance Bonus Plan (the "Annual Target Bonus") shall not be less than 100% of the Base Salary in effect at the time the Performance Goals for such plan year are established. (c) LONG-TERM INCENTIVE. The Executive shall be eligible to participate in any long-term incentive compensation and/or stock option plans maintained from time to time by the Company. In addition, pursuant to prior action of the Stock Option Committee of the Board, Executive has previously been granted (i) options (the "Value Options") to purchase an aggregate of 1,000,000 shares of Company common stock, no stated par value (the "Common Stock"), at an exercise price of $.01 per share with a term of 10 years from the date of grant and (ii) an option (the "Market Option") to purchase an additional 1,000,000 shares of Common Stock at an exercise price equal to the fair 4 market value (as defined in the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan (the "1996 Stock Incentive Plan")) of the Common Stock on the date of the Effective Time with a term of 10 years from the date of grant. The Value Options will be fully vested on grant and will become fully exercisable at the Effective Time, and the Market Option will generally vest and become exercisable in equal annual installments of 25% on each of the first four anniversaries of the Effective Time; PROVIDED, that neither the Value Options nor the Market Option will become exercisable in whole or in part in the event the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close; and PROVIDED, FURTHER, that the Value Options and the Market Option shall each be subject to the terms of the 1996 Stock Incentive Plan and the stock option agreements to be entered into in connection with the grant of such options. (d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive shall be eligible to participate in employee benefit and fringe benefit plans and programs generally available to the Executive officers of the Company and such additional benefits as the Board may from time to time provide. In addition, Executive shall be entitled to receive the personal benefits described in Exhibit B hereto. Executive shall be entitled to reimbursement for business expenses, including travel and entertainment; PROVIDED, that such reimbursement shall be limited to reasonable and necessary expenses incurred by Executive in connection with the performance of duties on behalf of the Company 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 by the Audit Committee of the Board, including periodic audits by the Internal Audit Department of the Company and/or the Audit Committee of the Board; and PROVIDED, FURTHER, that the Company shall reimburse Executive for reasonable expenses incurred by Executive's spouse when traveling with Executive on Company business. (e) RETIREMENT BENEFITS. The Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan or any similar or successor plan (the "SERP") and in any tax- qualified and any other supplemental pension plans generally available to the 5 Incentive Plan and the stock option agreements to be entered into in connection with the grant of such options. (d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive shall be eligible to participate in employee benefit and fringe benefit plans and programs generally available to the Executive officers of the Company and such additional benefits as the Board may from time to time provide. In addition, Executive shall be entitled to receive the personal benefits described in Exhibit B hereto. Executive shall be entitled to reimbursement for business expenses, including travel and entertainment; PROVIDED, that such reimbursement shall be limited to reasonable and necessary expenses incurred by Executive in connection with the performance of duties on behalf of the Company 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 by the Audit Committee of the Board, including periodic audits by the Internal Audit Department of the Company and/or the Audit Committee of the Board; and PROVIDED, FURTHER, that the Company shall reimburse Executive for reasonable expenses incurred by Executive's spouse when traveling with Executive on Company business. (e) RETIREMENT BENEFITS. The Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan or any similar or successor plan (the "SERP") and in any tax- qualified and any other supplemental pension plans generally available to the 6 Executive officers of the Company. The Company shall not take any action, whether by amendment of the SERP or otherwise, to adversely affect Executive's accrued benefits and other rights under the SERP as of the Effective Time. 4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and subject to the payment of any amounts required under Section 5, the Executive's employment with the Company may be terminated (a) by the Company for Cause (as defined herein) or without Cause, PROVIDED that no less than 80% of the then members of the Board (excluding, for the purposes of such calculation, the Executive) and no less than 2/3 of the Independent Directors (as defined in the Shareholder Agreement) have approved such termination, (b) by the Executive for or without Good Reason (as defined herein), (c) by reason of the Executive's death or Disability (as defined herein) or (d) by the mutual written consent of the parties hereto. For purposes of this Agreement: (i) "Cause" means (A) acts of embezzlement, theft and fraud established by a preponderance of the evidence; (B) actions which have had or will likely have a material adverse financial effect on the Company as a whole for an extended period of time, where appropriate evidence exists that such actions are directly attributable to the (I) gross management negligence or repeated ineptitude of the Executive and/or (II) deliberate refusal of the Executive to follow the instructions or directions of the Board; (C) conviction of or a plea of guilty or NOLO CONTENDERE to a felony; (D) violation of the noncompete or confidentiality provisions of this Agreement, PROVIDED, that no such violation will be deemed to have occurred if, within 30 days following receipt by Executive of a notice from the Board identifying the violation, the Executive (I) cures the violation and (II) establishes that the violation was unintentional and not reasonably likely to result in harm to the Company, in each case to the reasonable satisfaction of the Board; (E) material incapacitation or repeated absence from work due to reckless and self-abusive behavior or conduct, such as alcoholism and drug abuse, which renders Executive incapable of performing his duties; PROVIDED, that physical or mental disability due to injury or disease shall not be grounds for termination for Cause; (F) material repeated incompetence in performing the duties of the Executive's office, PROVIDED, that such incompetence is: (I) supported by written documentation of such incompetence, (II) occurs after the Executive has been previously counseled by the Board both orally and in writing with respect to specific 7 examples of such incompetence and has been provided the opportunity to respond in kind, and (III) determined to be incurable and to be of such a nature as to have had or which would have been reasonably likely at the time of such commission to have a material adverse effect on the Company as a whole; or (G) a material violation by the Executive of the provisions set forth in Exhibit A hereto; PROVIDED, that the Company provides the Executive with notice of such violation within 30 days of its discovery of such violation and the Executive fails to cure such breach to the reasonable satisfaction of the Board within 10 days of receipt of such notice. For purposes of this Agreement, the Board shall have 60 days to terminate the Executive for Cause following the date on which the Board discovers the existence of a specific set of facts that, in the aggregate, then constitute Cause, after which period no Cause with respect to such specific set of facts shall be deemed to exist; PROVIDED, that the repetition or reoccurrence of the same or a similar set of facts shall constitute a separate ground for termination for Cause. (ii) "Disability" means the Executive's absence from the full-time performance of his duties with the Company for one hundred eighty (180) days or more within any period of 12 consecutive months as a result of the Executive's incapacity due to mental or physical illness; PROVIDED, that during any period prior to the termination of Executive's employment by reason of Disability in which Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay Executive his Base Salary at the rate in effect at the commencement of such period of Disability; (iii) "Good Reason" means, without the Executive's express written consent, the occurrence of any of the following events: (A) a reduction by the Company in the Executive's Base Salary or Annual Target Bonus in effect from time to time; (B) a material reduction in the aggregate level of participation in and/or compensation and benefit opportunities under all other compensation and employee benefit plans in which Executive is entitled to participate from time to time; PROVIDED, HOWEVER, that changes affecting the participation in or benefits under such plans (other than the Performance Bonus Plan, the SERP and the benefits described in Exhibit B) with respect to 8 similarly situated Executives of the Company shall not constitute Good Reason hereunder; (C) a reduction in the Executive's titles, duties or authority with the Company or a material adverse change in Executive's reporting relationships; (D) notification by the Company of its intention not to renew this Agreement pursuant to the provisions of Section 2; (E) the failure of the Executive to be nominated for election to and elected to serve as a member of the Board or, for so long as he is a Shareholder Director, to appointed as Vice Chairman of the Board, or for so long as he is a member of the Board, to be appointed as Chairman of the Executive Committee; (F) the termination of the Executive's employment by the Executive for any reason within 12 months following a Change in Control (as defined herein); or (G) failure of the Company, Dr. Manfred G. Krukemeyer or Mr. Charles R. Miller to comply with any of the applicable provisions set forth in Exhibit A hereto, without regard to whether such terms are enforceable, which is not cured by the Company, Dr. Krukemeyer or Mr. Miller, as applicable, within 30 days of its or his receipt of a notice specifying the manner in which the Company, Dr. Krukemeyer and/or Mr. Miller is failing or has failed to comply with the applicable provisions set forth in Exhibit A hereto. (iv) "Change in Control" means the occurrence of any one of the following events: (A) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person (as such term is defined in the Company's Shareholder Protection Rights Agreement to be adopted at the Effective Time) or any person that is not bound by the Shareholder Agreement becomes the beneficial owner (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the undiluted total voting power of the Company's then outstanding securities eligible to vote for the election of members of the Board (the "Company Voting Securities"); PROVIDED, HOWEVER, that no event described in the immediately preceding clause shall be deemed to constitute a Change in Control by virtue of any of the following: (I) an acquisition of Company Voting Securities by the Company and/or one or more direct or indirect majority-owned subsidiaries of the Company; (II) an acquisition of Company Voting Securities by any employee benefit plan sponsored or maintained by the Company or any corporation controlled by the Company; (III) an acquisition by any 9 underwriter temporarily holding securities pursuant to an offering of such securities; or (IV) any acquisition by the Executive or any "group" (as such term is defined in Rule 3d-5 under the Exchange Act) of persons including the Executive; or (B) individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority thereof; PROVIDED, HOWEVER, that any person becoming a director subsequent to the beginning of such twenty-four (24) month period, whose election, or nomination for election, by the Company's shareholders was approved by either (i) the Board consistent with the terms of the Shareholder Agreement, during the period the Shareholder Agreement is in effect, or (ii) a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (B), considered as though such person were a member of the Incumbent Board; PROVIDED, FURTHER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, represent immediately after such merger or consolidation at least 60% of the combined voting power of the then outstanding voting securities of either the Company or the other entity which survives such merger or consolidation or any parent of such other entity; or (D) the stockholders of the Company approve (i) a plan of complete liquidation or dissolution of the Company or (ii) an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 10 5. PAYMENTS UPON TERMINATION OF EXECUTIVE If the employment of the Executive shall be terminated other than by reason of death or Disability (i) by the Company (other than for Cause) or (ii) by the Executive for Good Reason, then the Company shall pay or provide to the Executive (or the Executive's beneficiary or estate): (1) within thirty (30) days following the date of such termination of employment ("Termination Date"), a lump-sum cash amount equal to the sum of (i) the Executive's unpaid Base Salary through the Termination Date; (ii) any accrued but unpaid annual bonus under the Performance Bonus Plan in respect of the annual bonus period preceding the bonus period in which the Termination Date occurs; (iii) any unpaid reimbursable business expenses properly incurred through the Termination Date; and (iv) a bonus payment equal to the Executive's Annual Target Bonus in the year of termination, multiplied by a fraction the numerator of which is the number of months in the bonus year of termination in which the Executive has worked at least one day and the denominator of which is 12; (2) within thirty (30) days following the Termination Date, a lump-sum cash amount equal to the greater of (A) the Executive's then Base Salary payable over the remainder of the Term plus a bonus equal to the Executive's Annual Target Bonus in the year of termination multiplied by a fraction the numerator of which is the number of complete months remaining in the Term and the denominator of which is 12, or (B) 3.0 times the sum of: (i) the Executive's annual rate of Base Salary as of the Termination Date plus (ii) the Annual Target Bonus for the year in which the Termination Date occurs (in each such case, Executive's Base Salary and Annual Target Bonus being determined without taking into account any reductions thereto constituting Good Reason); PROVIDED, HOWEVER, that the Executive shall not be entitled to any severance benefits from the Company or under any Company severance plan, policy or arrangement other than as specified in this Agreement; (3) for a period terminating on the earlier of (A) the commencement of the provision of substantially equivalent benefits by a new employer or (B) the later of (I) the last day of the Term, or (II) thirty-six (36) months following the Termination Date, the Company shall continue to keep in full force and effect (or otherwise provide) all policies of medical, 11 accident, disability and life insurance with respect to the Executive and his dependents with substantially the same level of coverage, upon substantially the same terms and otherwise substantially to the same extent as such policies shall have been in effect immediately prior to the Termination Date, and, as applicable, the Company and the Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the date of termination; (4) for purposes of determining final average compensation (or making any similar calculation) and years of service (for purposes of eligibility, vesting and benefit accrual) under any tax-qualified or supplemental defined benefit retirement plan (including without limitation the SERP), Executive shall be deemed to have remained employed by the Company hereunder until the end of the Term and to have received his then current Base Salary and Annual Target Bonus through the end of the Term; PROVIDED, that to the extent such benefits cannot be accrued under and paid from any tax-qualified pension plan, such benefits shall be accrued under and paid from the SERP or other supplemental plan. (5) all options to purchase Common Stock held by the Executive shall immediately become fully vested and exercisable and shall remain exercisable until the earlier of (A) the date that is 24 months following the Termination Date and (B) the expiration of the stated term of such options; PROVIDED, that the Value Options shall remain exercisable until expiration of their stated term; and (b) If the employment of the Executive shall be terminated (i) by reason of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by the Executive without Good Reason, or (iv) by the mutual written consent of the parties hereto (each a "Nonqualifying Termination"), then the Company shall pay to the Executive (or the Executive's beneficiary or estate) within thirty (30) days following the Termination Date a lump-sum cash amount equal to the sum of the Executive's unpaid Base Salary through the Termination Date plus any bonus payments which have been earned or become payable, to the extent not theretofore paid, plus any unpaid reimbursable business expenses properly incurred through the Termination Date. In addition, Executive (or the Executive's beneficiary or estate) shall have no less than ninety days following the termination of his employment 12 pursuant to a Nonqualifying Termination to exercise any outstanding options to the extent vested and exercisable as of the Termination Date; PROVIDED, that the Value Options shall remain exercisable until the expiration of their stated term. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Notwithstanding anything in this Agreement to the contrary, in the event that any payment or distribution by the Company, by any affiliate of the Company or by any person whose actions result in a Change in Control of the Company (to the extent the Company approves of the arrangements pursuant to which the payment by such person is made to the Executive) to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes and Excise Tax, imposed upon the Gross-Up Payment but before deduction for any federal, state or local income or other tax upon the Payments, the Executive will retain a net amount equal to the sum of (i) the Payments and (ii) an amount equal to the product of any deductions (or portions thereof) disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income for federal income tax purposes and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to (1) pay applicable federal income taxes at the highest applicable marginal rates of federal income taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, (2) pay applicable state and local income taxes at the highest applicable marginal rate of taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and 13 local taxes and (3) have otherwise allowable deductions for federal income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income. (b) Subject to the provisions of Section 6(a), all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive may appoint another nationally recognized public accounting firm reasonably acceptable to the Company to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company and, subject to applicable law and obligations to the Company's stockholders, the Company shall enter into any agreement reasonably requested by the Accounting Firm that is generally recognized as standard in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 6 with respect to any Payment shall be made no later than thirty (30) days following the date of such Payment. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Executive's applicable federal income tax return should not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross- Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that 14 the Executive thereafter is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of the Executive. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by the Executive to or for the benefit of the Company. The Executive shall cooperate, to the extent his reasonable expenses in connection therewith are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 7. WITHHOLDING TAXES. The Company shall have the right to withhold from any and all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 8. SUCCESSORS; BINDING AGREEMENT (a) This Agreement is personal in nature and none of the parties hereto shall, without the consent of the other, assign, or transfer this Agreement or any rights or obligations hereunder; PROVIDED, that in the event of the merger, consolidation, transfer or sale of substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties and obligations of the Company hereunder, and all references herein to the "Company" shall refer to such successor. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts remain payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in 15 accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive's estate. 9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION (a) Except as provided in Sections 10 and 11, all disputes hereunder shall be settled by final, binding arbitration, conducted before a panel of three (3) arbitrators in California in accordance with the rules of the American Arbitration Association then in effect. Judgment on the arbitration award may be entered in any court having jurisdiction. The Company shall bear the expenses of such arbitration. (b) If any contest or dispute shall arise under this Agreement involving termination of the Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall advance and reimburse the Executive, on a current basis, all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute; PROVIDED, that the Executive agrees to return any advanced or reimbursed expenses to the extent the arbitrators (or the court, in the case of a dispute described in Section 10 or 11) determine that the Company has prevailed as to the material issues raised in determination of the dispute. (c) The Company's obligation to make any payments provided for in this Agreement to the Executive and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 10. NONCOMPETITION (a) DISCLOSURE. The Executive has disclosed to the Board, in writing, all healthcare-related interests, investments, or business activities, whether as proprietor, stockholder, 16 partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, or in any other capacity or manner whatsoever. The Executive shall notify the Board, in writing, of any changes in or additions to such interests, activities or investments permitted in accordance with the terms of this Agreement, within 15 days of such change or addition. (b) PROHIBITED ACTIVITY. Without the written consent of a majority of the Independent Directors, the Executive may not engage in any of the following actions during the period that is (A) prior to the Executive's termination of employment with the Company, (B) within two years following the termination of his employment with the Company during the Initial Term if such termination is by the Company for Cause or by the Executive other than for Good Reason and (C) within one year following his termination of employment during the Term but after the Initial Term if such termination is by the Company for Cause or by the Executive other than Good Reason. (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, within a radius of 30 miles from any site, facility, or location which is owned, managed or operated by or affiliated with the Company or any of its subsidiaries and affiliates, including physician practices of any kind. For purposes of this Agreement, "Primary Business" shall mean the delivery of integrated healthcare services in markets where the Company or its subsidiaries own hospitals and/or skilled nursing facilities ("SNFs") with the hospital serving as the hub of the local delivery system in conjunction with its physician medical staff. In addition to inpatient acute care, psychiatric care, and skilled nursing care, these services can include (A) individual physician practices and/or physician-based organizations such as primary care and specialty clinics, physician-hospital organizations ("PMOs") or medical service organizations ("MSOs"), or physician medical groups and (B) ambulatory programs such as home health care, ambulatory surgery, psychiatric services, occupational and sports medicine centers, psychiatric after-care and day care programs, and other diagnostic, rehabilitative and treatment services. Some of these services, sites and facilities may be located in satellite areas for the purpose of extending the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital's geographic service area and to serve 17 as access points and/or referral sources for either the local delivery system or the hub hospital. 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 the Term or to exclude any business or service in which the Company ceases to engage. The definition of "Primary Business" may also be modified to include any business or service into which, as of the Termination Date, the Company definitively intends to expand, regardless of whether such expansion actually occurs after the Executive's termination. For purposes of the preceding sentence, the date on which a modification of the definition of "Primary Business" shall be effective shall be the date on which the Executive is provided written notice of such modification (the "Notice Date"); PROVIDED, HOWEVER, that no such modification as to which notice is provided on or after the Termination Date shall be effective against the Executive; and PROVIDED, FURTHER, that no such modification shall be effective with respect to any interests, investments or business activities engaged in by Executive prior to the Notice Date of such modification and properly disclosed prior to such Notice Date pursuant to Section 10(a); (ii) participate or serve, either directly or indirectly, whether as a proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, 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 him or by any competitor of the Company on whose behalf he is acting as an agent, representative or employee, or convey any confidential information or trade secrets regarding other employees of 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; PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d under the Exchange Act, as a 18 passive investment, of not more than five percent (5%) of the voting stock of any publicly held corporation, nor (ii) the beneficial ownership by Executive of any interest described in the first sentence of Section 10(a) and properly and timely disclosed in accordance with the terms therewith, shall alone constitute a violation of this Agreement. In the event that the Executive engages in the conduct proscribed by this Section 10, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of the Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive 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 injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or injunctive relief in such a court prohibiting Executive 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 Executive has violated this Section 10. (c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the parties that the provisions of this Section 10 shall be enforceable to the fullest extent permissible under applicable law and public policy. Accordingly, if this Section 10 or any portion thereof shall be adjudicated to be invalid or unenforceable whether because of the duration and scope of the covenants set forth herein or otherwise, the length and scope of the restrictions set forth in this Section 10 shall be reduced to the extent necessary so that this covenant may be enforced to the fullest extent possible under applicable law. 11 CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment hereunder, and during prior periods of employment with the Company and/or its subsidiaries, he has occupied and will continue to occupy a position of trust and confidence. The Executive shall not, except as may be required to perform his duties hereunder or as required by applicable law, until the expiration of the applicable periods described in Section 10(b) or until such information shall have become public other than by the Executive's unauthorized disclosure, disclose 19 to others or use, whether directly or indirectly, any Confidential Information regarding the Company, its subsidiaries and affiliates. "Confidential Information" shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not publicly disclosed by the Company or otherwise generally available to members of the public seeking such information and that was learned by the Executive in the course of his employment by the Company, its subsidiaries and affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, its subsidiaries and affiliates, and that such information gives the Company, its subsidiaries and affiliates a competitive advantage. The Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company, its subsidiaries or affiliates or prepared by the Executive during the term of his employment by the Company, its subsidiaries and affiliates. In the event that the Executive engages in any conduct proscribed by this Section 11, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of the Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to disclose or threaten to disclose Confidential Information regarding the Company or any subsidiary or affiliate in violation of this Agreement or otherwise fail to comply with the provisions of this Section 11, and that the Company would, by reason of such disclosure or threatened disclosure or other failure to comply, be entitled to preliminary or permanent injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or permanent injunctive relief in such a court prohibiting Executive from disclosing Confidential Information in violation of this Agreement or otherwise requiring Executive to comply with the provisions of this Section 11 upon 20 an appropriate finding by such court that Executive has violated this Section 11. 12 NOTICE. For the purposes of this Agreement, any notices, demands and all other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): If to Executive: R.J. Messenger ------------------------- ------------------------- ------------------------- If to Company: Paracelsus Healthcare Corporation 515 West Greens Road Suite 800 Houston, Texas 77067 Telecopy No. (713) 878-6686 Attention: Robert C. Joyner, Senior Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 990071 Telecopy No. (213) 687-5600 Attention: Thomas C. Janson 13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in a written document signed by the Executive and such officer of the Company, as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 21 14. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; provided, however that nothing herein shall be construed to adversely affect in any respect the Executive's rights to accrued vacation pay earned during his employment with the Company through the Effective Time. 15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of California without regard to the principle of conflicts of laws and, at the election of the Executive, the venue of any dispute arising under this Agreement shall be California. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 16. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 17. SEVERABILITY. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ DR. MANFRED G. KRUKEMEYER ------------------------------------- Name: Dr. Manfred George Krukemeyer Title: Chairman \s\ R. J. MESSENGER ------------------------------------- R. J. Messenger 23 EXHIBIT A MANAGEMENT RIGHTS TERMS In so much as the Board of Directors and Dr. Manfred Krukemeyer recognize the value to recruiting and retaining the services of a highly qualified executive team and that such objective is in the best interests of the Company and all its stockholders, and further that Messrs. Messenger, Miller, VanDevender and Patterson are instrumental to insuring the success of the merger between Paracelsus and Champion, and that a clear delineation of duties, authority and responsibility is essential to the foregoing, the Board of Directors, Dr. Krukemeyer, and Messrs. Messenger and Miller ("The Parties") agree that the concepts set forth herein will be incorporated in the various merger transaction documents, including employment contracts: Board of Directors Authority and Responsibility - Ron Messenger and Charles Miller shall have the authority to discharge their duties and responsibilities as outlined herein for managing the affairs of the corporation except for those items delineated below which is understood normally requires Board approval. The Board, in its discretion, may delegate any such authority and approval powers as it deems appropriate with respect to the items delineated below to duly constituted committees of the Board excepting those powers and authority which require the action of the Board acting as a whole. 1) Acquisitions & Divestitures of any kind 2) Capital expenditures exceeding $5 million per project ($10 million for construction and/or renovation projects and acquisition of real estate) and $50 million in aggregate, including but not limited to equipment purchases, capitalized leases and acquisition of physician practices, clinic, surgery center, or other healthcare entities 3) Major financings and any offerings of equity or debt 4) Issuance of stock 5) Appointment of corporate officers 6) Stock option plans or stock grants 7) Approval of annual operating and capital budget 8) Employment Agreements for Executive Management 24 9) Changes or amendments to corporate charter of incorporation or by-laws 10) Material change in Company business strategy 11) Liquidation or sale of Company or any subsidiary or merger or other business combination with another company 12) Compensation and benefit levels and incentive plans for executive officers 13) Termination of the: (i) CEO, (ii) President and COO, and (iii) CFO The Board shall designate an Executive Committee of the Board which shall be delegated such authority as decided by the Board of Directors for conducting the business of the Company. Members of the Executive Committee shall be: (i) Mr. Messenger, as Chairman, (ii) Mr. Miller, and (iii) Mr. VanDevender. The Executive Committee shall be delegated the authority to act on behalf of the Board on any business issues not otherwise requiring action by the Board as a whole except: 1) Major financings and any offerings of equity or debt 2) Issuance of stock or approval of stock option plans 3) Employment Agreements for (i) CEO, (ii) President & COO, and (iii) CFO 4) Compensation, benefits and incentive plans, including allocation of stock options for (i) CEO, (ii) President & COO, and (iii) CFO 5) Termination of (i) CEO, (ii) President & COO, and (iii) CFO 6) Material change in Company business strategy 7) Changes or amendments to the corporate charter of incorporation or by-laws 8) Liquidation or sale of Company or subsidiary or merger or other business combination with another company 9) Any hospital acquisition transaction involving more than a $30 million expenditure of capital, excluding working capital and/or assumption of debt 10) Divestiture of any hospital 25 11) Approval of annual operating and capital budget 12) Capital expenditures exceeding $5 million per project ($10 million for construction and/or renovation projects and acquisition of real estate) and $50 million in aggregate, including but not limited to equipment purchases, capitalized leases and acquisition of physician practices, clinic, surgery center, or other healthcare entities MR. MESSENGER AUTHORITY AND RESPONSIBILITY - The parties agree that Mr. Messenger shall be Chairman of The Executive Committee of the Board of Directors and serve as Chief Executive Officer of the new company. Except where otherwise noted, decisions with respect to the following shall be reserved exclusively to Mr. Messenger at his sole discretion: 1) serving as liaison with Board of Directors 2) Relocation of corporate offices 3) Capital expenditures, as defined above, which exceed $3 million and up to $5,000,000 4) Employment and compensation status of direct reports to Mr. Messenger (as defined throughout this agreement, references to Messenger "direct reports" shall exclude Mr. Miller) 5) Approval of senior lender participants and agent bank 6) Approval of investment bankers, upon concurrence by Mr. Miller 7) Chairmanship of the Executive Committee of the Board of Directors Any and all proposals to be presented to the Board, or any of its Committees, or the Executive Committee are subject to the review of and approval, disapproval or modification by Mr. Messenger. Mr. Messenger, in his sole discretion and to the extent practicable, may elect to exempt himself, and his direct reports from any changes in corporate policies and procedures which: (i) were not agreed to at the time of the merger, or (ii) reduce or materially affect the agreed upon status or benefits of Mr. Messenger or his direct reports. Mr. Messenger shall develop and be solely responsible for administering and controlling an overhead budget for the Office of the CEO which shall include himself and his direct reports with such budget subject to the approval by the Board of Directors, provided 26 however that such budget does not otherwise breach or circumvent Mr. Miller's authority and responsibility as set forth herein. Any other duties, authority and responsibilities not delineated above, or which are not otherwise reserved specifically to the Board or Mr. Miller, shall be reserved to Mr. Messenger so long as such duties, authority and responsibilities do not otherwise unreasonably abridge Mr. Miller's rights to manage the day-to-day affairs of the new Company as delineated below. MR. MILLER AUTHORITY AND RESPONSIBILITY - The parties have agreed that it is in the best interests of the Company and its stockholders to retain Mr. Miller's services following the merger and that he shall be elected President and Chief Operating Officer of the new company and, along with Mr. VanDevender, be appointed to the Executive Committee of the Board. The parties also agree that Mr. Miller shall be delegated full authority and responsibility for managing the day-to-day affairs of the corporation, subject to the powers and authority reserved exclusively to the Board of Directors and Mr. Messenger as delineated above and the mutual areas of responsibility to be shared by Messrs. Messenger and Miller delineated below. Therefore, the parties agree that Mr. Charles R. Miller in his sole discretion shall have such authority and responsibility as is reasonably required to manage and oversee the day-to-day affairs of the corporation, including but not limited to the following: 1) HOSPITAL, SUBSIDIARY AND BUSINESS UNITS - Complete responsibility for management and decisions associated with the operations of the Company's hospitals, business units, subsidiaries and markets, including but not limited to: (i) determination of staffing levels, (ii) control of expenses, (iii) recruitment, selection and employment of key management, (iv) management and financial reporting and systems, including data processing systems, (v) medical staff issues, including credentialing and modifications to and enforcement of medical staff by-laws, rules and regulations, (vi) quality of care and service, (vii) decisions regarding programs and services to be offered or discontinued, (viii) use or discontinuance of vendors, contractors and consultants, (ix) any and all contracts and the approval, discontinuance or modification thereof, including physician contracts, (x) accounting, budgeting, reimbursement, financial and cash management policies, procedures and systems, (xi) market strategy development and implementation, (xii) composition of local boards, (xiii) policies, by-laws, rules & regulations, (xiv) promotional and marketing activities, and (xv) capital expenditures up to but not exceeding $3 million. 2) CONTRACTS AND LEASES - Approval or disapproval of any and all contracts and leases within Mr. Miller's authority level. 27 3) CORPORATE OVERHEAD BUDGET & EXPENSES - Complete authority for development, control, administration and management of the Company's corporate overhead budget, after approved by Board, and control of all corporate expenses, excluding the CEO's direct reports and corporate overhead budget. 4) CORPORATE MATTERS - Management and supervision of the Company's corporate activities and operations (excluding Mr. Messenger's direct reports and corporate overhead budget), responsibility for all decisions pertaining thereto, including but not limited to, (i) establishing or changing of job titles, duties and responsibilities, (ii) recruiting, hiring, firing, promoting, demoting, transferring, and relocating employees, (iii) determining compensation levels, incentive plans, and benefit programs, (iv) establishment, revision or discontinuance of Company policies and procedures, (v) legal affairs and related matters, including risk management and insurance, (vi) budgeting, data processing, tax, fiscal, accounting, reimbursement, cash management and corporate finance, including policies, procedures and systems, (vii) management and financial reporting policies, procedures and systems, (viii) construction and renovation projects, (ix) managed care contracting, (x) acquisition and development activities, (xi) physician recruiting and associated physician activities such as practice management, (xii) development and execution of Company business plan and strategies, (xiii) press releases, public relations, and media relations, (xiv) preparation of the Company's annual operating and capital budget, and (xv) investor and banking relations (except as noted below under "Mutual Responsibility"). The parties agree that any duties, responsibilities, functions, or authority not specifically delineated in this section but which would otherwise reasonably be considered integral to managing the day-to-day affairs of the Company and its operations, including its business units, subsidiaries and affiliates, both now and in the future, will be reserved to Mr. Miller as part of this Management Rights Agreement. MUTUAL RESPONSIBILITY - Messrs. Messenger and Miller agree to jointly develop plans and strategies for promoting the Company to the financial community, including but not limited to: (i) preparation of the annual report, (ii) analyst meetings, (iii) road shows, (iv) presentations at conferences, (v) bank meetings and presentations, (vi) mergers, acquisitions, and divestitures, and (vii) media interviews. Further, Messrs. Messenger and Miller will be considered "ex-officio" members of any and all boards of the new company's subsidiary operations and may elect to attend any meetings of such boards at their sole discretion. 28 COVENANT NOT TO BREACH AGREEMENT - The Board of Directors, Dr. Krukemeyer and Mr. Messenger agree not to initiate any actions or decisions which in any way would breach Mr. Miller's duties, authority and responsibility as specified herein, except where the Board's authority or approval is otherwise required. The Board and Dr. Krukemeyer further agree not to initiate any actions or decisions which in any way breach Mr. Messenger's duties, authority and responsibility as specified herein, except where the Board's authority or approval is otherwise required. The parties agree that any breach of the above duties, authority and responsibility of Messrs. Miller and Messenger shall constructively constitute Termination Without Cause as specified in Messrs. Messenger's and Miller's Employment Agreements, unless such breach is waived in writing by Messrs. Messenger and Miller. These "Management Rights Terms" shall be incorporated into the Employment Contracts of Messrs. Messenger and Miller and/or such other documents as is appropriate and shall be in full force and effect through each contract renewal term of Messrs. Messenger and Miller until Mr. Miller shall become CEO of the Company. 29 EXHIBIT B During the Term of the Agreement, the Company shall provide Executive with the following group health, group life insurance and disability coverages: (1) HEALTH BENEFITS - Executive, his wife, minor children and any other eligible dependents (as defined in the health plan maintained by the Company) are to be reimbursed for 100% of the hospital and medical expenses presently covered by the Company's health plan which Executive and such dependents may incur; (2) DENTAL BENEFITS - Executive, his wife, minor children and any other eligible dependents (as defined in any dental plan which may be maintained by the Company, or in the absence of a dental plan, as defined in the health plan maintained by the Company) are to be reimbursed for 100% of the dental expenses presently covered by the Company's dental plan which he and such dependents may incur; (3) LIFE INSURANCE - Executive, subject to health eligibility, is to be covered by life insurance equal to four times the amount of his salary as in effect from time to time, provided, however, that if the Company may not reasonably obtain life insurance coverage equal to four times such salary, the Company will provide a lump-sum death benefit in the amount necessary when added to any life insurance provided by the Company to provide Executive's beneficiary(ies) with the amount he (they) would have received after payment of income tax, had the Company been able to obtain such full life insurance coverage, payable within ninety (90) days following the date of Executive's death. Executive shall have the right to name and to change the beneficiary(ies) under such life insurance coverage. The above described life insurance coverage will be in addition to any death benefits which may be payable under any accidental death and dismemberment plan, any separate business travel accident coverage, and any pension plan which the Company maintains, and such coverage shall also be in addition to any life insurance which Executive himself purchases; (4) LONG-TERM DISABILITY - In the event Executive becomes disabled (as defined in the long-term disability plan presently maintained by the Company), Executive is to receive disability benefits in an amount equal to 60% of his then salary. Any amount payable under any salary continuation plan (including any salary continuation provided under this agreement) or disability plan maintained by the Company, and any amount payable as a Social Security disability benefit or similar benefit to Executive or his immediate family shall be counted towards the Company's fulfillment of such obligation. Disability benefits will be payable monthly commencing thirty (30) days following disability and 30 will continue until Executive is no longer disabled or, if earlier, until he reaches age 65. During the Term of the Agreement, the Company shall also provide Executive with the following additional fringe benefits: (1) COMPANY CAR - provide Executive with an appropriate automobile selected by Executive and acceptable to the Company. (2) CLUB MEMBERSHIPS - reimburse Executive for the cost of membership in any two (2) local recreational clubs of his choice and for expenses incurred at such clubs in connection with Company business within fifteen (15) days of submission of invoices and charges. Expenses of a personal nature are not reimbursable by the Company. (3) VACATIONS AND HOLIDAYS - Executive shall be entitled to such paid vacation time as may be reasonably taken at Executive's discretion so long as such vacation time does not interfere with the efficient discharge of the Executive's duties and responsibilities. Executive shall be entitled to all holidays as delineated annually in the Company's official holiday schedule. (4) PERSONAL LIABILITY - will indemnify Executive, through insurance or otherwise, against any and all personal liability incurred in the conduct of the Company's business, other than liability arising from Executive's dishonesty, gross or willful misfeasance or nonfeasance of duty, or criminal conduct. The Company will purchase and keep in effect a personal liability insurance policy insuring Executive in the face amount of not less than Ten Million Dollars ($10,000,000) in his capacity as an individual, corporate officer and corporate director. (5) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE - will provide the Executive with the assistance of the Company's regular auditors for the preparation of Executive's United States Federal and State tax returns without charge to Executive. In addition, the Company shall reimburse Executive for the costs incurred by Executive for financial planning services in an amount not to exceed $5,000 annually. (6) ANNUAL PHYSICAL EXAMINATION - The Company shall reimburse Executive 100% of all costs incurred by Executive in obtaining an annual comprehensive physical examination to be conducted by a physician, clinic, or medical group of the Executive's choice and which is located within reasonable proximity to Executive's place of Employment 31 FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company") and R.J. Messenger (the "Executive") RECITALS: WHEREAS, the Company and the Executive entered into that certain Paracelsus Healthcare Corporation Employment Agreement dated as of July 17, 1996, (the "Employment Agreement"), and WHEREAS, the parties desire to amend the Employment Agreement to clearly reflect that Executive will not be forced to relocate. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party, the parties intending to be legally bound hereby agree as follows: 1. Paragraph 4(iii)(D) is hereby deleted in its entirety, and the following is added in its place: "(D) The Constructive Relocation of Executive, defined as (I) reassignment of the executive, (II) relocation of the principal executive offices of the Company, or (iii) assignment of duties, such that any of the foregoing, either individually or in combination would require Executive to either (a) effectively relocate Executive's primary residence or (b) increase Executive's one-way commute by more than 25 miles from Executive's current primary residence." 2. All other terms and conditions not changed hereby shall remain in full force and effect. 32 IN WITNESS WHEREOF, the parties have executed this First Amendment to Paracelsus Healthcare Corporation Employment Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: /s/ DR. MANFRED G. KRUKEMEYER ------------------------------------- Name: Dr. Manfred George Krukemeyer Title: Chairman /s/ R. J. MESSENGER ------------------------------------- R. J. Messenger EX-10.45 18 EMPLOYMENT AGREEMENT - JAMES G. VANDEVENDER 1 EXHIBIT 10.45 PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and James G. VanDevender (the "Executive"). In consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein. In addition, the Executive and the Company hereby agree that subject to and effective as of the closing of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion") and PC Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a wholly owned subsidiary of the Company (the "Merger"), this Agreement shall supersede that certain employment agreement (the "Prior Agreement") between Champion and the Executive, dated as of August 4, 1995. 2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date hereof and ending immediately prior to the Effective Time (as defined in the Agreement and Plan of Merger by and among the Company, Champion and PC Merger Sub dated as of April 12, 1996, as amended and restated May 29, 1996, and as such agreement may be amended from time to time (the "Merger Agreement")), the employment of the Executive shall be governed by the terms and conditions set forth in the Prior Agreement. The term of this Agreement (the "Term"), and Executive's employment with the Company hereunder, shall commence at the Effective Time and, unless earlier terminated in accordance with the terms hereof, shall continue until the fifth anniversary of the Effective Time (such initial term of the Agreement referred to as the "Initial Term"); provided, however, that the Term shall automatically be renewed for an additional period of five years (each such period, a "Renewal Period") at the end of the Initial Term and at the end of each Renewal Period, if any, unless either the Company or the Executive provides at least one year's notice to the other of its intention not to renew the Term; and provided, further, that if the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close, (x) this Agreement shall automatically terminate without further obligation by either party hereto, (y) the terms and conditions set forth in this Agreement shall not apply and (z) the employment of the Executive shall continue to be governed by the terms and conditions set forth in the Prior Agreement. 2 During the Term, the Executive shall be employed as the Executive Vice- President and Chief Financial Officer of the Company serving at the will of the Board of Directors of the Company (the "Board") with, subject to the express terms and conditions hereof, the traditional duties, responsibilities and authority of such officer in companies similar in size to the Company. The Executive agrees that he shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and its subsidiaries and shall devote substantially all of his business time, energy and attention to the business of the Company and its subsidiaries. The Executive shall agree to serve and the Company shall use its best efforts to nominate and cause the Executive to be elected as a member of the Board. In addition, for so long as the Executive shall serve as a member of the Board, he shall agree to serve as and the Company shall use its best efforts to nominate and cause the Executive to be elected as a member of the Executive Committee of the Board ("Executive Committee"). The Executive agrees to use his authorities as Executive Vice-President and Chief Financial Officer and as a member of the Board and of the Executive Committee to manage and cause others to manage the Company in accordance with the management guidelines set forth on Exhibit A hereto; provided, however, that nothing in this Section shall require the Executive to violate or breach his duties under the law of the state of incorporation of the Company or any other applicable laws. The Company agrees to use its best efforts to manage and cause others to manage the Company in accordance with the management guidelines set forth in Exhibit A hereto. 3. COMPENSATION AND RELATED MATTERS (a) BASE SALARY. During the Term, the Company shall pay to the Executive an annual base salary (the "Base Salary") at an initial rate of $350,000 per year, payable in accordance with the Company's normal payroll practices or as the Company and Executive may otherwise agree. The Base Salary shall be reviewed by the Company annually and shall be subject to discretionary increase by the Company from time to time, but shall not be decreased from the rate in effect at any time and from time to time during the Term. (b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan or any similar or successor annual bonus plan of the Company (the "Performance Bonus Plan") and to receive an annual performance bonus upon the achievement of one or more annual performance goals (the "Performance Goals") in accordance with the terms of the Performance Bonus Plan; provided that Executive's annual target bonus under the Performance Bonus Plan (the "Annual Target Bonus") shall 3 not be less than 70% of the Base Salary in effect at the time the Performance Goals for such plan year are established. (c) LONG-TERM INCENTIVE. The Executive shall be eligible to participate in any long-term incentive compensation and/or stock option plans maintained from time to time by the Company. In addition, pursuant to prior action of the Stock Option Committee of the Board, Executive has previously been granted (i) an option (the "Value Option") to purchase 180,000 shares of Company common stock, no stated par value (the "Common Stock"), at an exercise price of $.01 per share with a term of 10 years from the date of grant and (ii) an option (the "Market Option") to purchase an additional 540,000 shares of Common Stock at an exercise price equal to the fair market value (as defined in the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan (the "1996 Stock Incentive Plan")) of the Common Stock on the date of the Effective Time with a term of 10 years from the date of grant. The Value Option will be fully vested on grant and will become fully exercisable at the Effective Time, and the Market Option will generally vest and become exercisable in equal annual installments of 25% on each of the first four anniversaries of the Effective Time; provided, that neither the Value Option nor the Market Option will become exercisable in whole or in part in the event the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close; and provided, further, that the Value Option and the Market Option shall each be subject to the terms of the 1996 Stock Incentive Plan and the stock option agreements to be entered into in connection with the grant of such options. (d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive shall be eligible to participate in employee benefit and fringe benefit plans and programs generally available to the executive officers of the Company and such additional benefits as the Board may from time to time provide. In addition, Executive shall be entitled to receive the personal benefits described in Exhibit A hereto. Reimbursement for business expenses, including travel and entertainment, shall be limited to reasonable and necessary expenses incurred by Executive in connection with performance of duties on behalf of the Company 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 Audit Committee of the Board, including periodic audits by the Internal Audit Department of the Company and/or the Audit Committee. (e) RETIREMENT BENEFITS. Effective as of the Effective Time of the Merger, the Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan or any similar or successor plan (the "SERP") and in any tax- 4 qualified and any other supplemental pension plans generally available to the executive officers of the Company; provided, that employment with Champion and its subsidiaries shall be taken into account for purposes of eligibility, vesting and benefit accrual under the SERP, but not for purposes of determining whether a "Post-Participation Change in Control", as defined in the SERP, has occurred. (f) SIGN-ON BONUS. In connection with the commencement of Executive's employment with the Company, as soon as practicable after the Effective Time, the Company shall provide Executive a lump sum cash payment in the amount of $750,000. 4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and subject to the payment of any amounts required under Section 5, the Executive's employment with the Company may be terminated (a) by the Company with or without Cause (as defined below), provided that no less than 80% of the then members of the Board (excluding, for the purposes of such calculation, the Executive) and no less than 2/3 of the Independent Directors (as defined in the Shareholder Agreement of the Company to be entered into in connection with the Merger (the "Shareholder Agreement")) have approved such termination, (b) by the Executive for or without Good Reason (as defined herein), (c) by reason of the Executive's death or Disability (as defined herein) or (d) by the mutual written consent of the parties hereto. For purposes of this Agreement: (i) "Cause" means (A) acts of embezzlement, theft and fraud established by a preponderance of the evidence; (B) actions which have had or will likely have a material adverse financial effect on the Company as a whole for an extended period of time, where appropriate evidence exists that such actions are directly attributable to the (I) gross management negligence or repeated ineptitude of the Executive and/or (II) deliberate refusal of the Executive to follow the instructions or directions of the Board; (C) conviction of or a plea of guilty or nolo contendere to a felony; (D) violation of the noncompete or confidentiality provisions of this Agreement, provided that no such violation will be deemed to have occurred if, within 30 days following receipt by Executive of a notice from the Board identifying the violation, the Executive (I) cures the violation and (II) establishes that the violation was unintentional and not reasonably likely to result in harm to the Company, in each case to the reasonable satisfaction of the Board; (E) material incapacitation or repeated absence from work due to reckless and self abusive behavior or conduct, such as alcoholism and drug abuse, which renders Executive incapable of performing his duties; provided, that physical or mental disability due to injury or disease shall not be grounds for termination for Cause; or (F) material repeated incompetence in performing the duties of the Executive's office, provided that such incompetence is: (I) supported by written documentation of such incompetence, (II) occurs after the Executive has 5 been previously counseled by the Board both orally and in writing with respect to specific examples of such incompetence and has been provided the opportunity to respond in kind, and (III) determined to be incurable and to be of such a nature as to have had or which would have been reasonably likely at the time of such commission to have a material, adverse effect on the Company as a whole; For purposes of this Agreement, the Board shall have 60 days to terminate the Executive for Cause following the date on which the Board discovers the existence of a specific set of facts that, in the aggregate, then constitute Cause, after which period no Cause with respect to such specific set of facts shall be deemed to exist; provided, that the repetition or reoccurrence of the same or a similar set of facts shall constitute a separate ground for termination for Cause; (ii) "Disability" means the Executive's absence from the full-time performance of his duties with the Company for one hundred eighty (180) days or more within any period of 12 consecutive months as a result of the Executive's incapacity due to mental or physical illness; provided, that during any period prior to the termination of Executive's employment by reason of Disability in which Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay Executive his Base Salary at the rate in effect at the commencement of such period of Disability; (iii) "Good Reason" means, without the Executive's express written consent, the occurrence of any of the following events: (A) a reduction by the Company in the Executive's Base Salary, or Annual Target Bonus in effect from time to time; (B) a material reduction in the aggregate level of participation in and/or compensation and benefit opportunities under all other compensation and employee benefit plans in which Executive is entitled to participate from time to time; provided, however, that changes affecting the participation in or benefits under such plans (other than the Performance Bonus Plan, the SERP and the benefits described in Exhibit B) with respect to similarly situated executives of the Company shall not constitute Good Reason hereunder; (C) a reduction in the Executive's titles, duties or authority with the Company or a material adverse change in reporting relationship; (D) the relocation of the principal executive offices of the Company to a location that increases the Executive's one-way commute thereto by more than 25 miles; (E) the Executive no longer reports to (I) Mr. Miller or (II) in the event Mr. Miller's employment with the Company terminates as a result of Mr. Miller's death, "Disability" (as defined in Mr. Miller's employment agreement) or termination for "Cause" (as defined in Mr. Miller's employment agreement), Mr. Miller's successor; (F) the notification by 6 the Company of its intention not to renew this Agreement pursuant to Section 2; (G) the failure of the Executive to be nominated for election and elected to serve as a member of the Board or, for so long as he is a member of the Board, to be appointed to the Executive Committee; or (H) the termination of the Executive's employment by the Executive for any reason within 12 months following a Change of Control (as defined herein); (iv) "Change of Control" means the occurrence of any one of the following events: (A) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person (as such term is defined in the Company's Shareholder Protection Rights Agreement to be adopted at the Effective Time) or any person that is not bound by the Shareholder Agreement becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the undiluted total voting power of the Company's then outstanding securities eligible to vote for the election of members of the Board (the "Company Voting Securities"); provided, however, that no event described in the immediately preceding clause shall be deemed to constitute a Change in Control by virtue of any of the following: (I) an acquisition of Company Voting Securities by the Company and/or one or more direct or indirect majority-owned subsidiaries of the Company; (II) an acquisition of Company Voting Securities by any employee benefit plan sponsored or maintained by the Company or any corporation controlled by the Company; (III) an acquisition by any underwriter temporarily holding securities pursuant to an offering of such securities; or (IV) any acquisition by the Executive or any "group" (as such term is defined in Rule 3d-5 under the Exchange Act) of persons including the Executive; or (B) individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director subsequent to the beginning of such twenty-four (24) month period, whose election, or nomination for election, by the Company's shareholders was approved by either (i) the Board consistent with the terms of the Shareholder Agreement during the period in which the Shareholder Agreement remains in effect or (ii) a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination), shall be, for purposes of this paragraph (B), considered as though such person were a member of the Incumbent Board; provided, further, that no individual initially elected or nominated as a director 7 of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, represent immediately after such merger or consolidation at least 60% of the combined voting power of the then outstanding voting securities of either the Company or the other entity which survives such merger or consolidation or any parent of such other entity; or (D) the stockholders of the Company approve (i) a plan of complete liquidation or dissolution of the Company or (ii) an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 5. PAYMENTS UPON TERMINATION OF EXECUTIVE. (a) If the employment of the Executive shall be terminated other than by reason of death or Disability (i) by the Company (other than for Cause) or (ii) by the Executive for Good Reason, then the Company shall pay or provide to the Executive (or the Executive's beneficiary or estate): (1) within thirty (30) days following the date of such termination of employment ("Termination Date"), a lump-sum cash amount equal to the sum of (i) the Executive's unpaid Base Salary through the Termination Date; (ii) any accrued but unpaid annual bonus under the Performance Bonus Plan in respect of the annual bonus period preceding the bonus period in which the Termination Date occurs; (iii) any unpaid reimbursable business expenses properly incurred through the Termination Date; and (iv) a bonus payment equal to the Executive's Annual Target Bonus in the year of termination, multiplied by a fraction the numerator of which is the number of months in the bonus year of termination in which the Executive has worked at least one day and the denominator of which is 12; (2) within thirty (30) days following the Termination Date, a lump-sum cash amount equal to the greater of (A) the Executive's then Base Salary payable over the remainder of the Term plus a bonus equal to the Executive's Annual Target Bonus in the year of termination multiplied by a fraction the numerator of which is the number of complete months remaining in the Term and the denominator of which is 8 12, or (B) 3.0 times the sum of: (i) the Executive's annual rate of Base Salary as of the Termination Date plus (ii) the Annual Target Bonus for the year in which the Termination Date occurs (in each such case, Executive's Base Salary and Target Bonus being determined without taking into account any reductions thereto constituting Good Reason); provided, however, that the Executive shall not be entitled to any severance benefits from the Company or under any Company severance plan, policy or arrangement other than as specified in this Agreement; (3) for a period terminating on the earlier of (A) the commencement of the provision of substantially equivalent benefits by a new employer, or (B) the later of (I) the last day of the Term, or (II) thirty-six (36) months following the Termination Date, the Company shall continue to keep in full force and effect (or otherwise provide) all policies of medical, accident, disability and life insurance with respect to the Executive and his dependents with substantially the same level of coverage, upon substantially the same terms and otherwise substantially to the same extent as such policies shall have been in effect immediately prior to the Termination Date, and, as applicable, the Company and the Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the date of termination; and (4) for purposes of determining "final average compensation" (or making any similar calculation) and years of service (for purposes of eligibility, vesting and benefit accrual) under any tax-qualified or supplemental defined benefit retirement plan (including without limitation the SERP), Executive shall be deemed to have remained employed by the Company hereunder through the end of the Term and to have received his then current Base Salary and Annual Target Bonus through the end of the Term; provided, that to the extent such benefits cannot be accrued under and paid from any tax-qualified pension plan, such benefits shall be accrued under and paid from the SERP or other supplemental plan; (5) all options to purchase Common Stock held by the Executive shall immediately become fully vested and exercisable and shall remain exercisable until the earlier of (A) the date that is 24 months following the Termination Date and (B) the expiration of the stated term of such options; provided, that the Value Option shall remain exercisable until the expiration of its stated term; (b) If the employment of the Executive shall be terminated (i) by reason of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by the Executive without Good Reason, or (iv) by the mutual written consent of the parties hereto (each a "Nonqualifying Termination"), then the Company shall pay to the Executive (or the Executive's beneficiary or estate) within thirty (30) days following the Termination Date a lump sum cash amount equal to the 9 sum of the Executive's unpaid Base Salary through the Termination Date plus any bonus payments which have been earned or become payable, to the extent not theretofore paid, plus any unpaid reimbursable business expenses properly incurred through the Termination Date. In addition, Executive (or the Executive's beneficiary or estate) shall have no less than ninety (90) days following the termination of his employment pursuant to a Nonqualifying Termination to exercise any outstanding options to the extent vested and exercisable as of the Termination Date; provided, that the Value Option shall remain exercisable until the expiration of its stated term. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Notwithstanding anything in this Agreement to the contrary, in the event that any payment or distribution by the Company, by any affiliate of the Company or by any person whose actions result in a Change in Control of the Company (to the extent the Company approves of the arrangements pursuant to which the payment by such person is made to the Executive) to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes and Excise Tax, imposed upon the Gross-Up Payment but before deduction for any federal, state or local income or other tax upon the Payments, the Executive will retain a net amount equal to the sum of (i) the Payments and (ii) an amount equal to the product of any deductions (or portion thereof) disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income for federal income tax purposes and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to (1) pay applicable federal income taxes at the highest applicable marginal rates of federal income taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, (2) pay applicable state and local income taxes at the highest applicable marginal rate of taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (3) have otherwise allowable deductions for federal income tax 10 purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income. (b) Subject to the provisions of Section 6(a), all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive may appoint another nationally recognized public accounting firm reasonably acceptable to the Company to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company and, subject to applicable law and obligations to the Company's stockholders, the Company shall enter into any agreement reasonably requested by the Accounting Firm that is generally recognized as standard in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 6 with respect to any Payment shall be made no later than thirty (30) days following the date of such Payment. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Executive's applicable federal income tax return should not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Executive thereafter is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of the Executive. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by 11 the Executive to or for the benefit of the Company. The Executive shall cooperate, to the extent his reasonable expenses in connection therewith are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 7. WITHHOLDING TAXES. The Company shall have the right to withhold from any and all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 8. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement is personal in nature and none of the parties hereto shall, without the consent of the other, assign, or transfer this Agreement or any rights or obligations hereunder; provided, that in the event of the merger, consolidation, transfer or sale of substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties and obligations of the Company hereunder, and all references herein to the "Company" shall refer to such successor. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts remain payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive's estate. 9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION. (a) Except as provided in Sections 10 and 11, all disputes hereunder shall be settled by final, binding arbitration, conducted before a panel of three (3) arbitrators in Texas, in accordance with the rules of the American Arbitration Association then in effect. Judgment on the arbitration award may be entered in any court having jurisdiction. The Company shall bear the expenses of such arbitration. (b) If any contest or dispute shall arise under this Agreement involving termination of the Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall advance and 12 reimburse the Executive, on a current basis, all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute; provided, that the Executive agrees to return any advanced or reimbursed expenses to the extent the arbitrators (or the Court, in the case of a dispute described in Section 10 or 11) determine that the Company has prevailed as to the material issues raised in determination of the dispute. (c) The Company's obligation to make any payments provided for in this Agreement to the Executive and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 10. NONCOMPETITION. (a) DISCLOSURE. The Executive has disclosed to the Board, in writing, all healthcare related interests, investments, or business activities, whether as proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, or in any other capacity or manner whatsoever. The Executive shall promptly notify the Board, in writing, of any changes in or additions to such interests, activities or investments permitted in accordance with the terms of this Agreement, within 15 days of such change or addition. (b) PROHIBITED ACTIVITY. Without the written consent of a majority of the Independent Directors, the Executive may not engage in any of the following actions during the period that is (A) prior to the Executive's termination of employment with the Company, (B) within two years following the termination of his employment with the Company during the Initial Term if such termination is by the Company for Cause or by the Executive (other than for Good Reason) and (c) within one year following his termination of employment during the Term but after the Initial Term if such termination is by the Company for Cause or by the Executive (other than for Good Reason): (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, within a radius of 30 miles from any site, facility, or location which is owned, managed or operated by or affiliated with the Company or any of its subsidiaries and affiliates, including physician practices of any kind. For purposes of this Agreement, "Primary Business" shall mean the delivery of integrated healthcare services in markets where the Company or its subsidiaries own hospitals and/or skilled nursing facilities ("SNFs"), 13 with the hospital serving as the hub of the local delivery system in conjunction with its physician medical staff. In addition to inpatient acute care, psychiatric care, and skilled nursing care, these services can include (A) individual physician practices and/or physician based organizations such as primary care and specialty clinics, physician-hospital organizations ("PHOs") or medical service organizations ("MSOs"), or physician medical groups and (B) ambulatory programs such as home health care, ambulatory surgery, psychiatric services, occupational and sports medicine centers, psychiatric after-care and day care programs, and other diagnostic, rehabilitative and treatment services. Some of these services, sites and facilities may be located in satellite areas for the purpose of extending the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital. 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 the Term or to exclude any business or service in which the Company ceases to engage. The definition of "Primary Business" may also be modified to include any business or service into which, as of the Termination Date, the Company definitively intends to expand regardless of whether such expansion actually occurs after the Executive's termination. For purposes of the preceding sentence, the date on which a modification of the definition of "Primary Business" shall be effective shall be the date on which the Executive is provided written notice of such modification (the "Notice Date"); provided, however, that no such modification as to which notice is provided on or after the Termination Date shall be effective against the Executive; and provided, further, that no such modification shall be effective with respect to any interests, investments or business activities engaged in by Executive prior to the Notice Date of such modification and properly disclosed prior to such Notice Date pursuant to Section 10(a). (ii) participate or serve, either directly or indirectly, whether as a proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, 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 him or by any competitor of the Company on whose behalf he is acting as an agent, representative or employee, or convey any confidential information or trade secrets regarding other employees of the Company, its subsidiaries or affiliates to any other person; or (iv) directly or indirectly, influence or attempt to 14 influence customers of the Company or any of its subsidiaries or affiliates to direct their business to any competitor of the Company; PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d under the Exchange Act, as a passive investment, of not more than five percent (5%) of the voting stock of any publicly held corporation, nor (ii) the beneficial ownership by Executive of any interest described in the first sentence of Section 10(a) and properly and timely disclosed in accordance with the terms therewith, shall alone constitute a violation of this Agreement. In the event that the Executive engages in the conduct proscribed by this Section 10, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive 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 Executive further consents and stipulates to the entry of such preliminary or permanent injunctive relief in such a court prohibiting Executive 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 Executive has violated this Section 10. (c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the parties that the provisions of this Section 10 shall be enforceable to the fullest extent permissible under applicable law and public policy. Accordingly, if this Section 10 or any portion thereof shall be adjudicated to be invalid or unenforceable whether because of the duration and scope of the covenants set forth herein or otherwise, the length and scope of the restrictions set forth in this Section 10 shall be reduced to the extent necessary so that this covenant may be enforced to the fullest extent possible under applicable law. 11. CONFIDENTIAL INFORMATION. Executive acknowledges that in his employment hereunder, and during prior periods of employment with the Company and/or its subsidiaries, he has occupied and will continue to occupy a position of trust and confidence. Executive shall not, except as may be required to perform his duties hereunder or as required by applicable law, until the expiration of the applicable period described in Section 10(b) or until such information shall have become public other than by Executive's unauthorized disclosure, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company, its subsidiaries and affiliates. 15 "Confidential Information" shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not publicly disclosed by the Company or otherwise generally available to a member of the public seeking to obtain such information and that was learned by Executive in the course of his employment by the Company, its subsidiaries and affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, its subsidiaries and affiliates, and that such information gives the Company, its subsidiaries and affiliates a competitive advantage. The Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company, its subsidiaries or affiliates or prepared by the Executive during the term of his employment by the Company, its subsidiaries and affiliates. In the event that the Executive engages in any conduct proscribed by this Section 11, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to disclose or threaten to disclose Confidential Information regarding the Company or any subsidiary or affiliate in violation of this Agreement or otherwise fail to comply with the provisions of this Section 11, and that the Company would, by reason of such disclosure or threatened disclosure or other failure to comply, be entitled to preliminary or permanent injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or permanent injunctive relief in such a court prohibiting Executive from disclosing Confidential Information in violation of this Agreement or otherwise requiring Executive to comply with the provisions of this Section 11 upon an appropriate finding by such court that Executive has violated this Section 11. 12. NOTICE. For the purposes of this Agreement, any notices, demands and all other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when mailed by certified or 16 registered mail, addressed as follows (or at such other address as the parties hereto shall specify to like notice): If to Executive: James G. VanDevender c/o Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Telecopy No. (713) 873-6686 With a copy to: Wayne Whitaker Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. 3500 City Center Tower II 301 Commerce Street Fort Worth, Texas 76102-4135 Telecopy No.: (817) 335-6935 If to Company: Paracelsus Healthcare Corporation 515 West Greens Road Suite 800 Houston, Texas 77067 Telecopy No. (713) 878-6686 Attention: Robert C. Joyner, Senior Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 990071 Telecopy No. (213) 687-5600 Attention: Thomas C. Janson 3. AMENDMENT, WAIVER. No provisions of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in a written document signed by the Executive and such officer of the Company, as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 14. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, 17 representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. 15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas without regard to the principle of conflicts of laws and, at the election of the Executive, the venue of any dispute arising under this Agreement shall be Texas. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 16. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 17. SEVERABILITY. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------------- Name: R.J. Messenger Title: Chief Executive Officer \s\ JAMES G. VANDEVENDER ------------------------------------- James G. VanDevender 19 EXHIBIT B During the Term of the Agreement, the Company shall provide Executive with the following life insurance and disability coverages: (1) The Company shall maintain for Executive's benefit life insurance coverage with a face amount equal to three (3) times the amount of Executive's Base Salary as in effect from time to time; PROVIDED, HOWEVER, that if the Company shall be unable to obtain the full amount of such life insurance coverage at a reasonable cost, the Company may alternatively provide Executive with a lump-sum death benefit, payable within ninety (90) days following the date of Executive's death, in such amount as will, when added to any life insurance coverage actually obtained by the Company, provide Executive's beneficiary(ies) with a net amount, after payment of any Federal and state income taxes, equal to the net, after-tax amount such beneficiary(ies) would have received had the Company obtained the full amount of life insurance coverage provided for above. Executive shall have the right to name and to change from time to time the beneficiary(ies) under such life insurance coverage (and death benefits, if any). Such life insurance coverage (and death benefit, if any) shall be in addition to any death benefits which may be payable under any accidental death and dismemberment plan, any separate business travel accident coverage, or any pension plan in which the Executive may participate, and such coverage shall also be in addition to any life insurance which Executive himself purchases. (2) LONG-TERM DISABILITY - In the event the Executive becomes disabled (as defined in the long-term disability plan presently maintained by the Company), the Executive is to receive disability benefits in an amount equal to 60% of his then salary. Any amount payable under any salary continuation plan (including any salary continuation provided under this agreement) or disability plan maintained by the Company, and any amount payable as a Social Security disability benefit or similar benefit to the Executive or his immediate family shall be counted towards the Company's fulfillment of such obligation. Disability benefits will be payable monthly commencing thirty (30) days following disability and will continue until the Executive is no longer disabled or, if earlier, until he reaches age 65. During the Term of the Agreement, the Company shall also provide the Executive with the following additional fringe benefits: (1) VACATIONS AND HOLIDAYS - Executive shall be entitled to such paid vacation time as may be reasonably taken at Executive's discretion so long as such vacation time does not interfere with the efficient discharge of the Executive's duties and responsibilities. Executive shall be entitled to all holidays as delineated annually in the Company's official holiday schedule. 20 (2) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE - will provide the Executive with the assistance of the Company's regular auditors for the preparation of Executive's United States Federal and State tax returns without charge to Executive. In addition, the Company shall reimburse Executive for the costs incurred by Executive for financial planning services in an amount not to exceed $5,000 annually. (3) ANNUAL PHYSICAL EXAMINATION - The Company shall reimburse Executive 100% of all costs incurred by Executive in obtaining an annual comprehensive physical examination to be conducted by a physician; clinic, or medical group of the Executive's choice and which is located within reasonable proximity to Executive's place of Employment. 21 FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company") and James G. VanDevender (the "Executive") RECITALS: WHEREAS, the Company and the Executive entered into that certain Paracelsus Healthcare Corporation Employment Agreement dated as of July 17, 1996, (the "Employment Agreement"), and WHEREAS, the parties desire to amend the Employment Agreement to clearly reflect that Executive will not be forced to relocate. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party, the parties intending to be legally bound hereby agree as follows: 1. Paragraph 4(iii)(D) is hereby deleted in its entirety, and the following is added in its place: "(D) The Constructive Relocation of Executive, defined as (I) reassignment of the executive, (II) relocation of the principal executive offices of the Company, or (iii) assignment of duties, such that any of the foregoing, either individually or in combination would require Executive to either (a) effectively relocate Executive's primary residence or (b) increase Executive's one-way commute by more than 25 miles from Executive's current primary residence." 2. All other terms and conditions not changed hereby shall remain in full force and effect. 22 IN WITNESS WHEREOF, the parties have executed this First Amendment to Paracelsus Healthcare Corporation Employment Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------------- Name: R.J. Messenger Title: Chief Executive Officer \s\ JAMES G. VANDEVENDER ------------------------------------- James G. VanDevender EX-10.46 19 EMPLOYMENT AGREEMENT - RONALD R. PATTERSON 1 EXHIBIT 10.46 PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Ronald R. Patterson (the "Executive"). In consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein. In addition, the Executive and the Company hereby agree that subject to and effective as of the closing of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion") and PC Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a wholly owned subsidiary of the Company (the "Merger"), this Agreement shall supersede that certain employment agreement (the "Prior Agreement") between Champion and the Executive, dated as of August 4, 1995. 2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date hereof and ending immediately prior to the Effective Time (as defined in the Agreement and Plan of Merger by and among the Company, Champion and PC Merger Sub dated as of April 12, 1996, as amended and restated May 29, 1996, and as such agreement may be amended from time to time (the "Merger Agreement")), the employment of the Executive shall be governed by the terms and conditions set forth in the Prior Agreement. The term of this Agreement (the "Term"), and Executive's employment with the Company hereunder, shall commence at the Effective Time and, unless earlier terminated in accordance with the terms hereof, shall continue until the third anniversary of the Effective Time (such initial term of the Agreement referred to as the "Initial Term"); provided, however, that the Term shall automatically be renewed for one additional period of three years at the end of the Initial Term, unless either the Company or the Executive provides at least one year's notice to the other of its intention not to renew the Term; and provided, further, that if the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close, (x) this Agreement shall automatically terminate without further obligation by either party hereto, (y) the terms and conditions set forth in this Agreement shall not apply and (z) the employment of the Executive shall continue to be governed by the terms and conditions set forth in the Prior Agreement. 2 During the Term, the Executive shall be employed as the Executive Vice President and President, Healthcare Operations of the Company serving at the will of the Board of Directors of the Company (the "Board") with the traditional duties, responsibilities and authority of such office in companies similar in size to the Company. The Executive agrees that he shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and its subsidiaries and shall devote substantially all of his business time, energy and attention to the business of the Company and its subsidiaries. 3. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY - During the Term, the Company shall pay to the Executive an annual base salary (the "Base Salary") at an initial rate of $350,000 per year, payable in accordance with the Company's normal payroll practices or as the Company and Executive may otherwise agree. The Base Salary shall be reviewed by the Company annually and shall be subject to discretionary increase by the Company from time to time, but shall not be decreased from the rate in effect at any time and from time to time during the Term. (b) ANNUAL PERFORMANCE BONUS - Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan or any similar or successor annual bonus plan of the Company (the "Performance Bonus Plan") and to receive an annual performance bonus upon the achievement of one or more annual performance goals (the "Performance Goals") in accordance with the terms of the Performance Bonus Plan; provided, that Executive's annual target bonus under the Performance Bonus Plan (the "Annual Target Bonus") shall not be less than 70% of the Base Salary in effect at the time the Performance Goals for such plan year are established. (c) LONG-TERM INCENTIVE - The Executive shall be eligible to participate in any long-term incentive compensation and/or stock option plans maintained from time to time by the Company. In addition, pursuant to prior action of the Stock Option Committee of the Board, Executive has previously been granted (i) an option (the "Value Option") to purchase 180,000 shares of Company common stock, no stated par value (the "Common Stock"), at an exercise price of $.01 per share with a term of 10 years from the date of grant and (ii) an option (the "Market Option") to purchase an additional 240,000 shares of Common Stock at an exercise price equal to the fair market value (as defined in the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan (the "1996 Stock Incentive Plan")) of the Common Stock on the date of the Effective Time with a term of 10 years from the date of grant. The Value Option will be fully vested on grant and 3 will become fully exercisable at the Effective Time, and the Market Option will generally vest and become exercisable in equal annual installments of 25% on each of the first four anniversaries of the Effective Time; provided, that neither the Value Option nor the Market Option will become exercisable in whole or in part in the event the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close; and provided, further, that the Value Option and the Market Option shall each be subject to the terms of the 1996 Stock Incentive Plan and the stock option agreements to be entered into in connection with the grant of such options. (d) BENEFITS, PERQUISITES AND EXPENSES. - During the Term, the Executive shall be eligible to participate in employee benefit and fringe benefit plans and programs generally available to the executive officers of the Company and such additional benefits as the Board may from time to time provide. In addition, Executive shall be entitled to receive the personal benefits described in Exhibit A hereto. Reimbursement for business expenses, including travel and entertainment, shall be limited to reasonable and necessary expenses incurred by Executive in connection with performance of duties on behalf of the Company 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 Audit Committee of the Board, including periodic audits by the Internal Audit Department of the Company and/or the Audit Committee. (e) RETIREMENT BENEFITS. - Effective as of the Effective Time of the Merger, the Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan or any similar or successor plan (the "SERP") and in any tax-qualified and any other supplemental pension plans generally available to the executive officers of the Company; provided, that employment with Champion and its subsidiaries shall be taken into account for purposes of eligibility, vesting and benefit accrual under the SERP, but not for purposes of determining whether a "Post-Participation Change in Control," as defined in the SERP, has occurred. (f) SIGN-ON BONUS. - In connection with the commencement of Executive's employment with the Company, as soon as practicable after the Effective Time, the Company shall provide Executive a lump sum cash payment in the amount of $500,000. 4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and subject to the payment of any amounts required under Section 5, the Executive's employment with the Company may be terminated (a) 4 by the Board with or without Cause (as defined herein), (b) by the Executive for or without Good Reason (as defined herein), (c) by reason of the Executive's death or Disability (as defined herein) or (d) by the mutual written consent of the parties hereto. For purposes of this Agreement: (i) "Cause" means (A) acts of embezzlement, theft and fraud established by a preponderance of the evidence; (B) actions which have had or will likely have a material adverse financial effect on the Company as a whole for an extended period of time, where appropriate evidence exists that such actions are directly attributable to the (I) gross management negligence or repeated ineptitude of the Executive and/or (II) deliberate refusal of the Executive to follow the instructions or directions of the Board; (C) conviction of or a plea of guilty or nolo contendere to a felony; (D) violation of the noncompete or confidentiality provisions of this Agreement, provided that no such violation will be deemed to have occurred if, within 30 days following receipt by Executive of a notice from the Board identifying the violation, the Executive (I) cures the violation and (II) establishes that the violation was unintentional and not reasonably likely to result in harm to the Company, in each case to the reasonable satisfaction of the Board; (E) material incapacitation or repeated absence from work due to reckless and self abusive behavior or conduct, such as alcoholism and drug abuse, which renders Executive incapable of performing his duties; provided, that physical or mental disability due to injury or disease shall not be grounds for termination for Cause; or (F) material repeated incompetence in performing the duties of the Executive's office, provided that such incompetence is: (I) supported by written documentation of such incompetence, (II) occurs after the Executive has been previously counseled by the Board both orally and in writing with respect to specific examples of such incompetence and has been provided the opportunity to respond in kind, and (III) determined to be incurable and to be of such a nature as to have had or which would have been reasonably likely at the time of such commission to have a material, adverse effect on the Company as a whole. For purposes of this Agreement, the Board shall have 60 days to terminate the Executive for Cause following the date on which the Board discovers the existence of a specific set of facts that, in the aggregate, then constitute Cause, after which period no Cause with respect to such specific set of facts shall be deemed to exist; provided, that the repetition or reoccurrence of the same or a similar set of facts shall constitute a separate ground for termination for Cause; (ii) "Disability" means the Executive's absence from the full-time performance of his duties with the Company for one hundred eighty (180) days or more within any period of 12 consecutive months 5 as a result of the Executive's incapacity due to mental or physical illness; provided, that during any period prior to the termination of Executive's employment by reason of Disability in which Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay Executive his Base Salary at the rate in effect at the commencement of such period of Disability; (iii) "Good Reason" means, without the Executive's express written consent, the occurrence of any of the following events: (A) a reduction by the Company in the Executive's Base Salary, or Annual Target Bonus in effect from time to time; (B) a material reduction in the aggregate level of participation in and/or compensation and benefit opportunities under all other compensation and employee benefit plans in which Executive is entitled to participate from time to time; provided, however, that changes affecting the participation in or benefits under such plans (other than the Performance Bonus Plan, the SERP and the benefits described in Exhibit A) with respect to similarly situated executives of the Company shall not constitute Good Reason hereunder; (C) a reduction in the Executive's titles, duties or authority with the Company; (D) the relocation of the principal executive offices of the Company to a location that increases the Executive's one-way commute thereto by more than 25 miles; (E) the Executive no longer reports to (I) Mr. Miller or (II) in the event Mr. Miller's employment with the Company terminates as a result of Mr. Miller's death, "Disability" (as defined in Mr. Miller's employment agreement) or termination for "Cause" (as defined in Mr. Miller's employment agreement), Mr. Miller's successor; or (F) the notification by the Company of its intention not to renew this Agreement pursuant to Section 2; (iv) "Change of Control" means the occurrence of any one of the following events: (A) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person (as such term is defined in the Company's Shareholder Protection Rights Agreement to be adopted at the Effective Time) or any person that is not bound by the Shareholder Agreement becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the undiluted total voting power of the Company's then outstanding securities eligible to vote for the election of members of the Board (the "Company Voting Securities"); provided, however, that no event described in the immediately preceding clause shall be deemed to constitute a Change in Control by virtue of any of the following: (I) an acquisition of Company Voting 6 Securities by the Company and/or one or more direct or indirect majority-owned subsidiaries of the Company; (II) an acquisition of Company Voting Securities by any employee benefit plan sponsored or maintained by the Company or any corporation controlled by the Company; (III) an acquisition by any underwriter temporarily holding securities pursuant to an offering of such securities; or (IV) any acquisition by the Executive or any "group" (as such term is defined in Rule 3d-5 under the Exchange Act) of persons including the Executive; or (B) individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director subsequent to the beginning of such twenty-four (24) month period, whose election, or nomination for election, by the Company's shareholders was approved by either (i) the Board consistent with the terms of the Shareholder Agreement to be entered into in connection with the Merger during the period in which the Shareholder Agreement remains in effect or (ii) a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination), shall be, for purposes of this paragraph (B), considered as though such person were a member of the Incumbent Board; provided, further, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, represent immediately after such merger or consolidation at least 60% of the combined voting power of the then outstanding voting securities of either the Company or the other entity which survives such merger or consolidation or any parent of such other entity; or (D) the stockholders of the Company approve (i) a plan of complete liquidation or dissolution of the Company or (ii) an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 7 5. PAYMENTS UPON TERMINATION OF EXECUTIVE. (a) If the employment of the Executive shall be terminated other than by reason of death or Disability (i) by the Company (other than for Cause) or (ii) by the Executive for Good Reason, then the Company shall pay or provide to the Executive (or the Executive's beneficiary or estate): (1) within thirty (30) days following the date of such termination of employment ("Termination Date"), a lump-sum cash amount equal to the sum of (i) the Executive's unpaid Base Salary through the Termination Date; (ii) any accrued but unpaid annual bonus under the Performance Bonus Plan in respect of the annual bonus period preceding the bonus period in which the Termination Date occurs; (iii) any unpaid reimbursable business expenses properly incurred through the Termination Date; and (iv) a bonus payment equal to the Executive's Annual Target Bonus in the year of termination, multiplied by a fraction the numerator of which is the number of months in the bonus year of termination in which the Executive has worked at least one day and the denominator of which is 12; (2) within thirty (30) days following the Termination Date, a lump-sum cash amount equal to the greater of (A) the Executive's then Base Salary payable over the remainder of the Term plus a bonus equal to the Executive's Annual Target Bonus in the year of termination multiplied by a fraction the numerator of which is the number of complete months remaining in the Term and the denominator of which is 12, or (B) 2.5 times the sum of: (i) the Executive's annual rate of Base Salary as of the Termination Date plus (ii) the Annual Target Bonus for the year in which the Termination Date occurs (in each such case, Executive's Base Salary and Target Bonus being determined without taking into account any reductions thereto constituting Good Reason); provided, however, that the Executive shall not be entitled to any severance benefits from the Company or under any Company severance plan, policy or arrangement other than as specified in this Agreement; (3) for a period terminating on the earlier of (A) the commencement of the provision of substantially equivalent benefits by a new employer, or (B) the later of (I) the last day of the Term, or (II) thirty (30) months following the Termination Date, the Company shall continue to keep in full force and effect (or otherwise provide) all policies of medical, accident, disability and life insurance with respect to the Executive and his dependents with substantially the same level of coverage, upon substantially the same terms and otherwise substantially to the same extent as such policies shall have been in effect immediately prior to the Termination Date, and, as applicable, the Company and the Executive shall share the costs of the 8 continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the date of termination; and (4) for purposes of determining "final average compensation" (or making any similar calculation) and years of service (for purposes of eligibility, vesting and benefit accrual) under any tax-qualified or supplemental defined benefit retirement plan (including without limitation the SERP), Executive shall be deemed to have remained employed by the Company hereunder through the end of the Term and to have received his then current Base Salary and Annual Target Bonus through the end of the Term; provided that to the extent such benefits cannot be accrued under and paid from any tax-qualified pension plan, such benefits shall be accrued under and paid from the SERP or other supplemental plan; (5) all options to purchase Common Stock held by the Executive shall immediately become fully vested and exercisable and shall remain exercisable until the earlier of (A) the date that is 24 months following the Termination Date and (B) the expiration of the stated term of such options; provided, that the Value Option shall remain exercisable until the expiration of its stated term; (b) If the employment of the Executive shall be terminated (i) by reason of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by the Executive without Good Reason, or (iv) by the mutual written consent of the parties hereto (each a "Nonqualifying Termination"), then the Company shall pay to the Executive (or the Executive's beneficiary or estate) within thirty (30) days following the Termination Date a lump sum cash amount equal to the sum of the Executive's unpaid Base Salary through the Termination Date plus any bonus payments which have been earned or become payable, to the extent not theretofore paid, plus any unpaid reimbursable business expenses properly incurred through the Termination Date. In addition, the Executive (or the Executive's beneficiary or estate) shall have no less than ninety (90) days following the termination of his employment pursuant to a Nonqualifying Termination to exercise any outstanding options to the extent vested and exercisable as of the Termination Date; provided, that the Value Option shall remain exercisable until the expiration of its stated term. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY (a) Notwithstanding anything in this Agreement to the contrary, in the event that any payment or distribution by the Company, by any affiliate of the Company or by any person whose actions result in a Change in Control of the Company (to the extent the Company approves of the arrangements pursuant to which the payment by such person is made to the Executive) to or for the benefit of the 9 Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes and Excise Tax, imposed upon the Gross-Up Payment but before deduction for any federal, state or local income or other tax upon the Payments, the Executive will retain a net amount equal to the sum of (i) the Payments and (ii) an amount equal to the product of any deductions (or portion thereof) disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income for federal income tax purposes and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to (1) pay applicable federal income taxes at the highest applicable marginal rates of federal income taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, (2) pay applicable state and local income taxes at the highest applicable marginal rate of taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (3) have otherwise allowable deductions for federal income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income. (b) Subject to the provisions of Section 6(a), all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive may appoint another nationally recognized public accounting firm reasonably acceptable to the Company to make 10 the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company and, subject to applicable law and obligations to the Company's stockholders, the Company shall enter into any agreement reasonably requested by the Accounting Firm that is generally recognized as standard in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 6 with respect to any Payment shall be made no later than thirty (30) days following the date of such Payment. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Executive's applicable federal income tax return should not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Executive thereafter is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of the Executive. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by the Executive to or for the benefit of the Company. The Executive shall cooperate, to the extent his reasonable expenses in connection therewith are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 7. WITHHOLDING TAXES. The Company shall have the right to withhold from any and all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 8. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement is personal in nature and none of the parties hereto shall, without the consent of the other, assign, or 11 transfer this Agreement or any rights or obligations hereunder; provided, that in the event of the merger, consolidation, transfer or sale of substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties and obligations of the Company hereunder, and all references herein to the "Company" shall refer to such successor. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts remain payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive's estate. 9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION. (a) Except as provided in Sections 10 and 11, all disputes hereunder shall be settled by final, binding arbitration, conducted before a panel of three (3) arbitrators in Texas, in accordance with the rules of the American Arbitration Association then in effect. Judgment on the arbitration award may be entered in any court having jurisdiction. The Company shall bear the expenses of such arbitration. (b) If any contest or dispute shall arise under this Agreement involving termination of the Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall advance and reimburse the Executive, on a current basis, all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute; provided, that the Executive agrees to return any advanced or reimbursed expenses to the extent the arbitrators (or the Court, in the case of a dispute described in Section 10 or 11) determine that the Company has prevailed as to the material issues raised in determination of the dispute. (c) The Company's obligation to make any payments provided for in this Agreement to the Executive and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the 12 Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 10. NONCOMPETITION. (a) DISCLOSURE. - The Executive has disclosed to the Board, in writing, all healthcare related interests, investments, or business activities, whether as proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, or in any other capacity or manner whatsoever. The Executive shall notify the Board promptly, in writing, of any changes in or additions to such interests, activities or investments permitted in accordance with the terms of this Agreement, within 15 days of such change or addition. (b) PROHIBITED ACTIVITY. - Without the written consent of a majority of the Independent Directors, the Executive may not engage in any of the following actions during the period that is (A) prior to the Executive's termination of employment with the Company, (B) within two years following the termination of his employment with the Company during the Initial Term if such termination is by the Company for Cause or by the Executive (other than for Good Reason) and (c) within one year following his termination of employment during the Term but after the Initial Term if such termination is by the Company for Cause or by the Executive (other than for Good Reason): (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, within a radius of 30 miles from any site, facility, or location which is owned, managed or operated by or affiliated with the Company or any of its subsidiaries and affiliates, including physician practices of any kind. For purposes of this Agreement, "Primary Business" shall mean the delivery of integrated healthcare services in markets where the Company or its subsidiaries own hospitals and/or skilled nursing facilities ("SNFs"), with the hospital serving as the hub of the local delivery system in conjunction with its physician medical staff. In addition to inpatient acute care, psychiatric care, and skilled nursing care, these services can include (A) individual physician practices and/or physician based organizations such as primary care and specialty clinics, physician-hospital organizations ("PHOs") or medical service organizations ("MSOs"), or physician medical groups and (B) ambulatory programs such as home health care, ambulatory surgery, psychiatric services, occupational and sports medicine centers, psychiatric after-care and day care programs, and other diagnostic, rehabilitative and treatment services. Some of these services, sites and facilities may be located in satellite areas for the purpose of extending the hub hospital's geographic service area 13 and to serve as access points and/or referral sources for either the local delivery system or the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital. 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 the Term or to exclude any business or service in which the Company ceases to engage. The definition of "Primary Business" shall also include any business or service into which, as of the Termination Date, the Company definitively intends to expand regardless of whether such expansion actually occurs after the Executive's termination. For purposes of the preceding sentence, the date on which a modification of the definition of "Primary Business" shall be effective shall be the date on which the Executive is provided written notice of such modification (the "Notice Date"); provided, however, that no such modification as to which notice is provided on or after the Termination Date shall be effective against the Executive; and provided, further, that no such modification shall be effective with respect to any interests, investments or business activities engaged in by Executive prior to the Notice Date of such modification and properly disclosed prior to such Notice Date pursuant to Section 10(a). (ii) participate or serve, either directly or indirectly, whether as a proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, 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 him or by any competitor of the Company on whose behalf he is acting as an agent, representative or employee, or convey any confidential information or trade secrets regarding other employees of 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; PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d under the Exchange Act, as a passive investment, of not more than five percent (5%) of the voting stock of any publicly held corporation, nor (ii) the beneficial ownership by Executive of any interest described in the first sentence of Section 10(a) and properly and timely disclosed in accordance with 14 the terms therewith, shall alone constitute a violation of this Agreement. In the event that the Executive engages in the conduct proscribed by this Section 10, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive 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 Executive further consents and stipulates to the entry of such preliminary or permanent injunctive relief in such a court prohibiting Executive 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 Executive has violated this Section 10. (c) UNENFORCEABLE PROVISIONS. - It is the desire and the intent of the parties that the provisions of this Section 10 shall be enforceable to the fullest extent permissible under applicable law and public policy. Accordingly, if this Section 10 or any portion thereof shall be adjudicated to be invalid or unenforceable whether because of the duration and scope of the covenants set forth herein or otherwise, the length and scope of the restrictions set forth in this Section 10 shall be reduced to the extent necessary so that this covenant may be enforced to the fullest extent possible under applicable law. 11. CONFIDENTIAL INFORMATION. Executive acknowledges that in his employment hereunder, and during prior periods of employment with the Company and/or its subsidiaries, he has occupied and will continue to occupy a position of trust and confidence. Executive shall not, except as may be required to perform his duties hereunder or as required by applicable law, until expiration of the applicable period described in section 10(b) or until such information shall have become public other than by Executive's unauthorized disclosure, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company, its subsidiaries and affiliates. "Confidential Information" shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not publicly disclosed by the Company or otherwise generally available to a member of the public seeking to obtain such information and that was learned by Executive in the course of his employment by the Company, its subsidiaries and affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents 15 containing such Confidential Information. Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, its subsidiaries and affiliates, and that such information gives the Company, its subsidiaries and affiliates a competitive advantage. The Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company, it subsidiaries or affiliates or prepared by the Executive during the term of his employment by the Company, its subsidiaries and affiliates. In the event that the Executive engages in any conduct proscribed by this Section 11, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to disclose or threaten to disclose Confidential Information regarding the Company or any subsidiary or affiliate in violation of this Agreement or otherwise fail to comply with the provisions of this Section 11, and that the Company would, by reason of such disclosure or threatened disclosure or other failure to comply, be entitled to preliminary or permanent injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or permanent injunctive relief in such a court prohibiting Executive from disclosing Confidential Information in violation of this Agreement or otherwise requiring Executive to comply with the provisions of this Section 11 upon an appropriate finding by such court that Executive has violated this Section 11. 12. NOTICE. For the purposes of this Agreement, any notices, demands and all other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify to like notice): If to Executive: Ronald R. Patterson c/o Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Telecopy No. (713) 873-6686 16 With a copy to: Wayne Whitaker Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. 3500 City Center Tower II 301 Commerce Street Fort Worth, Texas 76102-4135 Telecopy No.: (817) 335-6935 If to Company: Paracelsus Healthcare Corporation 515 West Greens Road Suite 800 Houston, Texas 77067 Telecopy No. (713) 878-6686 Attention: Robert C. Joyner, Senior Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 990071 Telecopy No. (213) 687-5600 Attention: Thomas C. Janson 13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in a written document signed by the Executive and such officer of the Company, as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 14. ENTIRE AGREEMENT. This Agreement and Exhibit A set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. 15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas without regard to the principle of conflicts of laws and, at the election of the Executive, the venue of any dispute arising under this Agreement shall be Texas. The invalidity or unenforceability of any provision of this Agreement shall not affect 17 the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 16. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 17. SEVERABILITY. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------------- Name: R.J. Messenger Title: Chief Executive Officer \s\ RONALD R. PATTERSON ------------------------------------- Ronald R. Patterson 18 EXHIBIT A During the Term of the Agreement, the Company shall provide Executive with the following life insurance and disability coverages: (1) The Company shall maintain for Executive's benefit life insurance coverage with a face amount equal to three (3) times the amount of Executive's Base Salary as in effect from time to time; PROVIDED, HOWEVER, that if the Company shall be unable to obtain the full amount of such life insurance coverage at a reasonable cost, the Company may alternatively provide Executive with a lump-sum death benefit, payable within ninety (90) days following the date of Executive's death, in such amount as will, when added to any life insurance coverage actually obtained by the Company, provide Executive's beneficiary(ies) with a net amount, after payment of any Federal and state income taxes, equal to the net, after-tax amount such beneficiary(ies) would have received had the Company obtained the full amount of life insurance coverage provided for above. Executive shall have the right to name and to change from time to time the beneficiary(ies) under such life insurance coverage (and death benefits, if any). Such life insurance coverage (and death benefit, if any) shall be in addition to any death benefits which may be payable under any accidental death and dismemberment plan, any separate business travel accident coverage, or any pension plan in which the Executive may participate, and such coverage shall also be in addition to any life insurance which Executive himself purchases. (2) LONG-TERM DISABILITY - In the event the Executive becomes disabled (as defined in the long-term disability plan presently maintained by the Company), the Executive is to receive the disability benefits in an amount equal to 60% of his then salary. Any amount payable under any salary continuation plan (including any salary continuation provided under this agreement) or disability plan maintained by the Company, and any amount payable as a Social Security disability benefit or similar benefit to Executive or his immediate family shall be counted towards the Company's fulfillment of such obligation. Disability benefits will be payable monthly commencing thirty (30) days following disability and will continue until Executive is no longer disabled or, if earlier, until he reaches age 65. During the Term of the Agreement, the Company shall also provide Executive with the following additional fringe benefits: (1) VACATIONS AND HOLIDAYS - Executive shall be entitled to such paid vacation time as may be reasonably taken at Executive's discretion so long as such vacation time does not interfere with the efficient discharge of the Executive's duties and responsibilities. Executive shall be entitled to all holidays as delineated annually in the Company's official holiday schedule. 19 (2) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE- will provide the Executive with the assistance of the Company's regular auditors for the preparation of Executive's United States Federal and State tax returns without charge to Executive. In addition, the Company shall reimburse Executive for the costs incurred by Executive for financial planning services in an amount not to exceed $5,000 annually. (3) ANNUAL PHYSICAL EXAMINATION - The Company shall reimburse Executive 100% of all costs incurred by Executive in obtaining an annual comprehensive physical examination to be conducted by a physician; clinic, or medical group of the Executive's choice and which is located within reasonable proximity to Executive's place of Employment. 20 FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company") and Ronald R. Patterson (the "Executive") RECITALS: WHEREAS, the Company and the Executive entered into that certain Paracelsus Healthcare Corporation Employment Agreement dated as of July 17, 1996, (the "Employment Agreement"), and WHEREAS, the parties desire to amend the Employment Agreement to clearly reflect that Executive will not be forced to relocate. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party, the parties intending to be legally bound hereby agree as follows: 1. Paragraph 4(iii)(D) is hereby deleted in its entirety, and the following is added in its place: "(D) The Constructive Relocation of Executive, defined as (I) reassignment of the executive, (II) relocation of the principal executive offices of the Company, or (iii) assignment of duties, such that any of the foregoing, either individually or in combination would require Executive to either (a) effectively relocate Executive's primary residence or (b) increase Executive's one-way commute by more than 25 miles from Executive's current primary residence." 2. All other terms and conditions not changed hereby shall remain in full force and effect. 21 IN WITNESS WHEREOF, the parties have executed this First Amendment to Paracelsus Healthcare Corporation Employment Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------------- Name: R.J. Messenger Title: Chief Executive Officer \s\ RONALD R. PATTERSON ------------------------------------- Ronald R. Patterson EX-10.47 20 EMPLOYMENT AGREEMENT - ROBERT C. JOYNER 1 EXHIBIT 10.47 PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Robert C. Joyner (the "Executive"). In consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein. In addition, the Executive and the Company hereby agree that subject to and effective as of the closing of the proposed merger transaction among the Company, Champion Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a wholly owned subsidiary of the Company (the "Merger"), this Agreement shall supersede that certain letter agreement regarding employment (the "Prior Agreement") between the Company and the Executive, dated as of April 15, 1986, and the Prior Agreement shall thereupon automatically terminate without further obligation by either Executive or the Company. 2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date hereof and ending immediately prior to the Effective Time (as defined in the Agreement and Plan of Merger by and among the Company, Champion and PC Merger Sub dated as of April 12, 1996, as amended May 29, 1996, and as such agreement may be amended from time to time (the "Merger Agreement")), the employment of the Executive shall be governed by the terms and conditions set forth in the Prior Agreement. The term of this Agreement (the "Term"), and Executive's employment with the Company hereunder, shall commence at the Effective Time and, unless earlier terminated in accordance with the terms hereof, shall continue until the third anniversary of the Effective Time (such initial term of the Agreement referred to as the "Initial Term"); provided, however, that the Term shall automatically be renewed for one additional period of two years at the end of the Initial Term, unless either the Company or the Executive provides at least one year's notice to the other of its intention not to renew the Term; and provided, further, that if the Merger Agreement is terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close, (x) this Agreement shall automatically terminate without further obligation by either party hereto, (y) the terms and conditions set forth in this Agreement shall 2 not apply and (z) the employment of the Executive shall continue to be governed by the terms and conditions set forth in the Prior Agreement. During the Term, the Executive shall be employed as the Senior Vice President, Secretary and General Counsel of the Company, reporting to the President of the Company, serving at the will of the Board of Directors of the Company (the "Board") with the traditional duties, responsibilities and authority of such office in companies similar in size to the Company. The Executive agrees that he shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and its subsidiaries and shall devote substantially all of his business time, energy and attention to the business of the Company and its subsidiaries. 3. COMPENSATION AND RELATED MATTERS (a) BASE SALARY. During the Term, the Company shall pay to the Executive an annual base salary (the "Base Salary") at an initial rate of $240,000 per year, payable in accordance with the Company's normal payroll practices or as the Company and Executive may otherwise agree. The Base Salary shall be reviewed by the Company annually and shall be subject to discretionary increase by the Company from time to time, but shall not be decreased from the rate in effect at any time and from time to time during the Term. (b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan or any similar or successor annual bonus plan of the Company (the "Performance Bonus Plan") and to receive an annual performance bonus upon the achievement of one or more annual performance goals (the "Performance Goals") in accordance with the terms of the Performance Bonus Plan; provided, that Executive's annual target bonus under the Performance Bonus Plan (the "Annual Target Bonus") shall not be less than 60% of the Base Salary in effect at the time the Performance Goals for such plan year are established. (c) LONG-TERM INCENTIVE. The Executive shall be eligible to participate in any long-term incentive compensation and/or stock option plans maintained from time to time by the Company. In addition, pursuant to prior action of the Stock Option Committee of the Board, Executive has previously been granted an option (the "Value Option") to purchase 160,933 shares of Company common stock, no stated par value (the "Common Stock"), at an exercise price of $.01 per share with a term of 10 years from the date of grant. The Value Option will be fully vested on grant and will become fully exercisable at the Effective Time; provided, that the Value Option will not become exercisable in whole or in part in the event the Merger Agreement is 3 terminated in accordance with its terms prior to the Effective Time or if the Merger is abandoned or otherwise does not close; and provided, further, that the Value Option shall be subject to the terms of the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan and the stock option agreement to be entered into in connection with the grant of the Value Option. (d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive shall be eligible to participate in employee benefit and fringe benefit plans and programs generally available to the executive officers of the Company and such additional benefits as the Board may from time to time provide. In addition, Executive shall be entitled to receive the personal benefits described on Exhibit A hereto. Executive shall be entitled to reimbursement for business expenses, including travel and entertainment; provided, that such reimbursement shall be limited to reasonable and necessary expenses incurred by Executive in connection with the performance of duties on behalf of the Company 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 by the Audit Committee of the Board, including periodic audits by the Internal Audit Department of the Company and/or the Audit Committee of the Board; and provided, further, that subject to pre- approval of such expenses by the President of the Company, the Company shall reimburse Executive for reasonable expenses incurred by Executive's spouse when traveling with Executive on Company business. (e) RETIREMENT BENEFITS. The Executive shall be entitled to participate in the Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan or any similar or successor plan (the "SERP") and in any tax- qualified and any other supplemental pension plans generally available to the executive officers of the Company. The Company shall not take any action, whether by amendment of the SERP or otherwise, to adversely affect Executive's accrued benefits and other rights under the SERP as of the Effective Time. 4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and subject to the payment of any amounts required under Section 5, the Executive's employment with the Company may be terminated (a) by the Company for Cause (as defined herein) or without Cause, (b) by the Executive for or without Good Reason (as defined herein), (c) by reason of the Executive's death or Disability (as defined herein) or (d) by the mutual written consent of the parties hereto. For purposes of this Agreement: (i) "Cause" means (A) acts of embezzlement, theft and fraud established by a preponderance of the evidence; (B) actions 4 which have had or will likely have a material adverse financial effect on the Company as a whole for an extended period of time, where appropriate evidence exists that such actions are directly attributable to the (I) gross management negligence or repeated ineptitude of the Executive and/or (II) deliberate refusal of the Executive to follow the instructions or directions of the Board; (C) conviction of or a plea of guilty or nolo contendere to a felony; (D) violation of the noncompete or confidentiality provisions of this Agreement, provided, that no such violation will be deemed to have occurred if, within 30 days following receipt by Executive of a notice from the Board identifying the violation, the Executive (I) cures the violation and (II) establishes that the violation was unintentional and not reasonably likely to result in harm to the Company, in each case to the reasonable satisfaction of the Board; (E) material incapacitation or repeated absence from work due to reckless and self-abusive behavior or conduct, such as alcoholism and drug abuse, which renders Executive incapable of performing his duties; provided, that physical or mental disability due to injury or disease shall not be grounds for termination for Cause; (F) gross insubordination or persistent refusal to follow instructions; or (G) inability to perform the duties of the Executive's office or consistent failure to perform in accordance with reasonable expectations due to incompetence, or repeated and unexcused absence from work having a material adverse effect on the Company. For purposes of this Agreement, the Board shall have 60 days to terminate the Executive for Cause following the date on which the Board discovers the existence of a specific set of facts that, in the aggregate, then constitute Cause, after which period no Cause with respect to such specific set of facts shall be deemed to exist; provided, that the repetition or reoccurrence of the same or a similar set of facts shall constitute a separate ground for termination for Cause. (ii) "Disability" means the Executive's absence from the full-time performance of his duties with the Company for one hundred eighty (180) days or more within any period of 12 consecutive months as a result of the Executive's incapacity due to mental or physical illness; provided, that during any period prior to the termination of Executive's employment by reason of Disability in which Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay Executive his Base Salary at the rate in effect at the commencement of such period of Disability; (iii) "Good Reason" means, without the Executive's express written consent, the occurrence of any of the following events: 5 (A) a reduction by the Company in the Executive's Base Salary or Annual Target Bonus in effect from time to time; (B) a material reduction in the aggregate level of participation in and/or compensation and benefit opportunities under all other compensation and employee benefit plans in which Executive is entitled to participate from time to time; provided, however, that changes affecting the participation in or benefits under such plans (other than the Performance Bonus Plan, the SERP and the benefits described in Exhibit A) with respect to similarly situated executives of the Company shall not constitute Good Reason hereunder; (C) a reduction in the Executive's titles with the Company; (D) notification by the Company of its intention not to renew this Agreement pursuant to the provisions of Section 2; or (E) the termination of the Executive's employment by the Executive for any reason within 12 months following a Change in Control (as defined herein). (iv) "Change in Control" means the occurrence of any one of the following events: (A) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person (as such term is defined in the Company's Shareholder Protection Rights Agreement to be adopted at the Effective Time) or any person that is not bound by the Shareholder Agreement of the Company to be entered into in connection with the Merger (the "Shareholder Agreement") becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the undiluted total voting power of the Company's then outstanding securities eligible to vote for the election of members of the Board (the "Company Voting Securities"); provided, however, that no event described in the immediately preceding clause shall be deemed to constitute a Change in Control by virtue of any of the following: (I) an acquisition of Company Voting Securities by the Company and/or one or more direct or indirect majority-owned subsidiaries of the Company; (II) an acquisition of Company Voting Securities by any employee benefit plan sponsored or maintained by the Company or any corporation controlled by the Company; (III) an acquisition by any underwriter temporarily holding securities pursuant to an offering of such securities; or (IV) any acquisition by the Executive or any "group" (as such term is defined in Rule 3d-5 under the Exchange Act) of persons including the Executive; or (B) individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director subsequent to the beginning of such twenty-four (24) month 6 period, whose election, or nomination for election, by the Company's shareholders was approved by either (i) the Board consistent with the terms of the Shareholder Agreement, during the period the Shareholder Agreement is in effect, or (ii) a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (B), considered as though such person were a member of the Incumbent Board; provided, further, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; or (C) there is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, represent immediately after such merger or consolidation at least 60% of the combined voting power of the then outstanding voting securities of either the Company or the other entity which survives such merger or consolidation or any parent of such other entity; or (D) the stockholders of the Company approve (i) a plan of complete liquidation or dissolution of the Company or (ii) an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 5. PAYMENTS UPON TERMINATION OF EXECUTIVE. (a) If the employment of the Executive shall be terminated other than by reason of death or Disability (i) by the Company (other than for Cause) or (ii) by the Executive for Good Reason, then the Company shall pay or provide to the Executive (or the Executive's beneficiary or estate): (1) within thirty (30) days following the date of such termination of employment ("Termination Date"), a lump-sum cash amount equal to the sum of (i) the Executive's unpaid Base Salary through the Termination Date; (ii) any accrued but unpaid annual bonus under the Performance Bonus Plan in respect of the annual bonus period preceding the bonus period in which the Termination Date occurs; (iii) any unpaid reimbursable business expenses properly incurred through the Termination Date; and (iv) a bonus payment equal to the 7 Executive's Annual Target Bonus in the year of termination, multiplied by a fraction the numerator of which is the number of months in the bonus year of termination in which the Executive has worked at least one day and the denominator of which is 12; (2) within thirty (30) days following the Termination Date, a lump-sum cash amount equal to the greater of (A) the Executive's then Base Salary payable over the remainder of the Term plus a bonus equal to the Executive's Annual Target Bonus in the year of termination multiplied by a fraction the numerator of which is the number of complete months remaining in the Term and the denominator of which is 12, or (B) 2.0 times the sum of: (i) the Executive's annual rate of Base Salary as of the Termination Date plus (ii) the Annual Target Bonus for the year in which the Termination Date occurs (in each such case, Executive's Base Salary and Annual Target Bonus being determined without taking into account any reductions thereto constituting Good Reason); provided, however, that the Executive shall not be entitled to any severance benefits from the Company or under any Company severance plan, policy or arrangement other than as specified in this Agreement; (3) for a period terminating on the earlier of (A) the commencement of the provision of substantially equivalent benefits by a new employer or (B) the later of (I) the last day of the Term, or (II) twenty-four (24) months following the Termination Date, the Company shall continue to keep in full force and effect (or otherwise provide) all policies of medical, accident, disability and life insurance with respect to the Executive and his dependents with substantially the same level of coverage, upon substantially the same terms and otherwise substantially to the same extent as such policies shall have been in effect immediately prior to the Termination Date, and, as applicable, the Company and the Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the date of termination; (4) for purposes of determining final average compensation (or making any similar calculation) and years of service (for purposes of eligibility, vesting and benefit accrual) under any tax-qualified or supplemental defined benefit retirement plan (including without limitation the SERP), Executive shall be deemed to have remained employed by the Company hereunder until the end of the Term and to have received his then current Base Salary and Annual Target Bonus through the end of the Term; provided, that to the extent such benefits cannot be accrued under and paid from any tax- qualified pension plan, such benefits shall be accrued under and paid from the SERP or other supplemental plan. 8 (5) all options to purchase Common Stock held by the Executive shall immediately become fully vested and exercisable and shall remain exercisable until the earlier of (A) the date that is 24 months following the Termination Date and (B) the expiration of the stated term of such options; provided, that the Value Option shall remain exercisable until expiration of its stated term; and (b) If the employment of the Executive shall be terminated (i) by reason of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by the Executive without Good Reason, or (iv) by the mutual written consent of the parties hereto (each a "Nonqualifying Termination"), then the Company shall pay to the Executive (or the Executive's beneficiary or estate) within thirty (30) days following the Termination Date a lump-sum cash amount equal to the sum of the Executive's unpaid Base Salary through the Termination Date plus any bonus payments which have been earned or become payable, to the extent not theretofore paid, plus any unpaid reimbursable business expenses properly incurred through the Termination Date. In addition, Executive (or the Executive's beneficiary or estate) shall have no less than ninety days following the termination of his employment pursuant to a Nonqualifying Termination to exercise any outstanding options to the extent vested and exercisable as of the Termination Date; provided, that the Value Option shall remain exercisable until the expiration of its stated term. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Notwithstanding anything in this Agreement to the contrary, in the event that any payment or distribution by the Company, by any affiliate of the Company or by any person whose actions result in a change in control of the Company (to the extent the Company approves of the arrangements pursuant to which the payment by such person is made to the Executive) to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes and Excise Tax, imposed upon the Gross-Up Payment but before deduction for any federal, state or local income or other tax upon the Payments, the Executive will retain a net amount equal to the sum of (i) the 9 Payments and (ii) an amount equal to the product of any deductions (or portions thereof) disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income for federal income tax purposes and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to (1) pay applicable federal income taxes at the highest applicable marginal rates of federal income taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, (2) pay applicable state and local income taxes at the highest applicable marginal rate of taxation (including surcharges) for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (3) have otherwise allowable deductions for federal income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Executive's adjusted gross income. (b) Subject to the provisions of Section 6(a), all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the change in control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the change in control, the Executive may appoint another nationally recognized public accounting firm reasonably acceptable to the Company to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company and, subject to applicable law and obligations to the Company's stockholders, the Company shall enter into any agreement reasonably requested by the Accounting Firm that is generally recognized as standard in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 6 with respect to any Payment shall be made no later than thirty (30) days following the date of such Payment. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Executive's applicable federal income tax return should not result in the imposition of a negligence or similar penalty. The Determination by 10 the Accounting Firm shall be binding upon the Company and the Executive. As a result of uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Executive thereafter is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of the Executive. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by the Executive to or for the benefit of the Company. The Executive shall cooperate, to the extent his reasonable expenses in connection therewith are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 7. WITHHOLDING TAXES. The Company shall have the right to withhold from any and all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 8. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement is personal in nature and none of the parties hereto shall, without the consent of the other, assign, or transfer this Agreement or any rights or obligations hereunder; provided, that in the event of the merger, consolidation, transfer or sale of substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties and obligations of the Company hereunder, and all references herein to the "Company" shall refer to such successor. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts remain payable to the Executive hereunder, all such amounts, unless otherwise 11 provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive's estate. 9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION. (a). Except as provided in Sections 10 and 11, all disputes hereunder shall be settled by final, binding arbitration, conducted before a panel of three (3) arbitrators in California in accordance with the rules of the American Arbitration Association then in effect. Judgment on the arbitration award may be entered in any court having jurisdiction. The Company shall bear the expenses of such arbitration. (b) If any contest or dispute shall arise under this Agreement involving termination of the Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall advance and reimburse the Executive, on a current basis, all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute; provided, that the Executive agrees to return any advanced or reimbursed expenses to the extent the arbitrators (or the court, in the case of a dispute described in Section 10 or 11) determine that the Company has prevailed as to the material issues raised in determination of the dispute. (c) The Company's obligation to make any payments provided for in this Agreement to the Executive and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 10. NONCOMPETITION. (a) DISCLOSURE. The Executive has disclosed to the Board, in writing, all healthcare-related interests, investments, or business activities, whether as proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, or in any other capacity or manner whatsoever. The Executive shall notify the Board, in writing, of any changes in or additions to such interests, activities or investments permitted in accordance with the terms of this Agreement, within 15 days of such change or addition. 12 (b) PROHIBITED ACTIVITY. Without the written consent of a majority of the Independent Directors, the Executive may not engage in any of the following actions during the period that is (A) prior to the Executive's termination of employment with the Company, (B) within two years following the termination of his employment with the Company during the Initial Term if such termination is by the Company for Cause or by the Executive other than for Good Reason and (C) within one year following his termination of employment during the Term but after the Initial Term if such termination is by the Company for Cause or by the Executive other than Good Reason. (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, within a radius of 30 miles from any site, facility, or location which is owned, managed or operated by or affiliated with the Company or any of its subsidiaries and affiliates, including physician practices of any kind. For purposes of this Agreement, "Primary Business" shall mean the delivery of integrated healthcare services in markets where the Company or its subsidiaries own hospitals and/or skilled nursing facilities ("SNFs") with the hospital serving as the hub of the local delivery system in conjunction with its physician medical staff. In addition to inpatient acute care, psychiatric care, and skilled nursing care, these services can include (A) individual physician practices and/or physician-based organizations such as primary care and specialty clinics, physician-hospital organizations ("PMOs") or medical service organizations ("MSOs"), or physician medical groups and (B) ambulatory programs such as home health care, ambulatory surgery, psychiatric services, occupational and sports medicine centers, psychiatric after-care and day care programs, and other diagnostic, rehabilitative and treatment services. Some of these services, sites and facilities may be located in satellite areas for the purpose of extending the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital's geographic service area and to serve as access points and/or referral sources for either the local delivery system or the hub hospital. 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 the Term or to exclude any business or service in which the Company ceases to engage. The definition of "Primary Business" may also be modified to include any business or service into which, as of the Termination Date, the Company definitively intends to expand, regardless of whether such expansion actually occurs after the Executive's termination. For purposes of the preceding sentence, the date on which a modification of the definition of "Primary Business" shall be effective shall be the date on which the Executive is provided written notice of such modification (the "Notice Date"); 13 provided, however, that no such modification as to which notice is provided on or after the Termination Date shall be effective against the Executive; and provided, further, that no such modification shall be effective with respect to any interests, investments or business activities engaged in by Executive prior to the Notice Date of such modification and properly disclosed prior to such Notice Date pursuant to Section 10(a); (ii) participate or serve, either directly or indirectly, whether as a proprietor, stockholder, partner, co-venturer, director, officer, employee, independent contractor, agent, consultant, 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 him or by any competitor of the Company on whose behalf he is acting as an agent, representative or employee, or convey any confidential information or trade secrets regarding other employees of 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; PROVIDED, HOWEVER,, that neither (i) the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d under the Exchange Act, as a passive investment, of not more than five percent (5%) of the voting stock of any publicly held corporation, nor (ii) the beneficial ownership by Executive of any interest described in the first sentence of Section 10(a) and properly and timely disclosed in accordance with the terms therewith, shall alone constitute a violation of this Agreement. In the event that the Executive engages in the conduct proscribed by this Section 10, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, and all outstanding stock options held by the Executive shall expire as of the date of the Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive 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 injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or injunctive relief in such a court prohibiting Executive from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement 14 upon an appropriate finding by such court that Executive has violated this Section 10. (c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the parties that the provisions of this Section 10 shall be enforceable to the fullest extent permissible under applicable law and public policy. Accordingly, if this Section 10 or any portion thereof shall be adjudicated to be invalid or unenforceable whether because of the duration and scope of the covenants set forth herein or otherwise, the length and scope of the restrictions set forth in this Section 10 shall be reduced to the extent necessary so that this covenant may be enforced to the fullest extent possible under applicable law. 11. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment hereunder, and during prior periods of employment with the Company and/or its subsidiaries, he has occupied and will continue to occupy a position of trust and confidence. The Executive shall not, except as may be required to perform his duties hereunder or as required by applicable law, until the expiration of the applicable periods described in Section 10(b) or until such information shall have become public other than by the Executive's unauthorized disclosure, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company, its subsidiaries and affiliates. "Confidential Information" shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not publicly disclosed by the Company or otherwise generally available to members of the public seeking such information and that was learned by the Executive in the course of his employment by the Company, its subsidiaries and affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, its subsidiaries and affiliates, and that such information gives the Company, its subsidiaries and affiliates a competitive advantage. The Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company, its subsidiaries or affiliates or prepared by the Executive during the term of his employment by the Company, its subsidiaries and affiliates. In the event that the Executive engages in any conduct proscribed by this Section 11, the Executive agrees to repay any lump-sum severance amount received pursuant to Section 5 of this Agreement, 15 and all outstanding stock options held by the Executive shall expire as of the date of the Executive's commencement of such proscribed conduct. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to disclose or threaten to disclose Confidential Information regarding the Company or any subsidiary or affiliate in violation of this Agreement or otherwise fail to comply with the provisions of this Section 11, and that the Company would, by reason of such disclosure or threatened disclosure or other failure to comply, be entitled to preliminary or permanent injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such preliminary or permanent injunctive relief in such a court prohibiting Executive from disclosing Confidential Information in violation of this Agreement or otherwise requiring Executive to comply with the provisions of this Section 11 upon an appropriate finding by such court that Executive has violated this Section 11. 12. NOTICE. For the purposes of this Agreement, any notices, demands and all other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): If to Executive: Robert C. Joyner 87 Northgate The Woodlands, Texas 77380 If to Company: Paracelsus Healthcare Corporation 515 West Greens Road Suite 800 Houston, Texas 77067 Telecopy No. (713) 878-6686 Attention: Chief Executive Officer with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Telecopy No. (213) 687-5600 Attention: Thomas C. Janson 16 13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in a written document signed by the Executive and such officer of the Company, as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 14. ENTIRE AGREEMENT. This Agreement and Exhibit A hereto set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. 15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of California without regard to the principle of conflicts of laws and, at the election of the Executive, the venue of any dispute arising under this Agreement shall be California. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 16. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 17. SEVERABILITY. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. 17 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------- Name: R.J. Messenger Title: Chief Executive Officer \s\ ROBERT C. JOYNER ------------------------------- Robert C. Joyner 18 EXHIBIT A During the Term of the Agreement, the Company shall provide the Executive with the following benefits: 1. LIFE INSURANCE. The Company shall maintain for Executive's benefit life insurance coverage with a face amount equal to three (3) times the amount of Executive's Base Salary as in effect from time to time; PROVIDED, HOWEVER, that if the Company shall be unable to obtain the full amount of such life insurance coverage at a reasonable cost, the Company may alternatively provide Executive with a lump-sum death benefit, payable within ninety (90) days following the date of Executive's death, in such amount as will, when added to any life insurance coverage actually obtained by the Company, provide Executive's beneficiary(ies) with a net amount, after payment of any Federal and state income taxes, equal to the net, after-tax amount such beneficiary(ies) would have received had the Company obtained the full amount of life insurance coverage provided for above. Executive shall have the right to name and to change from time to time the beneficiary(ies) under such life insurance coverage (and death benefit, if any). Such life insurance coverage (and death benefit, if any) shall be in addition to any death benefits which may be payable under any accidental death and dismemberment plan, any separate business travel accident coverage, or any pension plan in which the Executive may participate, and such coverage shall also be in addition to any life insurance which Executive himself purchases. 2. RELOCATION ASSISTANCE. The Company shall reimburse Executive for the reasonable costs he incurs in relocating from Los Angeles, California to Houston, Texas in accordance with that certain letter dated May 29, 1996 from Charles R. Miller, President of Champion Healthcare Corporation, the terms of which are incorporated herein as if they were set forth in full herein. 3. POST-TERMINATION RELOCATION. In the event that, during the 24 month period following the Effective Date, Executive's employment is terminated (i) by Executive for any reason or (ii) by the Company without Cause, the Company shall reimburse Executive for reasonable relocation expenses incurred by Executive (to the extent not otherwise reimbursed by any subsequent employer) during the 12 month period following such termination in connection with his subsequent relocation anywhere in the continental United States. 4. VACATIONS AND HOLIDAYS. Executive shall accrue paid vacation at the rate of four (4) weeks per year. It is agreed that as of the Effective Time, Executive shall have accrued 50 days of paid vacation with the Company, which days shall be carried over until used by Executive or paid for by the Company. Paid holidays shall be similarly calculated at Executive's rate of Base Salary in accordance with standard Company practices. 19 FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a California corporation (the "Company") and Robert C. Joyner (the "Executive") RECITALS: WHEREAS, the Company and the Executive entered into that certain Paracelsus Healthcare Corporation Employment Agreement dated as of July 17, 1996, (the "Employment Agreement"), and WHEREAS, the parties desire to amend the Employment Agreement to correct certain terms and conditions to conform to the agreements reached between the parties AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party, the parties intending to be legally bound hereby agree as follows: 1. Paragraph 4(i)(G) is hereby deleted in its entirety, and in place thereof is substituted the following: "(G) inability to perform the duties of the Executive's office or consistent failure to perform in accordance with reasonable expectations due to incompetence, or repeated and unexcused absence from work having a material adverse effect on the Company." 2. Paragraphs 4(iii)(E), and 4(iii)(G) are deleted in their entirety and Paragraph (4(iii)(F) is renamed "(E)", such that the portion of paragraph 4 commencing with Section E shall read as follows: "or (E) the termination of the Executive's employment by the Executive for any reason within 12 months following a Change in Control (as defined herein.)" 3. Sections 5 and 6 of Exhibit A of the Employment Agreement are deleted in their entirety, and Exhibit A to the Employment Agreement shall read as set forth on Exhibit A attached hereto and made a part hereof to the same extent as if it were set forth in full herein. 4. All other terms and conditions shall remain in full force and effect. 20 IN WITNESS WHEREOF, the parties have executed this First Amendment to Paracelsus Healthcare Corporation Employment Agreement as of the date and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ CHARLES R. MILLER ------------------------------------- Name: Charles R. Miller Title: President \s\ ROBERT C. JOYNER ------------------------------------- Robert C. Joyner EX-10.48 21 PARACELSUS 1996 STOCK INCENTIVE PLAN 1 EXHIBIT 10.48 PARACELSUS HEALTHCARE CORPORATION 1996 STOCK INCENTIVE PLAN SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS. The name of this plan is the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan (the "Plan"). The Plan was adopted by the Board on July 17, 1996, subject to the approval of the stockholders of the Company, which approval was obtained on the same date. The purpose of the Plan is to enable the Company to attract and retain highly qualified personnel who will contribute to the Company's success by their ability, ingenuity and industry and to provide incentives to the participating officers, employees, consultants and advisors that are linked directly to increases in stockholder value and will therefore inure to the benefit of all stockholders of the Company. For purposes of the Plan, the following terms shall be defined as set forth below: (1) "Administrator" means the Board, or if and to the extent the Board does not administer the Plan, the Committee in accordance with Section 2. (2) "Board" means the Board of Directors of the Company. (3) "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. (4) "Committee" means the Compensation and Stock Option Committee of the Board plus such additional individuals as the Board may designate in order to fulfill the Disinterested Persons requirement of Rule 16b-3 as promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934 (the "Exchange Act"), and as such Rule may be amended from time to time, or any successor definition adopted by the Commission, or any other Committee the Board may subsequently appoint to administer the Plan. To the extent applicable, the Committee shall be composed entirely of individuals who meet the qualifications referred to in Rule 16b-3 and Section 162(m) of the Code. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Board specified in the Plan shall be exercised by the Committee. (5) "Company" means Paracelsus Healthcare Corporation, a California corporation (or any successor corporation). (6) "Deferred Stock" means an award made pursuant to Section 7 below of the right to receive Stock at the end of a specified deferral period. (7) "Disability" means the inability of a Participant to perform substantially his duties and responsibilities to the Company by reason of a physical or mental disability or infirmity (i) for a continuous period of six months, or (ii) at such earlier time as the Participant submits medical evidence satisfactory to the Administrator that he has a physical or mental disability or infirmity which will likely prevent him from returning to the performance of his work duties for six months or longer. The date of such Disability shall be on the last day of such six-month period or the day on which the Participant submits such satisfactory medical evidence, as the case may be. 2 (8) "Disinterested Person" shall have the meaning set forth in Rule 16b-3 of the Exchange Act, and as such Rule may be amended from time to time, or any successor definition adopted by the Commission. (9) "Effective Date" shall mean the date provided pursuant to Section 11. (10) "Eligible Employee" means an officer, employee, consultant or advisor of the Company or any Subsidiary. (11) "Fair Market Value" means, as of any given date, with respect to any awards granted hereunder, (A) if the Stock is publicly traded, the closing sale price of the Stock on such date as reported in the Western Edition of the Wall Street Journal, or the average of the closing price of the Stock on each day on which the Stock was traded over a period of up to twenty trading days immediately prior to such date, (B) the fair market value of the Stock as determined in accordance with a method prescribed in the agreement evidencing any award hereunder, or (C) the fair market value of the Stock as otherwise determined by the Administrator in the good faith exercise of its discretion. (12) "Incentive Stock Option" means any Stock Option intended to be designated as an "incentive stock option" within the meaning of Section 422 of the Code. (13) "Limited Stock Appreciation Right" means a Stock Appreciation Right that can be exercised only in the event of a "Change of Control" (as defined in the award evidencing such Limited Stock Appreciation Right). (14) "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option, including any Stock Option that provides (as of the time such option is granted) that it will not be treated as an Incentive Stock Option. (15) "Parent Corporation" means any corporation (other the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50% or more of the combined voting power of all classes of stock in one of the other corporations in the chain. (16) "Participant" means any Eligible Employee, consultant or advisor to the Company selected by the Administrator, pursuant to the Administrator's authority in Section 2 below, to receive grants of Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock awards, Deferred Stock awards, Performance Shares or any combination of the foregoing. (17) "Performance Share" means an award of shares of Stock pursuant to Section 7 that is subject to restrictions based upon the attainment of specified performance objectives. (18) "Restricted Stock" means an award granted pursuant to Section 7 of shares of Stock subject to certain restrictions. (19) "Stock" means the common stock, no par value, of the Company. 3 (20) "Stock Appreciation Right" means the right pursuant to an award granted under Section 6 to receive an amount equal to the difference between (A) the Fair Market Value, as of the date such Stock Appreciation Right or portion thereof is surrendered, of the shares of Stock covered by such right or such portion thereof, and (B) the aggregate exercise price of such right or such portion thereof. (21) "Stock Option" means any option to purchase shares of Stock granted pursuant to Section 5. (22) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 2. ADMINISTRATION. The Plan shall be administered in accordance with the requirements of Rule 16b-3 of the Exchange Act and Section 162(m) of the Code (but only to the extent necessary to maintain qualification of the Plan under Rule 16b-3 of the Exchange Act and Section 162(m) of the Code) by the Board or by the Committee which shall be appointed by the Board and which shall serve at the pleasure of the Board. Pursuant to the terms of the Plan, the Administrator shall have the power and authority to grant to Eligible Employees, consultants and advisors to the Company, pursuant to the terms of the Plan: (a) Stock Options, (b) Stock Appreciation Rights or Limited Stock Appreciation Rights, (c) Restricted Stock, (d) Performance Shares, (e) Deferred Stock or (f) any combination of the foregoing. In particular, the Administrator shall have the authority: (a) to select those Eligible Employees, consultants and advisors of the Company who shall be Participants; (b) to determine whether and to what extent Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock, Deferred Stock, Performance Shares or a combination of the foregoing, are to be granted hereunder to Participants; (c) to determine the number of shares of Stock to be covered by each such award granted hereunder; (d) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, (x) the restrictions applicable to Restricted or Deferred Stock awards and the conditions under which restrictions applicable to such Restricted or Deferred Stock shall lapse, and (y) the performance goals and periods applicable to the award of Performance Shares); and (e) to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing the Stock Options, Stock Appreciation 4 Rights, Limited Stock Appreciation Rights, Restricted Stock, Deferred Stock, Performance Shares or any combination of the foregoing. The Administrator shall have the authority, in its discretion, to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. All decisions made by the Administrator pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and the Participants. SECTION 3. STOCK SUBJECT TO PLAN. The total number of shares of Stock reserved and available for issuance under the Plan shall be 8,749,933. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. The aggregate number of shares of Stock as to which Stock Options, Stock Appreciation Rights, Restricted Stock and Performance Shares may be granted to any individual during any calendar year may not, subject to adjustment as provided in this Section 3, exceed 80% of the shares of Stock reserved for the purposes of the Plan in accordance with the provisions of this Section 3. Consistent with the provisions of Section 162(m) of the Code, as from time to time applicable, to the extent that (i) a Stock Option expires or is otherwise terminated without being exercised, or (ii) any shares of Stock subject to any Restricted Stock, Deferred Stock or Performance Share award granted hereunder are forfeited, such shares shall again be available for issuance in connection with future awards under the Plan. If any shares of Stock have been pledged as collateral for indebtedness incurred by a Participant in connection with the exercise of a Stock Option and such shares are returned to the Company in satisfaction of such indebtedness, such shares shall again be available for issuance in connection with future awards under the Plan. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure affecting the Stock, a substitution or adjustment shall be made in (i) the aggregate number of shares reserved for issuance under the Plan, (ii) the kind, number and option price of shares subject to outstanding Stock Options granted under the Plan, and (iii) the kind, number and purchase price of shares issuable pursuant to awards of Restricted Stock, Deferred Stock and Performance Shares, as may be determined by the Administrator, in its sole discretion. Such other substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. An adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right or Limited Stock Appreciation Right associated with any Stock Option. In connection with any event described in this paragraph, the Administrator may provide, in its discretion, for the cancellation of any outstanding awards and payment in cash or other property therefor. SECTION 4. ELIGIBILITY. Officers (including officers who are directors of the Company), employees of the Company, and consultants and advisors to the Company who are responsible for or are in a position to contribute to the management, growth and/or profitability of the business of the 5 Company shall be eligible to be granted Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock awards, Deferred Stock awards or Performance Shares hereunder. The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among the Eligible Employees, consultants and advisors to the Company recommended by the senior management of the Company, and the Administrator shall determine, in its sole discretion, the number of shares of Stock covered by each award. SECTION 5. STOCK OPTIONS. Stock Options may be granted alone or in addition to other awards granted under the Plan. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve, and the provisions of Stock Option awards need not be the same with respect to each optionee. Recipients of Stock Options shall enter into a subscription and/or award agreement with the Company, in such form as the Administrator shall determine, which agreement shall set forth, among other things, the exercise price of the option, the term of the option and provisions regarding exercisability of the option granted thereunder. The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non- Qualified Stock Options. The Administrator shall have the authority to grant any Eligible Employee Incentive Stock Options, Non- Qualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights or Limited Stock Appreciation Rights). Consultants and advisors may only be granted Non-Qualified Stock Options (with or without Stock Appreciation Rights or Limited Stock Appreciation Rights). To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option. More than one option may be granted to the same optionee and be outstanding concurrently hereunder. Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable: (1) Option Price. The option price per share of Stock purchasable under a Stock Option shall be determined by the Administrator in its sole discretion at the time of grant but shall not, in the case of Incentive Stock Options, be less than 100% of the Fair Market Value of the Stock on such date and shall not, in any event, be less than the par value (if any) of the Stock. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation and an Incentive Stock Option is granted to such employee, the option price of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no less than 110% of the Fair Market Value of the Stock on the date such Incentive Stock Option is granted. (2) Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date such Stock Option is granted; provided, however, that if an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation and an Incentive Stock Option is 6 granted to such employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five years from the date of grant. (3) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator at or after grant. The Administrator may provide, in its discretion, that any Stock Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time in whole or in part based on such factors as the Administrator may determine, in its sole discretion, including but not limited to in connection with any "change in control" of the Company, as defined in any stock option agreement. (4) Method of Exercise. Subject to Section 5(3) above, Stock Options may be exercised in whole or in part at any time during the option period, by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment in full of the purchase price in cash or its equivalent as determined by the Administrator. As determined by the Administrator, in its sole discretion, payment in whole or in part may also be made (i) by means of any cashless exercise procedure approved by the Administrator, (ii) in the form of unrestricted Stock already owned by the optionee, or (iii) in the case of the exercise of a Non-Qualified Stock Option, in the form of Restricted Stock or Performance Shares subject to an award hereunder (based, in each case, on the Fair Market Value of the Stock on the date the option is exercised); provided, however, that in the case of an Incentive Stock Option, the right to make payment in the form of already owned shares may be authorized only at the time of grant. If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock or Performance Shares, the shares received upon the exercise of such Stock Option (to the extent of the number of shares of Restricted Stock or Performance Shares surrendered upon exercise of such Stock Option) shall be restricted in accordance with the original terms of the Restricted Stock or Performance Share award in question, except that the Administrator may direct that such restrictions shall apply only to that number of shares equal to the number of shares surrendered upon the exercise of such option. An optionee shall generally have the rights to dividends and any other rights of a stockholder with respect to the Stock subject to the option only after the optionee has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in paragraph (1) of Section 10. The Administrator may require the voluntary surrender of all or a portion of any Stock Option granted under the Plan as a condition precedent to the grant of a new Stock Option. Subject to the provisions of the Plan, such new Stock Option shall be exercisable at the price, during such period and on such other terms and conditions as are specified by the Administrator at the time the new Stock Option is granted; provided, however, should the Administrator so require, the number of shares subject to such new Stock Option shall not be greater than the number of shares subject to the surrendered Stock Option. Consistent with the provisions of Section 162(m), to the extent applicable, upon their surrender, Stock Options shall be canceled and the shares previously subject to such canceled Stock Options shall again be available for grants of Stock Options and other awards hereunder. (5) Loans. The Company may make loans available to Stock Option holders in connection with the exercise of outstanding options granted under the Plan, as the Administrator, in its discretion, may determine. Such loans shall (i) be evidenced by promissory notes entered into by the Stock Option holders in favor of the Company, (ii) be subject to the terms and conditions set forth in this Section 5(5) and such other terms and conditions, not inconsistent with the Plan, as the 7 Administrator shall determine, (iii) bear interest, if any, at such rate as the Administrator shall determine, and (iv) be subject to Board approval (or to approval by the Administrator to the extent the Board may delegate such authority). In no event may the principal amount of any such loan exceed the sum of (x) the exercise price less the par value (if any) of the shares of Stock covered by the option, or portion thereof, exercised by the holder, and (y) any federal, state, and local income tax attributable to such exercise. The initial term of the loan, the schedule of payments of principal and interest under the loan, the extent to which the loan is to be with or without recourse against the holder with respect to principal or interest and the conditions upon which the loan will become payable in the event of the holder's termination of employment shall be determined by the Administrator. Unless the Administrator determines otherwise, when a loan is made, shares of Stock having a Fair Market Value at least equal to the principal amount of the loan shall be pledged by the holder to the Company as security for payment of the unpaid balance of the loan, and such pledge shall be evidenced by a pledge agreement, the terms of which shall be determined by the Administrator, in its discretion; provided, however, that each loan shall comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and any other governmental agency having jurisdiction. (6) Non-Transferability of Options. Unless otherwise determined by the Administrator subject to the limitations on transferability set forth in Rule 16b-3, no Stock Option shall be transferable by the optionee, and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee. (7) Termination of Employment or Service. If an optionee's employment with or service as a consultant or advisor to the Company terminates by reason of death, Disability or for any other reason, the Stock Option may thereafter be exercised to the extent provided in the applicable subscription or award agreement, or as otherwise determined by the Administrator. (8) Annual Limit on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of shares of Stock with respect to which Incentive Stock Options granted to an Optionee under this Plan and all other option plans of the Company or its Parent Corporation become exercisable for the first time by the Optionee during any calendar year exceeds $100,000, such Stock Options shall be treated as Non- Qualified Stock Options. SECTION 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS. (1) Grant and Exercise. Stock Appreciation Rights and Limited Stock Appreciation Rights may be granted either alone ("Free Standing Rights") or in conjunction with all or part of any Stock Option granted under the Plan ("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights may be granted either at or after the time of the grant of such Stock Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock Option. A Related Right or applicable portion thereof granted in conjunction with a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, except that, unless otherwise provided by the Administrator at the time of grant, a Related Right granted with respect to less than the full number of shares covered by a related Stock Option shall only be reduced if and to the extent that the number of shares covered 8 by the exercise or termination of the related Stock Option exceeds the number of shares not covered by the Related Right. A Related Right may be exercised by an optionee, in accordance with paragraph (2) of this Section 6, by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in paragraph (2) of this Section 6. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised. (2) Terms and Conditions. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Administrator, including the following: (a) Stock Appreciation Rights that are Related Rights ("Related Stock Appreciation Rights") shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 5 and this Section 6 of the Plan; provided, however, that no Related Stock Appreciation Right shall be exercisable during the first six months of its term, except that this additional limitation shall not apply in the event of death or Disability of the optionee prior to the expiration of such six-month period. (b) Upon the exercise of a Related Stock Appreciation Right, an optionee shall be entitled to receive up to, but not more than, an amount in cash or that number of shares of Stock (or in some combination of cash and shares of Stock) equal in value to the excess of the Fair Market Value of one share of Stock as of the date of exercise over the option price per share specified in the related Stock Option multiplied by the number of shares of Stock in respect of which the Related Stock Appreciation Right is being exercised, with the Administrator having the right to determine the form of payment. (c) Related Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under paragraph (6) of Section 5 of the Plan. (d) Upon the exercise of a Related Stock Appreciation Right, the Stock Option or part thereof to which such Related Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 of the Plan on the number of shares of Stock to be issued under the Plan, but only to the extent of the number of shares issued under the Related Stock Appreciation Right. (e) A Related Stock Appreciation Right granted in connection with an Incentive Stock Option may be exercised only if and when the Fair Market Value of the Stock subject to the Incentive Stock Option exceeds the exercise price of such Stock Option. (f) Stock Appreciation Rights that are Free Standing Rights ("Free Standing Stock Appreciation Rights") shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator at or after grant; provided, however, that no Free Standing Stock Appreciation Right shall be exercisable during the first six months of its 9 term, except that this limitation shall not apply in the event of death or Disability of the recipient of the Free Standing Stock Appreciation Right prior to the expiration of such six-month period. (g) The term of each Free Standing Stock Appreciation Right shall be fixed by the Administrator, but no Free Standing Stock Appreciation Right shall be exercisable more than ten years after the date such right is granted. (h) Upon the exercise of a Free Standing Stock Appreciation Right, a recipient shall be entitled to receive up to, but not more than, an amount in cash or that number of shares of Stock (or any combination of cash or shares of Stock) equal in value to the excess of the Fair Market Value of one share of Stock as of the date of exercise over the price per share specified in the Free Standing Stock Appreciation Right (which price shall be no less than 100% of the Fair Market Value of the Stock on the date of grant) multiplied by the number of shares of Stock in respect to which the right is being exercised, with the Administrator having the right to determine the form of payment. (i) Free Standing Stock Appreciation Rights shall be transferable only when and to the extent that a Stock Option would be transferable under paragraph (6) of Section 5 of the Plan. (j) In the event of the termination of employment or service of a Participant who has been granted one or more Free Standing Stock Appreciation Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator at or after grant. (k) Limited Stock Appreciation Rights may only be exercised within the 30-day period following a "Change of Control" (as defined by the Administrator in the agreement evidencing such Limited Stock Appreciation Right) and, with respect to Limited Stock Appreciation Rights that are Related Rights ("Related Limited Stock Appreciation Rights"), only to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 5 and this Section 6 of the Plan; provided, however, that no Related Limited Stock Appreciation Right shall be exercisable during the first six months of its term, except that this additional limitation shall not apply in the event of death or Disability of the optionee prior to the expiration of such six-month period. (l) Upon the exercise of a Limited Stock Appreciation Right, the recipient shall be entitled to receive an amount in cash equal in value to the excess of the "Change of Control Price" (as defined in the agreement evidencing such Limited Stock Appreciation Right) of one share of Stock as of the date of exercise over (A) the option price per share specified in the related Stock Option, or (B) in the case of a Limited Stock Appreciation Right which is a Free Standing Stock Appreciation Right, the price per share specified in the Free Standing Stock Appreciation Right, such excess to be multiplied by the number of shares in respect of which the Limited Stock Appreciation Right shall have been exercised. SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES. (1) General. Restricted Stock, Deferred Stock or Performance Share awards may be issued either alone or in addition to other awards granted under the Plan. The Administrator shall determine the Eligible Employees, consultants and advisors to whom, and the time or times at which, grants of Restricted Stock, Deferred Stock or Performance Share awards shall be made; 10 the number of shares to be awarded; the price, if any, to be paid by the recipient of Restricted Stock, Deferred Stock or Performance Share awards; the Restricted Period (as defined in paragraph (3) hereof) applicable to Restricted Stock or Deferred Stock awards; the performance objectives applicable to Performance Share or Deferred Stock awards; the date or dates on which restrictions applicable to such Restricted Stock or Deferred Stock awards shall lapse during such Restricted Period; and all other conditions of the Restricted Stock, Deferred Stock and Performance Share awards. The Administrator may also condition the grant of Restricted Stock, Deferred Stock awards or Performance Shares upon the exercise of Stock Options, or upon such other criteria as the Administrator may determine, in its sole discretion. The provisions of Restricted Stock, Deferred Stock or Performance Share awards need not be the same with respect to each recipient. In the discretion of the Administrator, loans may be made to Participants in connection with the purchase of Restricted Stock under substantially the same terms and conditions as provided in Section 5(5) with respect to the exercise of stock options. (2) Awards and Certificates. The prospective recipient of a Restricted Stock, Deferred Stock or Performance Share award shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award (a "Restricted Stock Award Agreement," "Deferred Stock Award Agreement" or "Performance Share Award Agreement," as appropriate) and delivered a fully executed copy thereof to the Company, within a period of sixty days (or such other period as the Administrator may specify) after the award date. Except as otherwise provided below in this Section 7(2), (i) each Participant who is awarded Restricted Stock or Performance Shares shall be issued a stock certificate in respect of such shares of Restricted Stock or Performance Shares; and (ii) such certificate shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award. The Company may require that the stock certificates evidencing Restricted Stock or Performance Share awards hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award or Performance Share award, the Participant shall have delivered a stock power, endorsed in blank, relating to the Stock covered by such award. With respect to Deferred Stock awards, at the expiration of the Restricted Period, stock certificates in respect of such shares of Deferred Stock shall be delivered to the participant, or his legal representative, in a number equal to the number of shares of Stock covered by the Deferred Stock award. (3) Restrictions and Conditions. The Restricted Stock, Deferred Stock and Performance Share awards granted pursuant to this Section 7 shall be subject to the following restrictions and conditions: (a) Subject to the provisions of the Plan and the Restricted Stock Award Agreement, Deferred Stock Award Agreement or Performance Share Award Agreement, as appropriate, governing such award, during such period as may be set by the Administrator commencing on the grant date (the "Restricted Period"), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock, Performance Shares or Deferred Stock awarded under the Plan; provided, however, that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole 11 discretion, including, but not limited to, the attainment of certain performance related goals, the Participant's termination of employment or service, death or Disability or the occurrence of a "Change of Control" as defined in the agreement evidencing such award. (b) Except as provided in paragraph (3)(a) of this Section 7, the Participant shall generally have, with respect to the shares of Restricted Stock or Performance Shares, all of the rights of a stockholder with respect to such stock during the Restricted Period. The Participant shall generally not have the rights of a stockholder with respect to stock subject to Deferred Stock awards during the Restricted Period; provided, however, that dividends declared during the Restricted Period with respect to the number of shares covered by a Deferred Stock award shall be paid to the Participant. Certificates for shares of unrestricted Stock shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire without forfeiture in respect of such shares of Restricted Stock, Performance Shares or Deferred Stock, except as the Administrator, in its sole discretion, shall otherwise determine. (c) The rights of holders of Restricted Stock, Deferred Stock and Performance Share awards upon termination of employment or service for any reason during the Restricted Period shall be set forth in the Restricted Stock Award Agreement, Deferred Stock Award Agreement or Performance Share Award Agreement, as appropriate, governing such awards. SECTION 8. AMENDMENT AND TERMINATION. The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any award theretofore granted without such Participant's consent, or that without the approval of the stockholders (as described below) would: (1) except as provided in Section 3, increase the total number of shares of Stock reserved for the purpose of the Plan; (2) change the class of officers, employees, consultants and advisors eligible to participate in the Plan; or (3) extend the maximum option period under paragraph (2) of Section 5 of the Plan. Notwithstanding the foregoing, stockholder approval under this Section 8 shall only be required at such time and under such circumstances as stockholder approval would be required under Rule 16b-3 of the Exchange Act or Section 162(m) of the Code with respect to any material amendment to any employee benefit plan of the Company. The Administrator may amend the terms of any award theretofore granted, prospectively or retroactively, but, subject to Section 3 above, no such amendment shall impair the rights of any holder without his or her consent. SECTION 9. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein 12 shall give any such Participant any rights that are greater than those of a general creditor of the Company. SECTION 10. GENERAL PROVISIONS. (1) The Administrator may require each person purchasing shares pursuant to a Stock Option to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Administrator deems appropriate to reflect any restrictions on transfer. All certificates for shares of Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Commission, any stock exchange upon which the Stock is then listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. (2) Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee, consultant or advisor of the Company any right to continued employment or service with the Company, as the case may be, nor shall it interfere in any way with the right of the Company to terminate the employment or service of any of its employees, consultants or advisors at any time. (3) Each Participant shall, no later than the date as of which the value of an award first becomes includible in the gross income of the Participant for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on the making of such payments or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. (4) No member of the Board or the Administrator, nor any officer or employee of the Company acting on behalf of the Board or the Administrator, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Administrator and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. SECTION 11. EFFECTIVE DATE OF PLAN. The Plan became effective (the "Effective Date") on July 17, 1996, the date the Company's stockholders formally approved the Plan. SECTION 12. TERM OF PLAN. No Stock Option, Stock Appreciation Right, Limited Stock Appreciation Right, Restricted Stock, Deferred Stock or Performance Share award shall be granted pursuant to the Plan on or 13 after the tenth anniversary of the Effective Date, but awards theretofore granted may extend beyond that date. EX-10.49 22 EXEC. OFFICER PERFORMANCE BONUS PLAN 1 EXHIBIT 10.49 PARACELSUS HEALTHCARE CORPORATION EXECUTIVE OFFICER PERFORMANCE BONUS PLAN Purpose This Executive Officer Performance Bonus Plan (the "Plan") is designed to reward executive officers of Paracelsus Healthcare Corporation (the "Company") for achieving corporate performance objectives. The Plan is intended to provide an incentive for superior work and to motivate participating officers toward even higher achievement and business results, to link their goals and interests more closely with those of the Company and its shareholders, and to enable the Company to attract and retain highly qualified executive officers. ARTICLE I ELIGIBILITY AND PARTICIPATION 1.1 All executive officers of the Company shall be eligible to participate in the Plan. Prior to or at the time performance objectives are established for a "Performance Period," as defined below, the Committee of the Company's Board of Directors (the "Board") designated under Section 6.1 (the "Committee") will identify those executive officers who shall in fact be participants for such Performance Period. ARTICLE II PLAN YEAR, PERFORMANCE PERIODS AND PERFORMANCE OBJECTIVES 2.1 The fiscal year of the Plan (the "Plan Year") shall be the calendar year. The performance period (the "Performance Period") with respect to which bonuses may be payable under the Plan shall generally be the Plan Year; provided however, that the Committee shall have the authority to designate different Performance Periods under the Plan. 2.2 The Committee shall establish in writing, with respect to each Performance Period, one or more performance goals, a specific target objective or objectives with respect to such performance goals and an objective formula or method for computing the amount of bonus compensation payable to each participant under the Plan if and to the extent that the performance goals are attained. 2.3 Performance goals shall be based upon one or more of the following business criteria for the Company as a whole or any of its subsidiaries, operating divisions or other operating units: Stock 2 price, gross revenue, pretax income, operating income, cash flow, earnings per share, return on equity, return on invested capital or assets, cost reductions and savings or return on revenues. In addition, performance goals may be based upon a participant's attainment of specific objectives set for that participant's performance by the Company with respect to any of the foregoing performance goals or implementing policies and plans, negotiating transactions, developing long-term business goals or exercising managerial responsibility. Measurements of the Company's or a participant's performance against the performance goals established by the Committee shall be objectively determinable and, if applicable, shall be determined according to generally accepted accounting principles as in existence on the date on which the performance goals are established and without regard to any changes in such principles after such date. ARTICLE III DETERMINATION OF BONUS AWARDS 3.1 As soon as practicable after the end of each Performance Period, the Committee shall certify in writing to what extent the Company and the participants have achieved the performance goal or goals for such Performance Period, including the specific target objective or objectives and the satisfaction of any other material terms of the bonus award, and the Committee shall calculate the amount of each participant's bonus for such Performance Period based upon the performance goals, objectives and computation formulae or methods for such Performance Period. ARTICLE IV PAYMENT OF AWARDS 4.1 Approved bonus awards shall be payable by the Company in cash to each participant, or to his estate in the event of his death, as soon as practicable after the end of each Performance Period and after the Committee has certified in writing pursuant to Section 3.l that the relevant performance goals were achieved. 4.2 Except as otherwise provided in any employment agreement between the Company and a participant or as otherwise determined by the Committee, a bonus award that would otherwise be payable to a participant who is not employed by the Company or one of its subsidiaries on the last day of a Performance Period (or who is employed on the last day of a Performance Period but is absent from the performance of the participant's duties for a significant portion of the Plan Year) shall be prorated, or not paid, as may be determined by the Committee in the exercise of its discretion. 3 ARTICLE V OTHER TERMS AND CONDITIONS 5.1 No person shall have any legal claim to be granted an award under the Plan, and the Committee shall have no obligation to treat participants uniformly. Except as may be otherwise required by law, bonus awards under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Bonuses awarded under the Plan shall be payable from the general assets of the Company, and no participant shall have any claim with respect to any specific assets of the Company. 5.2 Neither the Plan nor any action taken under the Plan shall be construed as giving any employee the right to be retained in the employment of the Company or any subsidiary or to maintain any participant's compensation at any level. 5.3 The Company or any of its subsidiaries may deduct from any award any applicable withholding taxes or any amounts owed by the employee to the Company or any of its subsidiaries. ARTICLE VI ADMINISTRATION 6.1 The Compensation and Stock Option Committee of the Board (or any other committee satisfying the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended, subsequently designated by the Board) shall constitute the Committee hereunder. 6.2 The Committee shall have full power, authority and discretion to administer and interpret the provisions of the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable. 6.3 The Committee shall have full power to delegate to any officer or employee of the Company the authority to administer and interpret the procedural aspects of the Plan, subject to the Plan's terms, including adopting and enforcing rules to decide procedural and administrative issues. 6.4 The Committee may rely on opinions, reports or statements of officers or employees of the Company or any subsidiary thereof and of 4 Company counsel (inside or retained counsel), public accountants and other professional or expert persons. 6.5 The Board reserves the right to amend or terminate the Plan in or in part at any time. 6.6 To the extent permitted by applicable law, (a) no member of the Committee shall be liable for any action taken or omitted to be taken or for any determination made by him or her in good faith with respect to the Plan, and (b) the Company shall indemnify and hold harmless each member of the Committee against any reasonable cost or expense (including reasonable counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any act or omission in connection with the administration or interpretation of the Plan, unless arising out of such person's own fraud or bad faith. 6.7 The place of administration of the Plan shall be in the State of (California), and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of (California). EX-10.50 23 FIRST REFUSAL AGREEMENT 1 EXHIBIT 10.50 RIGHT OF FIRST REFUSAL AGREEMENT This RIGHT OF FIRST REFUSAL AGREEMENT (the "Agreement") is made and entered into as of August 16, 1996, by and among Park Hospital GmbH, a German corporation (the "Paracelsus Shareholder"), and Dr. Manfred George Krukemeyer (Dr. Krukemeyer and the Paracelsus Shareholder, together with their Permitted Transferees (as such term is defined in the Shareholder Agreement between the Paracelsus Shareholder and the Company, dated as of the date hereof) the "Beneficiary") and the persons whose signatures appear on the execution pages of this Agreement (each, together with his permitted successors and assigns, a "Holder" and, collectively the "Holders"). WHEREAS, in connection with that certain Amended and Restated Agreement and Plan of Merger, dated as of May 29, 1996 (as further amended from time to time in accordance with the terms thereof, the "Merger Agreement"), by and among Paracelsus Healthcare Corporation, a California corporation (the "Company"), Champion Healthcare Corporation, a Delaware corporation, and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, each of the Holders has agreed to provide the Beneficiary with the right of first refusal set forth in this Agreement; NOW, THEREFORE, the parties hereto, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be bound hereby, agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Affiliate: With respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Agreement: See the introductory clauses hereof. Beneficiary: See the introductory clauses hereof. Beneficiary's Notice: See Section 2(b) hereof. Business Day: Any day that is not a Saturday, a Sunday, a legal holiday or a day on which banking institutions in the States of New York or Texas are not required to be open. Common Stock: The common stock, no stated value per share, of the Company or any other shares of capital stock of the Company into which such stock shall be reclassified or changed. If the Common Stock has been so reclassified or changed, or if the Company pays a dividend or makes a distribution on the Common Stock in shares of capital stock, or subdivides (or combines) its outstanding shares of the Common Stock into a greater (or smaller) number of shares of the Common Stock, a share of the Common Stock shall be deemed to be such number of shares of capital stock and amount of other securities to which a holder of a share of the Common Stock 2 outstanding immediately prior to such reclassification, exchange, dividend, distribution, subdivision or combination would be entitled. Company: See the introductory clauses hereof. Holder's Notice: See Section 2(a) hereof. Holders: See the introductory clauses hereof. Merger Agreement: See the introductory clauses hereof. Notifying Holder: See the introductory paragraph of Section 2 hereof. person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Shares: The shares of Common Stock or any rights, options or warrants to purchase, or securities convertible into or exchangeable for, Common Stock, but excluding shares of Common Stock held by registered brokers in margin accounts for so long as they remain so held or shares of Common Stock held pursuant to a bona fide pledge of such shares to a financial institution to secure borrowings as permitted by applicable laws, rules and regulations provided such financial institution agrees to be bound by the terms hereof. SECTION 2. Right of First Refusal. If at any time after the execution of this Agreement a Holder desires to sell or transfer (which terms shall expressly exclude any (I) transfer to a registered broker solely in connection with a bona fide margin transaction or (ii) transfer to a financial institution in connection with securing borrowings as permitted in applicable laws, rules and regulations for purposes of a bona fide pledge provided such financial institution agrees to be bound by the terms hereof) any portion of his Shares to an unaffiliated third party (such Holder is hereinafter referred to as a "Notifying Holder"), the Beneficiary shall first be given the opportunity, in the following manner, to purchase any or all of such Shares: (a) The Notifying Holder shall deliver a written notice in accordance with Section 4 hereof (the "Holder's Notice") to the Beneficiary of such intention, describing the specific intention to sell the Shares and the terms thereof, identifying, if applicable, the offeror and the proposed price of the Shares, and setting forth, if applicable, all the other terms and conditions of such offer, and, if applicable, a copy of such offer shall be attached to the Holder's Notice. (b) The Beneficiary shall have the right for four (4) Business Days from the receipt of the Holder's Notice, exercisable by written notice in accordance with Section 4 hereof (the "Beneficiary's Notice"), to elect to purchase any or all of the Shares specified in the Holder's Notice at the price set forth therein and otherwise substantially upon any material terms and conditions contained in the offer attached to the Holder's Notice. If the purchase price specified in the Holder's Notice includes any property other than cash, such purchase price shall be deemed to be the amount of any cash included in the purchase price plus the value (as may be mutually agreed by the Beneficiary and the Notifying Holder, or, if they are unable to agree, as determined by an independent investment banking firm selected by mutual agreement of the Beneficiary and 3 the respective Holder) of such other property included in such price; and in such event (i) the Beneficiary shall not be deemed to be in receipt of the Holder's Notice until the value of the other property is agreed upon, and (ii) the Beneficiary's Notice shall set forth the purchase price so determined. (c) If the Beneficiary does not exercise his right to elect to purchase the Shares specified in the Holder's Notice within four (4) Business Days from the receipt of the Holder's Notice, the Notifying Holder shall be free to sell or agree to sell the Shares specified in the Holder's Notice as described in the Holder's Notice, at the price specified therein or at any price in excess thereof and on other terms and conditions no less favorable to the Notifying Holder than specified in the Holder's Notice. If the Notifying Holder shall not so sell any or all of the Shares specified in the Holder's Notice within twenty (20) Business Days after delivery of the Beneficiary's Notice in accordance with Section 2(b) hereof (or, if no Beneficiary's Notice is given, within twenty-four (24) Business Days following the Beneficiary's receipt of the Holder's Notice), the provisions of this Section 2 shall thereafter apply to the Shares not so sold. (d) If the Beneficiary exercises its right to purchase specified in this Section 2, the closing of the purchase of the Shares shall take place within three (3) Business Days after receipt of the Beneficiary's Notice by the Holder, at a place, time and date specified by the Holder and agreed to by the Beneficiary. At the closing, the Beneficiary shall deliver to the Notifying Holder same day funds or other agreed upon consideration, in an amount equal to the purchase price set forth in the Holder's Notice or the Beneficiary's Notice, as the case may be, and the Notifying Holder shall deliver to the Beneficiary certificates representing the Shares, duly endorsed in blank or accompanied by stock powers or their equivalents duly executed and otherwise in form acceptable for transfer on the books of the Company. SECTION 3. Transfer Restrictions. Each Holder agrees that it shall not sell or otherwise transfer its Shares except in accordance with the terms hereof. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy of law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. SECTION 4. Termination. This Agreement and the obligations of the Holders shall terminate on the earliest of (I) the tenth anniversary of the date hereof, (ii) the first date on which all Shares held by the Holders shall have been sold, (iii) the first date on which any Holder ceases to be a director or employee of the Company and (iv) the ceasing of the Paracelsus Shareholder to beneficially own, together with all of its Affiliates and Associates, at least thirty-five percent (35%) of the Shares. SECTION 5. Notices. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed duly given upon (a) a transmitter's written confirmation of a receipt of a 4 facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of three business days after receipt by certified or registered mail, postage prepaid, addressed at the following addresses (or at such other address as the parties hereto shall specify by like notice): (a) If to the Beneficiary, to: AM Natruper Holz 69 D-49076 Osnabruck Federal Republic of Germany Telecopier No. (011) 49-541-966-4006 Attention: with copies to: R.J. Messenger 155 North Lake Avenue, Suite 1100 Pasadena, California 91101 and to: Dr. Meyer zu Losebeck Sozietat Dr. H. Mertens Hasemauer 9 49074 Osnabruck, Germany Facsimile: (011) 49-541-331-1616 (b) If to any of the Holders, to the respective addresses indicated below each Holder's signature set forth on the signature page of this Agreement. SECTION 6. Separability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. SECTION 7. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall not be assignable (by operation of law or otherwise) without the written consent of all other parties hereto; provided, that the rights and obligations under this Agreement may be assigned by a party hereto in the same manner as such party is permitted to assign its interest in the Shareholder Agreement pursuant to Section 13 thereof, which assignment shall not terminate any portion of this Agreement with respect to such assignor except in accordance with Section 4 of this Agreement. SECTION 8. Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with 5 respect to the subject matter hereof. This Agreement may be amended at any time by mutual written agreement of the parties hereto. SECTION 9. Publicity. The Beneficiary and each Holder agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party, except to the extent that the Beneficiary or the Holder is advised by counsel that such release or announcement is necessary or advisable under applicable law or the rules or regulations of any securities exchange, in which case the party required to make the release or announcement shall provide the other party with an opportunity to review and comment on such release or announcement in advance of its issuance. SECTION 10. Expenses. Whether or not the transactions contemplated hereby are consummated, except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. SECTION 11. Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 12. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. SECTION 13. Governing Law and Venue. This Agreement shall be construed, interpreted, and governed in accordance with and subject to the laws of Texas, without reference to rules relating to conflicts of law. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Texas and the Federal courts of the United States of America located in the State of Texas solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Texas State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5 shall be valid and sufficient service thereof. SECTION 14. Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day. 6 SECTION 15. No Inconsistent Agreements. No Holder has, as of the date hereof, and shall not, on or after the date of this Agreement, enter into any agreement with respect to his securities which is inconsistent with the rights granted to the Beneficiary in this Agreement or otherwise conflicts with the provisions hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. PARK HOSPITAL GmbH \s\ Dr. Manfred G. Krukemeyer ------------------------------- By: Dr. Manfred George Krukemeyer Title: Chairman \s\ R. J. Messenger ------------------------------- By: R. J. Messenger Address for Notice: 515 West Greens Road, Suite 800 Houston, Texas 77067 \s\ Charles R. Miller ------------------------------- By: Charles R. Miller Address for Notice: 515 West Greens Road, Suite 800 Houston, Texas 77067 \s\ James G. VanDevender ------------------------------- By: James G. VanDevender Address for Notice: 515 West Greens Road, Suite 800 Houston, Texas 77067 \s\ Ronald R. Patterson ------------------------------- By: Ronald R. Patterson Address for Notice: 515 West Greens Road, Suite 800 Houston, Texas 77067 EX-10.54 24 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.54 SERIES D WARRANT HOLDERS REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of August , 1996, by and among PARACELSUS HEALTHCARE CORPORATION, a California corporation (together with its permitted successors and assigns, the "Company"), and the persons whose signatures appear on the execution pages of this Agreement (collectively, and with any subsequent holders of Registrable Shares (as defined below), the "Holders"). WHEREAS, in connection with that certain Amended and Restated Merger Agreement dated as of May 29, 1996 (as further amended from time to time in accordance with the terms thereof (the "Merger Agreement"), by and among the Company, Champion Healthcare Corporation, a Delaware corporation, and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, the Company has agreed to provide the Holders with the registration rights set forth in this Agreement; NOW, THEREFORE, the parties hereto, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be bound hereby, agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Affiliate: With respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "con trolled" have meanings correlative to the foregoing. Agreement: See the introductory clauses hereof. Business Day: Any day that is not a Saturday, a Sunday, a legal holiday or a day on which banking institutions in the States of New York or Texas are not required to be open. Company: See the introductory clauses hereof. Company Common Stock: The common stock, no stated value per share, of the Company or any other shares of capital stock of the Company into which such stock shall be reclassified or changed. After the date hereof, if the Company Common Stock has been so reclassified or 2 changed, or if the Company pays a dividend or makes a distribution of the Company Common Stock in shares of capital stock, or subdivides (or combines) its outstanding shares of the Company Common Stock into a greater (or smaller) number of shares of the Company Common Stock, a share of the Company Common Stock shall be deemed to be such number of shares of capital stock and amount of other securities to which a holder of a share of the Company Common Stock outstanding immediately prior to such reclassification, exchange, dividend, distribution, subdivision or combination would be entitled. Delay Period: See Section 2(c) hereof. Demand Notice: See Section 2(a) hereof. Demand Registration: See Section 2(b) hereof. Effectiveness Period: See Section 2(c) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Holders: See the introductory clauses hereof. indemnified party: See Section 8(c) hereof. indemnifying party: See Section 8(c) hereof. Losses: See Section 8(a) hereof. Merger Agreement: See the introductory clauses hereof. person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Piggyback Registration: See Section 3(a) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A or any term sheet meeting the requirements of Rule 434), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 3 Registrable Shares: Each Share until (i) a registration statement (other than the Registration Statement on Form S-4 effective prior to the date hereof) covering such Share has been declared effective by the SEC and such Share has been disposed of pursuant to such effective registration statement, (ii) such Shares can be sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force, but not Rule 144A) under the Securities Act are met or (iii) such Share is otherwise freely transferable under the Securities Act. Registration Statement: Any registration statement of the Company under the Securities Act that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shares: The shares of Company Common Stock issued or issuable upon exercise of warrants to purchase such shares, which warrants are held by the Holders as of the date of this Agreement as set forth on the signature pages hereto. underwritten registration or underwritten offering: A registration or offering in which securities of the Company are sold to an underwriter for reoffering to the public. SECTION 2. Demand Registration. (a) The Holders of 50% or more of the then existing Registrable Shares shall have the right, by written notice (the "Demand Notice") given to the Company so long as this Agreement has not been terminated in accordance with Section 9.1 hereof, to request that the Company register under and in accordance with the provisions of the Securities Act all or part of the Registrable Shares designated by such holders. The Demand Notice shall specify shall specify the amount of Registrable Shares to be registered and the intended methods of disposition thereof. The Holders shall be entitled in the aggregate to one Demand Registration pursuant to this Section 2 unless a Demand Registration did not become effective or was not maintained effective for a period 4 (whether or not continuous) of at least 120 days or such shorter period at the end of which all Registrable Shares covered by such Demand Registration have been sold pursuant thereto, in which case the Holders will be entitled in the aggregate to one additional Demand Registration pursuant hereto for each instance in which the condition set forth above had not been satisfied. (b) The Company shall file with, and shall use reasonable best efforts to cause to be declared effective by, the SEC within 90 days of the date on which the Company first receives the Demand Notice given by the Holders pursuant to Section 2 hereof, a Registration Statement under the Securities Act relating to the number of Registrable Shares specified in such Demand Notice (a "Demand Registration"); provided, that the Company shall have the right for a reasonable period of time not in excess of 90 days (exercisable by delivery of reasonable notice to the Holders of Registrable Shares included in such Registration Statement) to delay the filing of such Registration Statement if, in the Company's good faith exercise of its reasonable business judgment, (i) such registration and offering would adversely affect or interfere with a pending bona fide corporate transaction involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of any shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b6 under the Exchange Act; provided, that the Company may so delay the filing of such Registration Statement with respect to any one Demand Registration twice, but no more than twice, in any twelve-month period. (c) The Company agrees to use reasonable best efforts to keep any Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of Registrable Shares for a period of 120 days from the date on which the SEC declares such Registration Statement effective or such shorter period which will terminate when all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement. The foregoing notwithstanding, the Company shall have the right to suspend the use of the Registration Statement for a reasonable length of time not exceeding with respect to any one Demand Registration an aggregate of 90 days (a "Delay Period") if and only if in the good faith exercise of the Company's reasonable business judgment (i) such use would adversely affect or interfere with a pending bona fide corporate transaction involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not 5 otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of any shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b6 under the Exchange Act; provided, that the Company may so suspend sales with respect to any one Demand Registration twice, but no more than twice, in any twelve month period. The Company shall provide written notice to the Holders of the beginning and end of each Delay Period and the Holders shall cease all disposition efforts with respect to Registrable Shares held by them immediately upon receipt of notice of the beginning of any Delay Period. The period for which the Company is required to maintain the effectiveness of the Registration Statement shall be extended by the aggregate number of days of all Delay Periods. Such period, including the extension thereof required by the preceding sentence, is hereafter referred to as the "Effectiveness Period." (d) In the case of a proposed offering pursuant to a Demand Registration, the Company may, in its sole discretion, include shares of Company Common Stock in such Demand Registration (whether for the account of the Company or otherwise, including without limitation shares of Company Common Stock held by security holders, if any, who have piggyback registration rights with respect thereto) on the same terms and conditions as the Registrable Shares. Notwithstanding the foregoing, if the Company or, in case of any underwritten public offering, the managing underwriter or underwriters participating in such offering conclude that the total amount of shares of Company Common Stock requested to be included in such Demand Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of all holders other than the Company and the Holders shall be reduced (to zero if necessary) pro rata on the basis of the number of shares of Company Common Stock requested to be registered by each such Holder. If, after such cut back, the Company or such underwriter concludes that the total amount of securities to be included in such Demand Registration still materially and adversely affects the success of such offering, then the amount of securities to be offered for the account of the Company shall be reduced (to zero if necessary). (e) If at any time the Holders of two-thirds of the Registrable Shares which were requested to be included pursuant to Section 2(a) shall, by written notice to the Company, request the Registration Statement not be declared effective or otherwise request a termination or withdrawal of the Registration Statement, and no Shares included in such Registration Statement have been sold pursuant thereto, then provided such requesting Holders reimburse the Company for its out of picket costs incurred in connection with complying with the request to register such Shares, the Company shall terminate such registration statement and the Company's obligation under paragraph 2(a) shall continue as though such request to file a Registration Statement 6 thereunder shall not have been made; provided, that the holders may not give a Demand Notice within six months of the date the Company terminates or withdraws such Registration Statement. SECTION 3. Piggyback Registration. (a) Right to Piggyback. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering of Company Common Stock (other than a registration statement (i) on Form S-4 or S- 8 or any successor forms thereto, or (ii) filed solely in connection with an exchange offer or dividend reinvestment plan) whether or not for its own account, then the Company shall give written notice of such proposed filing to the Holders at least twenty five days before the anticipated filing date. Such notice shall offer the Holders the opportunity to register such amount of Registrable Shares as they may request (a "Piggyback Registration"). Subject to Section 3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within twenty days after notice has been given to the applicable holder. The Holders shall be permitted to withdraw all or part of the Registrable Shares from a Piggyback Registration by giving written notice to the Company at least one Business Day prior to the expected or actual effective date of such Piggyback Registration. (b) Priority on Piggyback Registrations. The Company shall permit the Holders to include all such Registrable Shares on the same terms and conditions as any similar securities, if any, of the Company included therein. Notwithstanding the foregoing, if the Company or an underwriter participating in such offering concludes in good faith that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of the Holders shall be reduced in the following manner: (i) if such Piggyback Registration was initiated as a result of a primary registration on behalf of the Company, (and not a secondary on behalf of holders of securities of the Company pursuant to a holders demand registration right), the amount of securities to be offered for the account of the Holders and other holders of securities who have piggyback registration rights with respect thereto shall be reduced (to zero if necessary) pro rata on a basis of the number of capital stock equivalents requested to be registered by each such older participating in such offering; and (ii) if such Piggyback Registration was initiated by a stockholder demand for an underwritten secondary registration on behalf of holders of securities of the Company other than the Holders, the 7 Company shall include in such registration: (x) first, up to the full number of common stock equivalents of such persons exercising "demand" registration rights, and (y) second, the number of securities to be offered for the account of the Holders and other holders of securities who have piggyback registration rights with respect thereto in excess of the amount of securities such persons exercising "demand" registration rights propose to sell (allocated pro rata on the basis of the number of common stock equivalents requested to be registered by such holders). SECTION 4. Hold-Back Agreements. The Holders agree, if requested by the Company or the managing underwriter in connection with a public offering of equity securities of the Company (whether for the account of the Company or otherwise), not to effect any public sale or distribution of any shares of Company Common Stock, including a sale pursuant to Rule 144 (except as part of such underwritten registration), during a period equivalent to that requested by the Company or such underwriter, provided that such period shall not exceed 120 days in the first such offering by the Company and 90 days in all such offerings thereafter. SECTION 5. Registration Procedures. In connection with the registration obligations of the Company and in accordance with Sections 2 and 3 hereof, the Company will use its best efforts to effect such registrations to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: (a) Prepare and file with the SEC a Registration Statement or Registration Statements on such form which shall be available for the sale of the Registrable Shares by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use reasonable best efforts to cause such Registration Statement to become effective as soon as practicable after such filing and to remain effective as provided herein; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference), the Company shall, upon the written request of participating Holders, furnish or otherwise make available to such holders of the Registrable Shares covered by such Registration Statement, their counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of such holders, their counsel and such underwriters, if any, provided, however, that the Company shall not be required to deliver to such holders a copy of any such document that has not been materially changed from a copy of such document that was previously delivered to such holders. The Company shall not file any such Registration Statement or Prospectus or any amendments or 8 supplements thereto (including such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) to which the holders of a majority of the Registrable Shares covered by such Registration Statement, their counsel or the managing underwriters, if any, shall reasonably object in writing on a timely basis unless, in the opinion of the Company, such filing is necessary to comply with applicable law. (b) Prepare and file with the SEC such amendments (including post- effective amendments) to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement; and cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the Securities Act. (c) Notify the Holders registering Registrable Shares as part of such Registration Statement, their counsel and the managing underwriters, if any, promptly and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post- effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related Prospectus or for additional information regarding the Holders registering shares as part of such Registration Statement, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 5(j) below cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (vi) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed to be incorporated therein by reference so that in the case of the Registration Statement it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the 9 lifting of any suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction. (e) If requested by a Holder, furnish to counsel for the Holders and each managing underwriter, if any, without charge, one conformed copy of each Registration Statement as declared effective by the SEC and of each post- effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, each amended preliminary prospectus, each final Prospectus and each post-effective amendment or supplement thereto, as the Holder may reasonably request in order to facilitate the disposition of the Registrable Shares covered by each Registration Statement in conformity with the requirements of the Securities Act. (f) Prior to any public offering of Registrable Shares, use reasonable best efforts to register or qualify such Registrable Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions in the United States as the holders of a majority of the Registrable Shares to which such public offering relates shall reasonably request in writing; and do any and all other reasonable acts or things necessary or advisable to enable the Holders to consummate the disposition in such jurisdictions of such Registrable Shares covered by the Registration Statement, provided, however, that the Company shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to execute or file a consent to general service of process in any such jurisdiction where it has not theretofore done so or to take any action that would subject it to service of process or taxation in any such jurisdiction where it is not then subject. (g) Except during any Delay Period, upon the occurrence of any event contemplated by Sections 5(c)(ii) or 5(c)(vi) above, prepare a supplement or post-effective amendment to each Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (h) Use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange or quoted on each automated interdealer quotation system, if any, on which the shares of Company Common Stock are then listed or quoted. 10 (i) On or before the effective date of the Registration Statement, provide the transfer agent of the Company for the Registrable Shares with printed certificates for the Registrable Shares, which are in a form eligible for deposit with The Depository Trust Company. (j) If requested by the Holders of a majority of the Registrable Shares being sold, enter into one or more customary "firm commitment" or "best efforts" underwriting agreements, engagement letters, agency agreements or similar agreements, as appropriate, and in such connection, whether or not any such agreement is entered into and whether or not the Registration is an underwritten registration, the Company shall (i) make such representations and warranties to the holders of such Registrable Shares and the underwriters, if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and if true, confirm the same if and when requested, (ii) use its reasonable efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and counsel to such Holders of the Registrable Shares being sold), addressed to each such selling Holder of Registrable Shares and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (iii) use its reasonable efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each such selling Holder of Registrable Shares (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures substantially to the effect set forth in Section 8 hereof with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder. (k) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, or any similar rule promulgated under the 11 Securities Act, no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days after the end of any twelve (12) month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Shares are sold to underwriters in a "firm commitment" or "best efforts" underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said twelve (12) month periods. The Company may require each seller of Registrable Shares as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Shares as the Company may, from time to time, request in writing and as, in the opinion of counsel for the Company, is required by law to effect such registration. If any such information with respect to a seller or such distribution of Registrable Shares is not furnished within a reasonable period of time after receipt of such request, the Company may exclude such Shareholder's Registrable Shares from such Registration Statement. Each seller of Registrable Shares agrees to notify the Company as promptly as practicable following its discovery of any material inaccuracy or material change in information so furnished by such seller to the Company or of the occurrence of any event that causes any prospectus relating to such registration to contain an untrue statement of a material fact or omit to state any material fact regarding such seller or such distribution of Registrable Shares that is required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. Each holder of Registrable Shares agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi) hereof, that such Holder shall forthwith discontinue disposition of such Registrable Shares covered by such Registration Statement or Prospectus until receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(g) hereof, or until such Holder is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amended or supplemented Prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such Prospectus and, if requested by the Company, such Holder shall deliver to the Company (at the expense of the Company) all copies then in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each holder of Registrable Shares further agrees not to utilize any material other than the applicable current Prospectus in connection 12 with the offering of Registrable Shares pursuant to a Demand Registration or otherwise hereunder. SECTION 6. Registration Expenses. (a) Whether or not any Registration Statement becomes effective, the Company shall pay all costs, fees and expenses incident to the Company's performance of or compliance with this Agreement, including without limitation (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or Blue Sky laws, (iii) printing expenses (including without limitation expenses of printing certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter, if any, or by the Holders of a majority of the Registrable Shares included in any Registration Statement), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Company and one special counsel for the sellers of Registrable Shares (subject to the provisions of Section 6(b) hereof), and (vi) fees and disbursements of all independent certified public accountants of the Company (including without limitation expenses of any "cold comfort" letters required in connection with this Agreement) and all other persons retained by the Company in connection with the Registration Statement. In addition, the Company shall pay its internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed. Notwithstanding the foregoing, each participating Holder shall pay all commissions, fees or discounts payable to brokers, dealers or underwriters and all transfer taxes in connection with the sale of its Registrable Shares. (b) In connection with any Demand Registration or Piggyback Registration (including any "shelf" registration in connection therewith) hereunder, the Company shall reimburse the Holders of the Registrable Shares being registered in such registration for the reasonable fees and disbursements of not more than one counsel (together with appropriate local counsel, if required) chosen by the Holders of a majority of all of such Registrable Shares. SECTION 7. Underwritten Registrations. (a) Subject to Section 7(b) hereof, the Holders shall have the right, by written notice, to request that any Demand Registration be made pursuant to an underwritten offering. (b) In the case of any underwritten registration, the Company shall select (with the consent of the participating Holders) the institution or institutions that shall manage or lead the offering or 13 placement. The Holders shall not be entitled to participate unless and until it or they shall enter into an underwriting or other agreement with such lead institutions for such offering in such form as the Company and such lead institutions shall reasonably determine. SECTION 8. Indemnification. (a) Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the officers, directors and agents and employees of each of them, each Person who controls each such holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparing, investigating or defending such claim and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon information furnished in writing to the Company by such holder expressly for use therein or any violation or alleged violation by the Company of the Securities Act, Exchange Act or any other federal or state securities laws, rule or regulation applicable to the Company and relating to the action or inaction by the Company in connection with any such registration or qualification; provided, however, that the Company shall not be liable to any Holder of Registrable Shares to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder of a Registrable Security to the person asserting the claim from which such Losses arise and (ii) the Prospectus would have corrected in all material respects such untrue statement or alleged untrue statement or such omission or alleged omission; and provided further, that the Company shall not be liable in any such case to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Prospectus, if (x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in all material respects in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder 14 thereafter fails to deliver such Prospectus as so amended or supplemented, prior to or concurrently with the sale of a Registrable Security to the person asserting the claim from which such Losses arise. (b) Indemnification by Holder of Registrable Securities. In connection with any Registration Statement in which a Holder of Registrable Securities is participating, such holder of Registrable Securities shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement or Prospectus and agrees to indemnify, to the full extent permitted by law (but in no event in an amount to exceed the gross proceeds received by such Holder upon the sale of its Shares pursuant to such Registration Statement), the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling persons, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is contained in any information so furnished in writing by such holder to the Company expressly for use in such Registration Statement or Prospectus and that such information was relied upon by the Company in preparation of such Registration Statement or Prospectus or amendment, supplement or preliminary prospectus. (c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an "indemnified party"), such indemnified party shall give prompt written notice to the party from which such indemnity is sought (the "indemnifying party") of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced materially by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party's expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified 15 party unless: (l) the indemnifying party agrees in writing to pay such fees and expenses, (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party, or (c) in the judgment of counsel to such indemnified party a conflict of interest is reasonably likely to exist between such indemnified party and any other of such indemnified parties with respect to such proceeding (in which case the indemnified party shall have the right to employ counsel and to assume the defense of such claim or proceeding); provided, however, that the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The indemnifying party shall not, without the written consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder. (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms) or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. 16 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provision of this Section 8(d), an indemnifying party that is a selling holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. SECTION 9. Miscellaneous. 9.1 Termination. This Agreement and the obligations of the Company hereunder shall terminate on the earliest of (i) the tenth anniversary of the date hereof and (ii) the first date on which all Registrable Shares shall exist. 9.2 Notices. All notices or communications hereunder shall be in writing (including telecopy or similar writing), addressed to the Holders as set forth on the signature pages hereto, and to the Company as follows: To the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Attention: Robert C. Joyner, Senior Vice President and General Counsel Telecopier No.: 713-873-6686 With a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, CA 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Any such notice or communication shall be deemed given (i) when made, if made by hand delivery, (ii) one business day after being deposited with a next- day courier, postage prepaid, or (iii) three business days after being sent certified or registered mail, return 17 receipt requested, postage prepaid, in each case addressed as above (or to such other address as such party may designate in writing from time to time). 9.3 Separability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. 9.4 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Holder so long as such assignee becomes a party to and fully bound by this Agreement prior to or concurrently with such assignment. 9.5 Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof. This Agreement may be amended at any time by mutual written agreement of the parties hereto. 9.6 Publicity. Each of the Holders and the Company agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party, except to the extent that the Holders or the Company is advised by counsel that such release or announcement is necessary or advisable under applicable law or the rules or regulations of any securities exchange, in which case the party required to make the release or announcement shall provide the other party with an opportunity to review and comment on such release or announcement in advance of its issuance. 9.7 Expenses. Except as otherwise specifically provided in Section 6 hereof, whether or not the transactions contemplated hereby are consummated, except as otherwise provided herein, all costs and expenses incurred in connection with theis Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. 9.8 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.9 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts 18 have been signed by each of the parties and delivered to the other party. 9.10 Governing Law; Venue. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of Incorporation of Paracelsus, without reference to rules relating to conflicts of law. 9.11 Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day. 9.12 No Inconsistent Agreements. The Company has not, as of the date hereof, and shall not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Shares in this Agreement or otherwise conflicts with the provisions hereof. 9.13 Participation by Holders. Each Holder hereby agrees that it may not participate in any offering hereunder unless it (i) agrees to sell the Registrable Shares to be included by it therein in the manner and upon the terms and conditions provided in any underwriting or other agreement approved by the persons entitled hereunder to determine the method of distribution thereof and (ii) completes and executes such questionnaires, powers of attorney, indemnities, underwriting agreements or other similar documents reasonably required in accordance with the terms hereof or any agreement contemplated by the foregoing clause (i). 9.14 Amendment. This Agreement, as to any amendment of rights, may be amended, and the Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment action or omission to act given by the Holders of at lease a majority of the then existing Registrable Shares. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement is sought. 19 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ CHARLES R. MILLER ------------------------------------ Name: Charles R. Miller Title: President & COO BAHRAIN INTERNATION BANK E.C. Metro Center One Station Place Stamford, Connecticut 06902 Telephone: (203) 353-5711 Telecopy: (203) 353-5719 By: \s\ SAMEER AL ARADI ------------------------------------ Name: Sameer Al Aradi Title: Chief Financial Officer ------------------------------------ Raphael A. Luccasen, Jr. 2121 Viking Circle Vestavia Hills, Alabama 35216 Telephone: (205) 823-4641 Telecopy: (205) 985-2430 \s\ KATHY A CONNOR ------------------------------------ 2130 Russet Meadows Drive Birmingham, Alabama 35244 Telephone: (205) 428-2277 Telecopy: (205) 428-9030 ------------------------------------ Thomas M. Rodgers, Jr. 1466 West Wesley Road Atlanta, Georgia 30327 Telephone: (404) 351-7744 Telecopy: (404) 351-7117 20 COMMON SHAREHOLDERS REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of August , 1996, by and among PARACELSUS HEALTHCARE CORPORATION, a California corporation (together with its permitted successors and assigns, the "Company"), and the persons whose signatures appear on the execution pages of this Agreement (collectively, and with any subsequent holders of Registrable Shares (as defined below) pursuant to the terms hereof, the "Holders"). WHEREAS, in connection with that certain Amended and Restated Merger Agreement dated as of May 29, 1996 (as further amended from time to time in accordance with the terms thereof (the "Merger Agreement"), by and among the Company, Champion Healthcare Corporation, a Delaware corporation, and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, the Company has agreed to provide the Holders, including the holders of Registrable Shares representing the right to acquire 1% or more of the shares of the Company Common Stock (as defined below) (the "Major Holders" as identified on the signature pages hereto) and certain of their affiliates (the "affiliated holders" as identified on the signature pages hereto, who together with the Major Holders, constitute the Holders) with the registration rights set forth in this Agreement; NOW, THEREFORE, the parties hereto, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be bound hereby, agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Affiliate: With respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "con trolled" have meanings correlative to the foregoing. Agreement: See the introductory clauses hereof. Business Day: Any day that is not a Saturday, a Sunday, a legal holiday or a day on which banking institutions in the States of New York or Texas are not required to be open. Company: See the introductory clauses hereof. 21 Company Common Stock: The common stock, no stated value per share, of the Company or any other shares of capital stock of the Company into which such stock shall be reclassified or changed. After the date hereof, if the Company Common Stock has been so reclassified or changed, or if the Company pays a dividend or makes a distribution of the Company Common Stock in shares of capital stock, or subdivides (or combines) its outstanding shares of the Company Common Stock into a greater (or smaller) number of shares of the Company Common Stock, a share of the Company Common Stock shall be deemed to be such number of shares of capital stock and amount of other securities to which a holder of a share of the Company Common Stock outstanding immediately prior to such reclassification, exchange, dividend, distribution, subdivision or combination would be entitled. Delay Period: See Section 2(c) hereof. Demand Notice: See Section 2(a) hereof. Demand Registration: See Section 2(b) hereof. Effectiveness Period: See Section 2(c) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Holders: See the introductory clauses hereof. indemnified party: See Section 8(c) hereof. indemnifying party: See Section 8(c) hereof. Losses: See Section 8(a) hereof. Merger Agreement: See the introductory clauses hereof. person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Piggyback Registration: See Section 3(a) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A or any term sheet meeting the requirements of Rule 434), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement 22 and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Registrable Shares: Each Share until (i) a registration statement (other than the Registration Statement on Form S-4 effective prior to the date hereof) covering such Shares has been declared effective by the SEC and such Share has been disposed of pursuant to such effective registration statement, (ii) such Shares can be sold pursuant to Rule 145((d)(3) (or any successor provision then in force) under the Securities Act or (iii) such Share is otherwise freely transferable under the Securities Act. Registration Statement: Any registration statement of the Company under the Securities Act that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shares: The shares of Company Common Stock beneficially owned immediately after the effective time of the merger contemplated by the Merger Agreement by the Holders set forth on the signature pages hereto. underwritten registration or underwritten offering: A registration or offering in which securities of the Company are sold to an underwriter for reoffering to the public. SECTION 2. Demand Registration. (a ) The Holders of 25% or more of the then existing Registrable Shares held by all Major Holders shall have the right, by written notice (the "Demand Notice") given to the Company so long as this Agreement has not been terminated in accordance with Section 9.1 hereof, to request that the Company register under and in accordance with the provisions of the Securities Act all or part of the Registrable Shares designated by such holders; provided, that the Demand Notice may not be exercised prior to 180 days after the date of this Agreement. The Demand Notice shall specify shall specify the amount of Registrable Shares to be 23 registered and the intended methods of disposition thereof. The Major Holders shall be entitled in the aggregate to one Demand Registration pursuant to this Section 2 unless a Demand Registration did not become effective or was not maintained effective for a period (whether or not continuous) of at least 120 days or such shorter period at the end of which all Registrable Shares covered by such Demand Registration have been sold pursuant thereto, in which case the Holders will be entitled in the aggregate to one additional Demand Registration pursuant hereto for each instance in which the condition set forth above had not been satisfied. (b ) The Company shall file with, and shall use reasonable best efforts to cause to be declared effective by, the SEC within 90 days of the date on which the Company first receives the Demand Notice given by the Major Holders pursuant to Section 2 hereof, a Registration Statement under the Securities Act relating to the number of Registrable Shares specified in such Demand Notice (a "Demand Registration"); provided, that the Company shall have the right for a reasonable period of time not in excess of 90 days (exercisable by delivery of reasonable notice to the Major Holders of Registrable Shares included in such Registration Statement) to delay the filing of such Registration Statement if, in the Company's good faith exercise of its reasonable business judgment, (i) such registration and offering would adversely affect or interfere with a pending bona fide corporate transaction involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of any shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b6 under the Exchange Act; provided, that the Company may so delay the filing of such Registration Statement with respect to any one Demand Registration twice, but no more than twice, in any twelve-month period. (c ) The Company agrees to use reasonable best efforts to keep any Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of Registrable Shares for a period of 120 days from the date on which the SEC declares such Registration Statement effective or such shorter period which will terminate when all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement. The foregoing notwithstanding, the Company shall have the right to suspend the use of the Registration Statement for a reasonable length of time not exceeding with respect to any one Demand Registration an aggregate of 90 days (a "Delay Period") if and only if in the good faith exercise of the Company's reasonable business judgment (i) such use would adversely affect or interfere with a pending bona fide corporate transaction 24 involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of any shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b-6 under the Exchange Act; provided, that the Company may so suspend sales with respect to any one Demand Registration twice, but no more than twice, in any twelvemonth period. The Company shall provide written notice to the Major Holders of the beginning and end of each Delay Period and the Major Holders shall cease all disposition efforts with respect to Registrable Shares held by them immediately upon receipt of notice of the beginning of any Delay Period. The period for which the Company is required to maintain the effectiveness of the Registration Statement shall be extended by the aggregate number of days of all Delay Periods. Such period, including the extension thereof required by the preceding sentence, is hereafter referred to as the "Effectiveness Period." (d ) In the case of a proposed offering pursuant to a Demand Registration, the Company may, in its sole discretion, include shares of Company Common Stock in such Demand Registration (whether for the account of the Company or otherwise, including without limitation shares of Company Common Stock held by security holders, if any, who have piggyback registration rights with respect thereto) on the same terms and conditions as the Registrable Shares. Notwithstanding the foregoing, if the Company or, in case of any underwritten public offering, the managing underwriter or underwriters participating in such offering conclude that the total amount of shares of Company Common Stock requested to be included in such Demand Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of all holders other than the Company and the Major Holders shall be reduced (to zero if necessary) pro rata on the basis of the number of shares of Company Common Stock requested to be registered by each such Holder. If, after such cut back, the Company or such underwriter concludes that the total amount of securities to be included in such Demand Registration still materially and adversely affects the success of such offering, then the amount of securities to be offered for the account of the Company shall be reduced (to zero if necessary). (e ) If at any time the Major Holders of two-thirds of the Registrable Shares which were requested to be included pursuant to Section 2(a) shall, by written notice to the Company, request the Registration Statement not be declared effective or otherwise request a termination or withdrawal of the Registration Statement, and no Shares included in such Registration Statement have been sold pursuant thereto, 25 then provided such requesting Major Holders reimburse the Company for its out of picket costs incurred in connection with complying with the request to register such Shares, the Company shall terminate such registration statement and the Company's obligation under paragraph 2(a) shall continue as though such request to file a Registration Statement thereunder shall not have been made; provided, that the holders may not give a Demand Notice within six months of the date the Company terminates or withdraws such Registration Statement. SECTION 3. Piggyback Registration. (a ) Right to Piggyback. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering of Company Common Stock (other than a registration statement (i) on Form S-4 or S- 8 or any successor forms thereto, or (ii) filed solely in connection with an exchange offer or dividend reinvestment plan) whether or not for its own account, then the Company shall give written notice of such proposed filing to the Holders at least twenty five days before the anticipated filing date. Such notice shall offer the Holders the opportunity to register such amount of Registrable Shares as they may request (a "Piggyback Registration"). Subject to Section 3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within ten Business days after notice has been given to the applicable holder. The Holders shall be permitted to withdraw all or part of the Registrable Shares from a Piggyback Registration by giving written notice to the Company at least one Business Day prior to the expected or actual effective date of such Piggyback Registration. (b ) Priority on Piggyback Registrations. The Company shall permit the Holders to include all such Registrable Shares on the same terms and conditions as any similar securities, if any, of the Company included therein. Notwithstanding the foregoing, if the Company or an underwriter participating in such offering concludes in good faith that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of the Holders shall be reduced in the following manner: (i) if such Piggyback Registration was initiated as a result of a primary registration on behalf of the Company, (and not a secondary on behalf of holders of securities of the Company pursuant to a holders demand registration right), the amount of securities to be offered for the account of the Holders and other holders of securities who have piggyback registration rights with respect thereto shall be reduced (to zero if necessary) pro rata on a basis of the number of capital stock 26 equivalents requested to be registered by each such older participating in such offering; and (ii) if such Piggyback Registration was initiated by a stockholder demand for an underwritten secondary registration on behalf of holders of securities of the Company other than the Holders, the Company shall include in such registration: (x) first, up to the full number of common stock equivalents of such persons exercising "demand" registration rights, and (y) second, the number of securities to be offered for the account of the Holders and other holders of securities who have piggyback registration rights with respect thereto in excess of the amount of securities such persons exercising "demand" registration rights propose to sell (allocated pro rata on the basis of the number of common stock equivalents requested to be registered by such holders). SECTION 4. Hold-Back Agreements. The Holders agree, if requested by the Company or the managing underwriter in connection with a public offering of equity securities of the Company (whether for the account of the Company or otherwise), not to effect any public sale or distribution of any shares of Company Common Stock, including a sale pursuant to Rule 144 (except as part of such underwritten registration), during a period equivalent to that requested by the Company or such underwriter, provided that such period shall not exceed 120 days in the first such offering by the Company and 90 days in all such offerings thereafter. SECTION 5. Registration Procedures. In connection with the registration obligations of the Company and in accordance with Sections 2 and 3 hereof, the Company will use its best efforts to effect such registrations to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: (a) Prepare and file with the SEC a Registration Statement or Registration Statements on such form which shall be available for the sale of the Registrable Shares by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use reasonable best efforts to cause such Registration Statement to become effective as soon as practicable after such filing and to remain effective as provided herein; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference), the Company shall, upon the written request of participating Holders, furnish or otherwise make available to such holders of the Registrable Shares covered by such Registration Statement, their counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents will be 27 subject to the review of such holders, their counsel and such underwriters, if any, provided, however, that the Company shall not be required to deliver to such holders a copy of any such document that has not been materially changed from a copy of such document that was previously delivered to such holders. The Company shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto (including such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) to which the holders of a majority of the Registrable Shares covered by such Registration Statement, their counsel or the managing underwriters, if any, shall reasonably object in writing on a timely basis unless, in the opinion of the Company, such filing is necessary to comply with applicable law. (b) Prepare and file with the SEC such amendments (including post- effective amendments) to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement; and cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the Securities Act. (c) Notify the Holders registering Registrable Shares as part of such Registration Statement, their counsel and the managing underwriters, if any, promptly and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post- effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related Prospectus or for additional information regarding the Holders registering shares as part of such Registration Statement, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 5(j) below cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (vi) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed to be incorporated therein by reference so that in the case of the Registration Statement it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus it will not contain any untrue statement of a material fact 28 or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction. (e ) If requested by a Holder, furnish to counsel for the Holders and each managing underwriter, if any, without charge, one conformed copy of each Registration Statement as declared effective by the SEC and of each post- effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, each amended preliminary prospectus, each final Prospectus and each post-effective amendment or supplement thereto, as the Holder may reasonably request in order to facilitate the disposition of the Registrable Shares covered by each Registration Statement in conformity with the requirements of the Securities Act. (f ) Prior to any public offering of Registrable Shares, use reasonable best efforts to register or qualify such Registrable Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions in the United States as the holders of a majority of the Registrable Shares to which such public offering relates shall reasonably request in writing; and do any and all other reasonable acts or things necessary or advisable to enable the Holders to consummate the disposition in such jurisdictions of such Registrable Shares covered by the Registration Statement, provided, however, that the Company shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to execute or file a consent to general service of process in any such jurisdiction where it has not theretofore done so or to take any action that would subject it to service of process or taxation in any such jurisdiction where it is not then subject. (g) Except during any Delay Period, upon the occurrence of any event contemplated by Sections 5(c)(ii) or 5(c)(vi) above, prepare a supplement or post-effective amendment to each Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 29 (h) Use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange or quoted on each automated interdealer quotation system, if any, on which the shares of Company Common Stock are then listed or quoted. (i) On or before the effective date of the Registration Statement, provide the transfer agent of the Company for the Registrable Shares with printed certificates for the Registrable Shares, which are in a form eligible for deposit with The Depository Trust Company. (j) If requested by the Holders of a majority of the Registrable Shares being sold, enter into one or more customary "firm commitment" or "best efforts" underwriting agreements, engagement letters, agency agreements or similar agreements, as appropriate, and in such connection, whether or not any such agreement is entered into and whether or not the Registration is an underwritten registration, the Company shall (i) make such representations and warranties to the holders of such Registrable Shares and the underwriters, if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and if true, confirm the same if and when requested, (ii) use its reasonable efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and counsel to such Holders of the Registrable Shares being sold), addressed to each such selling Holder of Registrable Shares and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (iii) use its reasonable efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each such selling Holder of Registrable Shares (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures substantially to the effect set forth in Section 8 hereof with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each 30 closing under such underwriting or similar agreement, or as and to the extent required thereunder. (k) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, or any similar rule promulgated under the Securities Act, no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days after the end of any twelve (12) month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Shares are sold to underwriters in a "firm commitment" or "best efforts" underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said twelve (12) month periods. The Company may require each seller of Registrable Shares as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Shares as the Company may, from time to time, request in writing and as, in the opinion of counsel for the Company, is required by law to effect such registration. If any such information with respect to a seller or such distribution of Registrable Shares is not furnished within a reasonable period of time after receipt of such request, the Company may exclude such Shareholder's Registrable Shares from such Registration Statement. Each seller of Registrable Shares agrees to notify the Company as promptly as practicable following its discovery of any material inaccuracy or material change in information so furnished by such seller to the Company or of the occurrence of any event that causes any prospectus relating to such registration to contain an untrue statement of a material fact or omit to state any material fact regarding such seller or such distribution of Registrable Shares that is required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. Each holder of Registrable Shares agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi) hereof, that such Holder shall forthwith discontinue disposition of such Registrable Shares covered by such Registration Statement or Prospectus until receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(g) hereof, or until such Holder is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amended or supplemented Prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such Prospectus and, if requested by the Company, such Holder shall deliver 31 to the Company (at the expense of the Company) all copies then in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each holder of Registrable Shares further agrees not to utilize any material other than the applicable current Prospectus in connection with the offering of Registrable Shares pursuant to a Demand Registration or otherwise hereunder. SECTION 6. Registration Expenses. (a) Whether or not any Registration Statement becomes effective, the Company shall pay all costs, fees and expenses incident to the Company's performance of or compliance with this Agreement, including without limitation (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or Blue Sky laws, (iii) printing expenses (including without limitation expenses of printing certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter, if any, or by the Holders of a majority of the Registrable Shares included in any Registration Statement), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Company and one special counsel for the sellers of Registrable Shares (subject to the provisions of Section 6(b) hereof), and (vi) fees and disbursements of all independent certified public accountants of the Company (including without limitation expenses of any "cold comfort" letters required in connection with this Agreement) and all other persons retained by the Company in connection with the Registration Statement. In addition, the Company shall pay its internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed. Notwithstanding the foregoing, each participating Holder shall pay all commissions, fees or discounts payable to brokers, dealers or underwriters and all transfer taxes in connection with the sale of its Registrable Shares. (b) In connection with any Demand Registration or Piggyback Registration (including any "shelf" registration in connection therewith) hereunder, the Company shall reimburse the Holders of the Registrable Shares being registered in such registration for the reasonable fees and disbursements of not more than one counsel (together with appropriate local counsel, if required) chosen by the Holders of a majority of all of such Registrable Shares. SECTION 7. Underwritten Registrations. 32 (a) Subject to Section 7(b) hereof, the Holders shall have the right, by written notice, to request that any Demand Registration be made pursuant to an underwritten offering. (b) In the case of any underwritten registration, the Company shall select (with the consent of the participating Holders) the institution or institutions that shall manage or lead the offering or placement. The Holders shall not be entitled to participate unless and until it or they shall enter into an underwriting or other agreement with such lead institutions for such offering in such form as the Company and such lead institutions shall reasonably determine. SECTION 8. Indemnification. (a) Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the officers, directors and agents and employees of each of them, each Person who controls each such holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparing, investigating or defending such claim and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon information furnished in writing to the Company by such holder expressly for use therein or any violation or alleged violation by the Company of the Securities Act, Exchange Act or any other federal or state securities laws, rule or regulation applicable to the Company and relating to the action or inaction by the Company in connection with any such registration or qualification; provided, however, that the Company shall not be liable to any Holder of Registrable Shares to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder of a Registrable Security to the person asserting the claim from which such Losses arise and (ii) the Prospectus would have corrected in all material respects such untrue statement or alleged untrue statement or such omission or alleged omission; and provided further, that the Company shall not be liable in 33 any such case to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Prospectus, if (x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in all material respects in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented, prior to or concurrently with the sale of a Registrable Security to the person asserting the claim from which such Losses arise. (b) Indemnification by Holder of Registrable Securities. In connection with any Registration Statement in which a Holder of Registrable Securities is participating, such holder of Registrable Securities shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement or Prospectus and agrees to indemnify, to the full extent permitted by law (but in no event in an amount to exceed the gross proceeds received by such Holder upon the sale of its Shares pursuant to such Registration Statement), the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling persons, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is contained in any information so furnished in writing by such holder to the Company expressly for use in such Registration Statement or Prospectus and that such information was relied upon by the Company in preparation of such Registration Statement or Prospectus or amendment, supplement or preliminary prospectus. (c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an "indemnified party"), such indemnified party shall give prompt written notice to the party from which such indemnity is sought (the "indemnifying party") of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced materially by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written 34 notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party's expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (l) the indemnifying party agrees in writing to pay such fees and expenses, (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party, or (c) in the judgment of counsel to such indemnified party a conflict of interest is reasonably likely to exist between such indemnified party and any other of such indemnified parties with respect to such proceeding (in which case the indemnified party shall have the right to employ counsel and to assume the defense of such claim or proceeding); provided, however, that the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The indemnifying party shall not, without the written consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder. (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms) or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material 35 fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. Notwithstanding the foregoing, any parties' contribution obligation pursuant to this Section 8(d) shall be subject to all limitations applicable to such parties' indemnification obligations as set forth in this Section 8, including without limitation, the maximum liability of any Holder set forth in Section 8(b). The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provision of this Section 8(d), an indemnifying party that is a selling holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. SECTION 9. Miscellaneous. 9.1 Termination. This Agreement and the obligations of the Company hereunder shall terminate on the earliest of (i) the tenth anniversary of the date hereof and (ii) the first date on which all Registrable Shares shall exist. 9.2 Notices. All notices or communications hereunder shall be in writing (including telecopy or similar writing), addressed to the Holders as set forth on the signature pages hereto, and to the Company as follows: To the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Attention: Robert C. Joyner, Senior Vice President and General Counsel Telecopier No.: 713-873-6686 36 With a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, CA 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Any such notice or communication shall be deemed given (i) when made, if made by hand delivery, (ii) one business day after being deposited with a next- day courier, postage prepaid, or (iii) three business days after being sent certified or registered mail, return receipt requested, postage prepaid, in each case addressed as above (or to such other address as such party may designate in writing from time to time). 9.3 Separability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. 9.4 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Holder so long as such assignee becomes a party to and fully bound by this Agreement prior to or concurrently with such assignment. 9.5 Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof. This Agreement may be amended at any time by mutual written agreement of the parties hereto. 9.6 Publicity. Each of the Holders and the Company agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party, except to the extent that the Holders or the Company is advised by counsel that such release or announcement is necessary or advisable under applicable law or the rules or regulations of any securities exchange, in which case the party required to make the release or announcement shall provide the other party with an opportunity to review and comment on such release or announcement in advance of its issuance. 9.7 Expenses. Except as otherwise specifically provided in Section 6 hereof, whether or not the transactions contemplated hereby are consummated, except as otherwise provided herein, all costs and 37 expenses incurred in connection with the performance of this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. 9.8 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.9 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. 9.10 Governing Law; Venue. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of Incorporation of Paracelsus, without reference to rules relating to conflicts of law. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of incorporation of Paracelsus and the Federal courts of the United States of America located in the State of incorporation of Paracelsus Solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waive and agree not to assert, as a defense in any action, suite or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suite or proceedings may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in a State or Federal court in the State of incorporation of Paracelsus. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 9.2 hereof shall be valid and sufficient service hereof. 9.11 Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day. 9.12 No Inconsistent Agreements. The Company has not, as of the date hereof, and shall not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable 38 Shares in this Agreement or otherwise conflicts with the provisions hereof. 9.13 Participation by Holders. Each Holder hereby agrees that it may not participate in any offering hereunder unless it (i) agrees to sell the Registrable Shares to be included by it therein in the manner and upon the terms and conditions provided in any underwriting or other agreement approved by the persons entitled hereunder to determine the method of distribution thereof and (ii) completes and executes such questionnaires, powers of attorney, indemnities, underwriting agreements or other similar documents reasonably required in accordance with the terms hereof or any agreement contemplated by the foregoing clause (i). 9.14 Amendment. This Agreement, as to any amendment of rights, may be amended, and the Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment action or omission to act given by the Holders of at lease a majority of the then existing Registrable Shares. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement is sought. 39 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ CHARLES R. MILLER ------------------------------------ Name: Charles R. Miller Title: President & COO FRONTENAC VI LIMITED PARTNERSHIP 135 South LaSalle Street Suite 8800 Chicago, Illinois 60603 Telephone: (312) 368-0044 Telecopy: (312) 368-9520 By: Frontenac Company, its General Partner By: \s\ LAURA P. PEARL ------------------------------------ Name: Laura P. Pearl Title: General Partner FRONTENAC DIVERSIFIED III LIMITED PARTNERSHIP 135 South LaSalle Street Suite 8800 Chicago, Illinois 60603 Telephone: (312) 368-0044 Telecopy: (312) 368-9520 By: Frontenac Company, its General Partner By: \s\ LAURA P. PEARL ------------------------------------ Name: Laura P. Pearl Title: General Partner EQUITY-LINKED INVESTORS - II* c/o DESAI CAPITAL MANAGEMENT INC. 540 Madison Avenue - 36th Floor New York, New York 10022 Telephone: (212) 838-9191 40 Telecopy: (212) 838-9807 By: Rohit M. Desai Associates - II its General Partner By: ------------------------------------ Name: Rohit M. Desai Title: General Partner EQUITY-LINKED INVESTORS - LP* c/o DESAI CAPITAL MANAGEMENT INC. 540 Madison Avenue - 36th Floor New York, New York 10022 Telephone: (212) 838-9191 Telecopy: (212) 838-9807 By: Rohit M. Desai Associates its General Partner By: ------------------------------------ Name: Rohit M. Desai Title: General Partner OLYMPUS PRIVATE PLACEMENT FUND, L.P.* Metro Center, One Station Place Stamford, Connecticut 06902 Telephone: (203) 353-5903 Telecopy: (203) 353-5910 By: OGP Partners, L.P. its General Partner By: \s\ JAMES A. CONROY ------------------------------------ Name: James A. Conroy Title: General Partner of the General Partner EQUUS II INCORPORATED 292 Allen Parkway, Suite 2500 Houston, Texas 77019 Telephone: (713) 529-0900 Telecopy: (713) 529-9545 41 By: \s\ NOLAN LEHMANN ------------------------------------ Name: Nolan Lehmann Title: President EQUUS CAPITAL PARTNERS 292 Allen Parkway, Suite 2500 Houston, Texas 77019 Telephone: (713) 529-0900 Telecopy: (713) 529-9545 By: Equus Capital Partners its General Partner By: \s\ NOLAN LEHMANN ------------------------------------ Name: Nolan Lehmann Title: President WPG CORPORATE DEVELOPMENT ASSOCIATES III, L.P. One New York Plaza, 30th Floor New York, New York 10004 Telephone: (212) 908-9713 Telecopy: (212) 908-0112 By: WPG CDA III, L.P. By: \s\ PETER B. PFISTER ------------------------------------ Name: Peter B. Pfister Title: General Partner WPG CORPORATE DEVELOPMENT ASSOCIATES III, (OVERSEAS) L.P. Bank America House, Fort Street George Town, Grand Cayman, BWI Telephone: (809) 949-7888 Telecopy: (809) 949-7883 By: \s\ ROBIN JARVIS ------------------------------------ Name: Robin Jarvis Title: Director 42 RFE CAPITAL PARTNERS, L.P. 36 Grove Street New Canaan, Connecticut 06840 Telephone: (203) 966-2800 Telecopy: (203) 966-3109 By: Norcon Associates its General Partner By: \s\ ROBERT M. WILLIAMS ------------------------------------ Name: Robert M. Williams Title: General Partner RFE INVESTMENT PARTNERS IV, L.P. 36 Grove Street New Canaan, Connecticut 06840 Telephone: (203) 966-2800 Telecopy: (203) 966-3109 By: RFE Associates IV, L.P. its General Partner By: \s\ ROBERT M. WILLIAMS ------------------------------------ Name: Robert M. Williams Title: General Partner WILLIAM BLAIR VENTURE PARTNERS III* 222 West Adams Street Chicago, Illinois 60606 06840 Telephone: (312) 364-8250 Telecopy: (312) 236-1042 By: William Blair Venture Management, its General Partner By: ------------------------------------ Name: Gregg S. Newmark Title: General Partner HANCOCK VENTURE PARTNERS III, L.P. One Financial Center, 44th Floor Boston, Massachusetts 02111 Telephone: (617) 348-3721 Telecopy: (617) 350-0305 43 By: Back Bay Partners V.L.P. its General Partner By: John Hancock Venture Capital Management, Inc. By: ------------------------------------ Name: Carol Anderson Title: Authorized Officer JOHN HANCOCK VENTURE CAPITAL FUND LIMITED PARTNERSHIP II* One Financial Center, 44th Floor Boston, Massachusetts 02111 Telephone: (617) 348-3721 Telecopy: (617) 350-0305 By: Back Bay Partners V.L.P. its General Partner By: John Hancock Venture Capital Management, Inc. By: ------------------------------------ Name: Carol Anderson Title: Authorized Officer BAKER, FENTRESS & COMPANY* 200 West Madison Street Chicago, Illinois 60606 Telephone: (312) 236-9190 Telecopy: (312) 236-6772 By: ------------------------------------ Name: Scott E. Smith Title: Vice President VIRGINIA RETIREMENT SYSTEM* 1200 East Main Street Richmond, Virginia 23219 Telephone: (804) 344-3157 or 3146 Telecopy: (804) 371-6635 44 By: \s\ ERWIN H. WILL, JR. ------------------------------------ Name: Erwin H. Will, Jr. Title: Chief Investment Officer SPROUT GROWTH II, L.P.* 277 Park Avenue, 14th Floor New York, New York 10172 Telephone: (212) 892-3600 Telecopy: (212) 892-3444 By: DLJ Capital Corporation its Managing General Partner By: ------------------------------------ Name: Janet A. Hickey Title: SPROUT CAPITAL VI, L.P.* 277 Park Avenue, 14th Floor New York, New York 10172 Telephone: (212) 892-3600 Telecopy: (212) 892-3444 By: DLJ Capital Corporation its Managing General Partner By: ------------------------------------ Name: Janet A. Hickey Title: SPROUT GROWTH, L.P.* 277 Park Avenue, 14th Floor New York, New York 10172 Telephone: (212) 892-3600 Telecopy: (212) 892-3444 By: DLJ Capital Corporation its Managing General Partner By: ------------------------------------ Name: Janet A. Hickey Title: 45 DONALDSON, LUFKIN & JENRETTE, INC.* 277 Park Avenue, 14th Floor New York, New York 10172 Telephone: (212) 892-3600 Telecopy: (212) 892-3444 By: ------------------------------------ Name: Robert E. Diemar Title: DLJ CAPITAL CORPORATION* 277 Park Avenue, 14th Floor New York, New York 10172 Telephone: (212) 892-3600 Telecopy: (212) 892-3444 By: ------------------------------------ Name: Robert E. Diemar Title: FIRST INTERSTATE BANK OF CALIFORNIA, Trustee* 707 Wilshire Boulevard, W 11-2 Los Angeles, California 90017 Telephone: (213) 614-2408 Telecopy: (213) 614-2460 By: ------------------------------------ Name: Title: - ---------------- * - a Major Holder 46 SERIES E WARRANT HOLDERS REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of August , 1996, by and among PARACELSUS HEALTHCARE CORPORATION, a California corporation (together with its permitted successors and assigns, the "Company"), and the persons whose signatures appear on the execution pages of this Agreement (collectively, and with any subsequent holders of Registrable Shares (as defined below), the "Holders"). WHEREAS, in connection with that certain Amended and Restated Merger Agreement dated as of May 29, 1996 (as further amended from time to time in accordance with the terms thereof (the "Merger Agreement"), by and among the Company, Champion Healthcare Corporation, a Delaware corporation, and PC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, the Company has agreed to provide the Holders with the registration rights set forth in this Agreement; NOW, THEREFORE, the parties hereto, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be bound hereby, agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Affiliate: With respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "con trolled" have meanings correlative to the foregoing. Agreement: See the introductory clauses hereof. Business Day: Any day that is not a Saturday, a Sunday, a legal holiday or a day on which banking institutions in the States of New York or Texas are not required to be open. Company: See the introductory clauses hereof. Company Common Stock: The common stock, no stated value per share, of the Company or any other shares of capital stock of the Company into which such stock shall be reclassified 47 or changed. After the date hereof, if the Company Common Stock has been so reclassified or changed, or if the Company pays a dividend or makes a distribution of the Company Common Stock in shares of capital stock, or subdivides (or combines) its outstanding shares of the Company Common Stock into a greater (or smaller) number of shares of the Company Common Stock, a share of the Company Common Stock shall be deemed to be such number of shares of capital stock and amount of other securities to which a holder of a share of the Company Common Stock outstanding immediately prior to such reclassification, exchange, dividend, distribution, subdivision or combination would be entitled. Delay Period: See Section 2(c) hereof. Demand Notice: See Section 2(a) hereof. Demand Registration: See Section 2(b) hereof. Effectiveness Period: See Section 2(c) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Holders: See the introductory clauses hereof. indemnified party: See Section 8(c) hereof. indemnifying party: See Section 8(c) hereof. Losses: See Section 8(a) hereof. Merger Agreement: See the introductory clauses hereof. person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Piggyback Registration: See Section 3(a) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A or any term sheet meeting the requirements of Rule 434), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 48 Registrable Shares: The Shares until (i) a registration statement (other than the Registration Statement on Form S-4 effective prior to the date hereof) covering such Shares has been declared effective by the SEC and such Shares has been disposed of pursuant to such effective registration statement, (ii) such Shares can be sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force, but not Rule 144A) under the Securities Act are met or (iii) such Share is otherwise freely transferable under the Securities Act. Registration Statement: Any registration statement of the Company under the Securities Act that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shares: The shares of Company Common Stock issued or issuable upon exercise of warrants to purchase such shares, which warrants are held by the Holders as of the date of this Agreement as set forth on the signature pages hereto. underwritten registration or underwritten offering: A registration or offering in which securities of the Company are sold to an underwriter for reoffering to the public. SECTION 2. Demand Registration. (a ) The Holders of 50% or more of the then existing Registrable Shares shall have the right, by written notice (the "Demand Notice") given to the Company so long as this Agreement has not been terminated in accordance with Section 9.1 hereof, to request that the Company register under and in accordance with the provisions of the Securities Act all or part of the Registrable Shares designated by such holders. The Demand Notice shall specify shall specify the amount of Registrable Shares to be registered and the intended methods of disposition thereof. The Holders shall be entitled in the aggregate to one Demand Registration pursuant to this Section 2 unless a Demand Registration did not become effective or was not maintained effective for a period 49 (whether or not continuous) of at least 120 days or such shorter period at the end of which all Registrable Shares covered by such Demand Registration have been sold pursuant thereto, in which case the Holders will be entitled in the aggregate to one additional Demand Registration pursuant hereto for each instance in which the condition set forth above had not been satisfied. (b ) The Company shall file with, and shall use reasonable best efforts to cause to be declared effective by, the SEC within 90 days of the date on which the Company first receives the Demand Notice given by the Holders pursuant to Section 2 hereof, a Registration Statement under the Securities Act relating to the number of Registrable Shares specified in such Demand Notice (a "Demand Registration"); provided, that the Company shall have the right for a reasonable period of time not in excess of 90 days (exercisable by delivery of reasonable notice to the Holders of Registrable Shares included in such Registration Statement) to delay the filing of such Registration Statement if, in the Company's good faith exercise of its reasonable business judgment, (i) such registration and offering would adversely affect or interfere with a pending bona fide corporate transaction involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of any shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b6 under the Exchange Act; provided, that the Company may so delay the filing of such Registration Statement with respect to any one Demand Registration twice, but no more than twice, in any twelve-month period. (c ) The Company agrees to use reasonable best efforts to keep any Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of Registrable Shares for a period of 120 days from the date on which the SEC declares such Registration Statement effective or such shorter period which will terminate when all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement. The foregoing notwithstanding, the Company shall have the right to suspend the use of the Registration Statement for a reasonable length of time not exceeding with respect to any one Demand Registration an aggregate of 90 days (a "Delay Period") if and only if in the good faith exercise of the Company's reasonable business judgment (i) such use would adversely affect or interfere with a pending bona fide corporate transaction involving, or any bona fide financing by, the Company, (ii) the Company is in possession of material information that it determines, if disclosed in a registration statement, would have a material adverse effect on the business or operations of the Company and would not 50 otherwise be required under law to be publicly disclosed or (iii) the Company is engaged in a program for the purchase of any shares of Company Common Stock, unless such repurchase program and the requested registration may proceed concurrently pursuant to an exemption from Rule 10b6 under the Exchange Act; provided, that the Company may so suspend sales with respect to any one Demand Registration twice, but no more than twice, in any twelvemonth period. The Company shall provide written notice to the Holders of the beginning and end of each Delay Period and the Holders shall cease all disposition efforts with respect to Registrable Shares held by them immediately upon receipt of notice of the beginning of any Delay Period. The period for which the Company is required to maintain the effectiveness of the Registration Statement shall be extended by the aggregate number of days of all Delay Periods. Such period, including the extension thereof required by the preceding sentence, is hereafter referred to as the "Effectiveness Period." (d ) In the case of a proposed offering pursuant to a Demand Registration, the Company may, in its sole discretion, include shares of Company Common Stock in such Demand Registration (whether for the account of the Company or otherwise, including without limitation shares of Company Common Stock held by security holders, if any, who have piggyback registration rights with respect thereto) on the same terms and conditions as the Registrable Shares. Notwithstanding the foregoing, if the Company or, in case of any underwritten public offering, the managing underwriter or underwriters participating in such offering conclude that the total amount of shares of Company Common Stock requested to be included in such Demand Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of all holders other than the Company and the Holders shall be reduced (to zero if necessary) pro rata on the basis of the number of shares of Company Common Stock requested to be registered by each such Holder. If, after such cut back, the Company or such underwriter concludes that the total amount of securities to be included in such Demand Registration still materially and adversely affects the success of such offering, then the amount of securities to be offered for the account of the Company shall be reduced (to zero if necessary). (e ) If at any time the Holders of two-thirds of the Registrable Shares which were requested to be included pursuant to Section 2(a) shall, by written notice to the Company, request the Registration Statement not be declared effective or otherwise request a termination or withdrawal of the Registration Statement, and no Shares included in such Registration Statement have been sold pursuant thereto, then provided such requesting Holders reimburse the Company for its out of picket costs incurred in connection with complying with the request to register such Shares, the Company shall terminate such registration statement and the Company's obligation under paragraph 2(a) shall continue as though such request to file a Registration Statement 51 thereunder shall not have been made; provided, that the holders may not give a Demand Notice within six months of the date the Company terminates or withdraws such Registration Statement. SECTION 3. Piggyback Registration. (a ) Right to Piggyback. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering of Company Common Stock (other than a registration statement (i) on Form S-4 or S- 8 or any successor forms thereto, or (ii) filed solely in connection with an exchange offer or dividend reinvestment plan) whether or not for its own account, then the Company shall give written notice of such proposed filing to the Holders at least twenty five days before the anticipated filing date. Such notice shall offer the Holders the opportunity to register such amount of Registrable Shares as they may request (a "Piggyback Registration"). Subject to Section 3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within twenty days after notice has been given to the applicable holder. The Holders shall be permitted to withdraw all or part of the Registrable Shares from a Piggyback Registration by giving written notice to the Company at least one Business Day prior to the expected or actual effective date of such Piggyback Registration. (b ) Priority on Piggyback Registrations. The Company shall permit the Holders to include all such Registrable Shares on the same terms and conditions as any similar securities, if any, of the Company included therein. Notwithstanding the foregoing, if the Company or an underwriter participating in such offering concludes in good faith that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold without materially and adversely delaying or affecting the success of the offering, then the amount of securities to be offered for the account of the Holders shall be reduced in the following manner: (i) if such Piggyback Registration was initiated as a result of a primary registration on behalf of the Company, (and not a secondary on behalf of holders of securities of the Company pursuant to a holders demand registration right), the amount of securities to be offered for the account of the Holders and other holders of securities who have piggyback registration rights with respect thereto shall be reduced (to zero if necessary) pro rata on a basis of the number of capital stock equivalents requested to be registered by each such older participating in such offering; and (ii) if such Piggyback Registration was initiated by a stockholder demand for an underwritten secondary registration on behalf of holders of securities of the Company other than the Holders, the 52 Company shall include in such registration: (x) first, up to the full number of common stock equivalents of such persons exercising "demand" registration rights, and (y) second, the number of securities to be offered for the account of the Holders and other holders of securities who have piggyback registration rights with respect thereto in excess of the amount of securities such persons exercising "demand" registration rights propose to sell (allocated pro rata on the basis of the number of common stock equivalents requested to be registered by such holders). SECTION 4. Hold-Back Agreements. The Holders agree, if requested by the Company or the managing underwriter in connection with a public offering of equity securities of the Company (whether for the account of the Company or otherwise), not to effect any public sale or distribution of any shares of Company Common Stock, including a sale pursuant to Rule 144 (except as part of such underwritten registration), during a period equivalent to that requested by the Company or such underwriter, provided that such period shall not exceed 120 days in the first such offering by the Company and 90 days in all such offerings thereafter. SECTION 5. Registration Procedures. In connection with the registration obligations of the Company and in accordance with Sections 2 and 3 hereof, the Company will use its best efforts to effect such registrations to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: (a) Prepare and file with the SEC a Registration Statement or Registration Statements on such form which shall be available for the sale of the Registrable Shares by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use reasonable best efforts to cause such Registration Statement to become effective as soon as practicable after such filing and to remain effective as provided herein; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference), the Company shall, upon the written request of participating Holders, furnish or otherwise make available to such holders of the Registrable Shares covered by such Registration Statement, their counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of such holders, their counsel and such underwriters, if any, provided, however, that the Company shall not be required to deliver to such holders a copy of any such document that has not been materially changed from a copy of such document that was previously delivered to such holders. The Company shall not file any such Registration Statement or Prospectus or any amendments or 53 supplements thereto (including such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) to which the holders of a majority of the Registrable Shares covered by such Registration Statement, their counsel or the managing underwriters, if any, shall reasonably object in writing on a timely basis unless, in the opinion of the Company, such filing is necessary to comply with applicable law. (b) Prepare and file with the SEC such amendments (including post-effective amendments) to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement; and cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the Securities Act. (c) Notify the Holders registering Registrable Shares as part of such Registration Statement, their counsel and the managing underwriters, if any, promptly and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related Prospectus or for additional information regarding the Holders registering shares as part of such Registration Statement, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 5(j) below cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (vi) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed to be incorporated therein by reference so that in the case of the Registration Statement it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the 54 lifting of any suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction. (e ) If requested by a Holder, furnish to counsel for the Holders and each managing underwriter, if any, without charge, one conformed copy of each Registration Statement as declared effective by the SEC and of each post-effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, each amended preliminary prospectus, each final Prospectus and each post-effective amendment or supplement thereto, as the Holder may reasonably request in order to facilitate the disposition of the Registrable Shares covered by each Registration Statement in conformity with the requirements of the Securities Act. (f ) Prior to any public offering of Registrable Shares, use reasonable best efforts to register or qualify such Registrable Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions in the United States as the holders of a majority of the Registrable Shares to which such public offering relates shall reasonably request in writing; and do any and all other reasonable acts or things necessary or advisable to enable the Holders to consummate the disposition in such jurisdictions of such Registrable Shares covered by the Registration Statement, provided, however, that the Company shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to execute or file a consent to general service of process in any such jurisdiction where it has not theretofore done so or to take any action that would subject it to service of process or taxation in any such jurisdiction where it is not then subject. (g) Except during any Delay Period, upon the occurrence of any event contemplated by Sections 5(c)(ii) or 5(c)(vi) above, prepare a supplement or post-effective amendment to each Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (h) Use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange or quoted on each automated interdealer quotation system, if any, on which the shares of Company Common Stock are then listed or quoted. 55 (i) On or before the effective date of the Registration Statement, provide the transfer agent of the Company for the Registrable Shares with printed certificates for the Registrable Shares, which are in a form eligible for deposit with The Depository Trust Company. (j) If requested by the Holders of a majority of the Registrable Shares being sold, enter into one or more customary "firm commitment" or "best efforts" underwriting agreements, engagement letters, agency agreements or similar agreements, as appropriate, and in such connection, whether or not any such agreement is entered into and whether or not the Registration is an underwritten registration, the Company shall (i) make such representations and warranties to the holders of such Registrable Shares and the underwriters, if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and if true, confirm the same if and when requested, (ii) use its reasonable efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and counsel to such Holders of the Registrable Shares being sold), addressed to each such selling Holder of Registrable Shares and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (iii) use its reasonable efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each such selling Holder of Registrable Shares (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures substantially to the effect set forth in Section 8 hereof with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder. (k) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, or any similar rule promulgated under the 56 Securities Act, no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days after the end of any twelve (12) month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Shares are sold to underwriters in a "firm commitment" or "best efforts" underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said twelve (12) month periods. The Company may require each seller of Registrable Shares as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Shares as the Company may, from time to time, request in writing and as, in the opinion of counsel for the Company, is required by law to effect such registration. If any such information with respect to a seller or such distribution of Registrable Shares is not furnished within a reasonable period of time after receipt of such request, the Company may exclude such Shareholder's Registrable Shares from such Registration Statement. Each seller of Registrable Shares agrees to notify the Company as promptly as practicable following its discovery of any material inaccuracy or material change in information so furnished by such seller to the Company or of the occurrence of any event that causes any prospectus relating to such registration to contain an untrue statement of a material fact or omit to state any material fact regarding such seller or such distribution of Registrable Shares that is required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. Each holder of Registrable Shares agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi) hereof, that such Holder shall forthwith discontinue disposition of such Registrable Shares covered by such Registration Statement or Prospectus until receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(g) hereof, or until such Holder is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amended or supplemented Prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such Prospectus and, if requested by the Company, such Holder shall deliver to the Company (at the expense of the Company) all copies then in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each holder of Registrable Shares further agrees not to utilize any material other than the applicable current Prospectus in connection 57 with the offering of Registrable Shares pursuant to a Demand Registration or otherwise hereunder. SECTION 6. Registration Expenses. (a) Whether or not any Registration Statement becomes effective, the Company shall pay all costs, fees and expenses incident to the Company's performance of or compliance with this Agreement, including without limitation (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or Blue Sky laws, (iii) printing expenses (including without limitation expenses of printing certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter, if any, or by the Holders of a majority of the Registrable Shares included in any Registration Statement), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Company and one special counsel for the sellers of Registrable Shares (subject to the provisions of Section 6(b) hereof), and (vi) fees and disbursements of all independent certified public accountants of the Company (including without limitation expenses of any "cold comfort" letters required in connection with this Agreement) and all other persons retained by the Company in connection with the Registration Statement. In addition, the Company shall pay its internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed. Notwithstanding the foregoing, each participating Holder shall pay all commissions, fees or discounts payable to brokers, dealers or underwriters and all transfer taxes in connection with the sale of its Registrable Shares. (b) In connection with any Demand Registration or Piggyback Registration (including any "shelf" registration in connection therewith) hereunder, the Company shall reimburse the Holders of the Registrable Shares being registered in such registration for the reasonable fees and disbursements of not more than one counsel (together with appropriate local counsel, if required) chosen by the Holders of a majority of all of such Registrable Shares. SECTION 7. Underwritten Registrations. (a) Subject to Section 7(b) hereof, the Holders shall have the right, by written notice, to request that any Demand Registration be made pursuant to an underwritten offering. (b) In the case of any underwritten registration, the Company shall select (with the consent of the participating Holders) the institution or institutions that shall manage or lead the offering or 58 placement. The Holders shall not be entitled to participate unless and until it or they shall enter into an underwriting or other agreement with such lead institutions for such offering in such form as the Company and such lead institutions shall reasonably determine. SECTION 8. Indemnification. (a) Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the officers, directors and agents and employees of each of them, each Person who controls each such holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparing, investigating or defending such claim and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon information furnished in writing to the Company by such holder expressly for use therein or any violation or alleged violation by the Company of the Securities Act, Exchange Act or any other federal or state securities laws, rule or regulation applicable to the Company and relating to the action or inaction by the Company in connection with any such registration or qualification; provided, however, that the Company shall not be liable to any Holder of Registrable Shares to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder of a Registrable Security to the person asserting the claim from which such Losses arise and (ii) the Prospectus would have corrected in all material respects such untrue statement or alleged untrue statement or such omission or alleged omission; and provided further, that the Company shall not be liable in any such case to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Prospectus, if (x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in all material respects in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder 59 thereafter fails to deliver such Prospectus as so amended or supplemented, prior to or concurrently with the sale of a Registrable Security to the person asserting the claim from which such Losses arise. (b) Indemnification by Holder of Registrable Securities. In connection with any Registration Statement in which a Holder of Registrable Securities is participating, such holder of Registrable Securities shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement or Prospectus and agrees to indemnify, to the full extent permitted by law (but in no event in an amount to exceed the gross proceeds received by such Holder upon the sale of its Shares pursuant to such Registration Statement), the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling persons, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is contained in any information so furnished in writing by such holder to the Company expressly for use in such Registration Statement or Prospectus and that such information was relied upon by the Company in preparation of such Registration Statement or Prospectus or amendment, supplement or preliminary prospectus. (c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an "indemnified party"), such indemnified party shall give prompt written notice to the party from which such indemnity is sought (the "indemnifying party") of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced materially by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party's expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (l) the indemnifying party agrees in writing to pay such fees and expenses, (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party, or (c) in the judgment of counsel to such indemnified party a conflict of interest is reasonably likely to exist between such indemnified party and any other of such indemnified parties with respect to such proceeding (in which case the indemnified party shall have the right to employ counsel and to assume the defense of such claim or proceeding); provided, however, that the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The indemnifying party shall not, without the written consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified 60 party shall have the right to employ counsel and to assume the defense of such claim or proceeding); provided, however, that the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The indemnifying party shall not, without the written consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder. (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms) or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. 61 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provision of this Section 8(d), an indemnifying party that is a selling holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. SECTION 9. Miscellaneous. 9.1 Termination. This Agreement and the obligations of the Company hereunder shall terminate on the earliest of (i) the tenth anniversary of the date hereof and (ii) the first date on which all Registrable Shares shall exist. 9.2 Notices. All notices or communications hereunder shall be in writing (including telecopy or similar writing), addressed to the Holders as set forth on the signature pages hereto, and to the Company as follows: To the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, Texas 77067 Attention: Robert C. Joyner, Senior Vice President and General Counsel Telecopier No.: 713-873-6686 With a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, CA 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Any such notice or communication shall be deemed given (i) when made, if made by hand delivery, (ii) one business day after being deposited with a next-day courier, postage prepaid, or (iii) three business days after being sent certified or registered mail, return 62 receipt requested, postage prepaid, in each case addressed as above (or to such other address as such party may designate in writing from time to time). 9.3 Separability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. 9.4 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Holder so long as such assignee becomes a party to and fully bound by this Agreement prior to or concurrently with such assignment. 9.5 Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof. This Agreement may be amended at any time by mutual written agreement of the parties hereto. 9.6 Publicity. Each of the Holders and the Company agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party, except to the extent that the Holders or the Company is advised by counsel that such release or announcement is necessary or advisable under applicable law or the rules or regulations of any securities exchange, in which case the party required to make the release or announcement shall provide the other party with an opportunity to review and comment on such release or announcement in advance of its issuance. 9.7 Expenses. Except as otherwise specifically provided in Section 6 hereof, whether or not the transactions contemplated hereby are consummated, except as otherwise provided herein, all costs and expenses incurred in connection with the performance of this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. 9.8 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.9 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts 63 have been signed by each of the parties and delivered to the other party. 9.10 Governing Law; Venue. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of Incorporation of Paracelsus, without reference to rules relating to conflicts of law. 9.11 Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day. 9.12 No Inconsistent Agreements. The Company has not, as of the date hereof, and shall not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Shares in this Agreement or otherwise conflicts with the provisions hereof. 9.13 Participation by Holders. Each Holder hereby agrees that it may not participate in any offering hereunder unless it (i) agrees to sell the Registrable Shares to be included by it therein in the manner and upon the terms and conditions provided in any underwriting or other agreement approved by the persons entitled hereunder to determine the method of distribution thereof and (ii) completes and executes such questionnaires, powers of attorney, indemnities, underwriting agreements or other similar documents reasonably required in accordance with the terms hereof or any agreement contemplated by the foregoing clause (i). 9.14 Amendment. This Agreement, as to any amendment of rights, may be amended, and the Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment action or omission to act given by the Holders of at lease a majority of the then existing Registrable Shares. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement is sought. 64 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. PARACELSUS HEALTHCARE CORPORATION By: \s\ CHARLES R. MILLER ------------------------------------ Name: Charles R. Miller Title: President & COO THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: \s\ GARY A. POLINER ------------------------------------ Name: Gary A. Poliner Title: Vice President Number of Shares: Address for Notice: 720 East Wisconsin Milwaukee, Wisconsin 53202 with copies to: Linda Gorens Telephone: (414) 299-2480 Telecopy: (414) 299-7124 Beth M. Berger, Esq. Telephone: (414) 299-4311 Telecopy: (414) 299-7016 INDOSUEZ CAPITAL ASSET ADVISORS, INC. By: \s\ JOHN G. POPP ------------------------------------ Name: John G. Popp Title: President 65 INDOSUEZ HIGH YIELD PARTNERS By: \s\ JOHN G. POPP ------------------------------------ Name: John G. Popp Title: Partner Number of Shares: Address for Notice: 1211 Avenue of the Americas New York, New York 10056-8701 with a copy to: Mike Monteleone Telephone: (212) 278-2208 Telecopy: (212) 278-2203 EX-10.56 25 INDEMNITY AND INSURANCE COVERAGE AGREEMENT 1 Exhibit 10.56 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Dr. Manfred G. Krukemeyer (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 2 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 3 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 4 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 5 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 6 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 7 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 8 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 9 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ MANFRED G. KRUKEMEYER ------------------------------- Name: Manfred G. Krukemeyer Title: Chairman Manfred G. Krukemeyer ------------------------------- INDEMNITEE 10 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Robert C. Joyner (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 11 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 12 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 13 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 14 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 15 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 16 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 17 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 18 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ ROBERT C. JOYNER ------------------------------- Name: Robert C. Joyner Title: Sr. Vice President Robert C. Joyner ------------------------------- INDEMNITEE 19 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Angelo R. Mozilo (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 20 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 21 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 22 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 23 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 24 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 25 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 26 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 27 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ ANGELO R. MOZILO ------------------------------- Name: Angelo R. Mozilo Title: Board Member Angelo R. Mozilo ------------------------------- INDEMNITEE 28 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and David R. Topper (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 29 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 30 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 31 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 32 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 33 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 34 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 35 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 36 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ ROBERT C. JOYNER ------------------------------- Name: Robert C. Joyner Title: Senior Vice President David R. Topper ------------------------------- INDEMNITEE 37 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and George Asbell (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 38 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 39 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 40 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 41 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 42 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 43 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 44 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 45 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ ROBERT C. JOYNER ------------------------------- Name: Robert C. Joyner Title: Senior Vice President George Asbell ------------------------------- INDEMNITEE 46 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Michael M. Brooks (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 47 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 48 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 49 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 50 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 51 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 52 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 53 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 54 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ MICHAEL R. BROOKS ------------------------------- Name: Michael R. Brooks Title: Vice President, Acquisitions Michael R. Brooks ------------------------------- INDEMNITEE 55 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Lawrence A. Humphrey (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 56 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 57 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 58 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 59 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 60 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 61 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 62 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 63 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ LAWRENCE HUMPHREY ------------------------------- Name: Lawrence Humphrey Title: Sr. Vice Pres., Corp Finance Lawrence Humphrey ------------------------------- INDEMNITEE 64 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Gary Hubschman (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 65 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 66 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 67 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 68 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 69 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 70 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 71 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 72 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ GARY HUBSCHMAN ------------------------------- Name: Gary Hubschman Title: Senior Vice President, Operations Finance & Support Gary Hubschman ------------------------------- INDEMNITEE 73 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Daryl J. White (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 74 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 75 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 76 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 77 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 78 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 79 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 80 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 81 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ DARYL J. WHITE ------------------------------ Name: Daryl J. White Title: Board Member Daryl J. White ------------------------------ INDEMNITEE 82 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and James A. Conroy (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 83 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 84 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 85 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 86 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 87 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 88 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 89 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 90 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ JAMES A. CONROY ------------------------------- Name: James A. Conroy Title: Board Member James A. Conroy ------------------------------- INDEMNITEE 91 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996 , by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Michael D. Hofmann (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 92 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 93 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 94 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 95 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 96 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 97 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 98 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 99 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ MICHAEL D. HOFMANN ------------------------------- Name: Michael D. Hofmann Title: Board Member Michael D. Hofmann ------------------------------- INDEMNITEE 100 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996 , by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Christian A. Lange (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 101 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 102 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 103 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 104 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 105 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 106 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 107 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 108 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ CHRISTIAN R. LANGE ------------------------------- Name: Christian R. Lange Title: Board Member Christian R. Lange ------------------------------- INDEMNITEE 109 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and James T. Rush (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 110 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 111 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 112 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 113 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 114 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 115 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 116 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 117 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ JAMES T. RUSH ------------------------------- Name: James T. Rush Title: Board Member James T. Rush ------------------------------- INDEMNITEE 118 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and W. Warren Wilkey (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 119 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 120 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 121 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 122 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 123 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 124 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 125 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 126 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ W. WARREN WILKEY ------------------------------- Name: W. Warren Wilkey Title: Sr. Vice Pres., Operations W. Warren Wilkey ------------------------------- INDEMNITEE 127 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and R.J. Messenger (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 128 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: (i) the Board of Directors of the Company, by the vote of 129 a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this Indemnity Agreement for any amounts paid in a settlement of any 130 action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and expenses of such counsel incurred after delivery of notice by the 131 Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. 132 Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 133 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. 134 Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. 135 Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ R.J. MESSENGER ------------------------------- Name: R. J. Messenger Title: Chief Executive Officer R. J. Messenger ------------------------------- INDEMNITEE 136 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Ronald R. Patterson (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 137 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 138 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 139 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 140 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 141 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 142 ' If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 143 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 144 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ RONALD R. PATTERSON ------------------------------- Name: Ronald R. Patterson Title: Executive Vice President, Pres. Healthcare Operations Ronald R. Patterson ------------------------------- INDEMNITEE 145 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and James G. VanDevender (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 146 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 147 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 148 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 149 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 150 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 151 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 152 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 153 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ JAMES G. VANDEVENDER ------------------------------- Name: James G. VanDevender Title: Exec Vice President/CFO James G. VanDevender ------------------------------- INDEMNITEE 154 INDEMNITY AND INSURANCE COVERAGE AGREEMENT This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is made and entered into as of August 16, 1996, by and between Paracelsus Healthcare Corporation, a California corporation (the "Company"), and Charles R. Miller (the "Indemnitee"). WHEREAS, Indemnitee is currently serving or will serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, and the Company wishes Indemnitee to serve in such capacity or capacities; WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the Company each provide that the Company shall indemnify the directors of the Company against liability for monetary damages, in the manner and to the fullest extent permitted under California law; WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the Company to Indemnify the officers, employees or other agents of the Company to the fullest extent permitted under California law; WHEREAS, Indemnitee has indicated that he or she may not be willing to serve as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise if the Company fails to use its authority under the Restated Articles of Incorporation and the Bylaws of the Company to indemnify him or her to the fullest extent permitted under California law; WHEREAS, Section 317(g) of the General Corporation Law of California ("GCLC") expressly recognizes that the indemnification provisions of the GCLC are not exclusive of any other rights to which a corporate director, officer or employee (including a director, officer or employee of a predecessor corporation) seeking indemnification may be entitled under the Restated Articles of Incorporation or Bylaws of the Company, provided that the Restated Articles of Incorporation or Bylaws state that the GCLC indemnification provisions are not exclusive; WHEREAS, the Bylaws expressly recognize that the indemnification provisions of the Bylaws shall not be deemed exclusive of, and shall not affect, any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or directors 155 or otherwise and this Indemnity Agreement is being entered into pursuant to the Restated Articles of Incorporation and Bylaws as permitted by the GCLC, and as authorized by the stockholders of the Company. WHEREAS, the Company, in order to induce Indemnitee to serve as director, officer, employee, trustee and/or agent, has agreed to provide Indemnitee with the benefits contemplated by this Indemnity Agreement, and, as a result of the provision of such benefits, Indemnitee has agreed to serve in such capacity; WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company may indemnify and purchase and maintain insurance on behalf of any fiduciary of an employee benefit plan of the Company; and WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company can purchase on behalf of its directors, officers and employees (including directors, officers and employees of a predecessor corporation) indemnity insurance covering acts for which the Company cannot indemnify such directors, officers and employees; NOW, THEREFORE, in consideration of the promises, conditions and representations set forth herein, including Indemnitee's service as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company and Indemnitee hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following meanings: (a) "Covered Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding against Indemnitee (including any claim, action, suit or proceeding brought by the Company or the shareholders of the Company) based upon or arising out of any past, present or future act, omission, neglect or breach of duty, including, without limitation, any actual or alleged error, omission, misstatement or misleading statement, that Indemnitee may commit while serving in his or her capacity as a director, officer, employee and/or agent of the Company and/or, at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans and administrative committees thereof): (b) "Determination" shall mean a determination, based upon the facts known at the time, made by: 156 (i) the Board of Directors of the Company, by the vote of a majority of the directors who are not parties to the action, suit or proceeding in question, at a meeting at which there is a quorum consisting solely of such disinterested directors; (ii) if such a quorum is not obtainable, or, even if obtainable, if directed by a majority of such disinterested directors at a meeting of the Board of Directors of the Company at which there is a quorum consisting solely of such disinterested directors, by independent legal counsel in a written opinion; (iii) the shareholders of the Company; or (iv) a court or administrative tribunal of competent jurisdiction in a final, nonappealable adjudication. (c) "Payment" shall mean any and all amounts that Indemnitee is or becomes legally obligated to pay in connection with a Covered Claim, including, without limitation, damages, judgments, amounts paid in settlement, reasonable costs of investigation, reasonable fees of attorneys, reasonable costs of investigative, judicial or administrative proceedings or appeals, costs of attachment or similar bonds, fines, penalties, excise taxes assessed with respect to employee benefit plans, and any expenses of establishing a right to indemnification under this Indemnity Agreement. Section 2. Indemnification. The Company shall indemnify and hold harmless Indemnitee against and from any and all Payments provided that: (a) a Determination has been made that, in connection with a covered claim, the Indemnitee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; (b) Indemnitee shall not already have received payment on account of such Payments; and (c) such indemnification by the Company is not unlawful. Notwithstanding anything contained in this Indemnity Agreement to the contrary, except for proceedings to enforce rights to indemnification pursuant to Section 5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company shall have no obligation to indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company. Further, the Company shall have no obligation to indemnify Indemnitee under this 157 Indemnity Agreement for any amounts paid in a settlement of any action, suit or proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld. Section 3. Advancements of Costs and Expenses. All costs and expenses, including reasonable fees of attorneys, incurred by Indemnitee in defending or investigating any covered claim shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, provided, that, prior to the payment of any advances pursuant to this Section 3, Indemnitee shall undertake, in a manner reasonably acceptable to the Company and its counsel, to repay the Company for any costs or expenses advanced by or on behalf of the Company pursuant to this Section 3 if it shall ultimately be determined by a court of competent jurisdiction in a final, nonappealable adjudication that Indemnitee is not entitled to indemnification under this Indemnity Agreement. Section 4. Indemnification Procedure. (a) Promptly after receipt by Indemnitee of notice of the commencement or threat of commencement of any action, suit or proceeding, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Indemnity Agreement, notify the Company thereof in writing in the manner set forth in Section 10 hereof. (b) The Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Payments payable as a result of such action, suit or proceeding in accordance with the terms of such policies. (c) The Company shall be entitled to assume the defense of any Covered Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. The Company shall not settle any claim in any manner that would impose any obligation on Indemnitee without Indemnitee's prior written consent. Indemnitee shall not unreasonably withhold his consent to any proposed settlement. After delivery of such notice, the Company shall not be liable to Indemnitee under this Indemnity Agreement for any costs or expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable costs and expenses of investigation; provided, however, that: (i) Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding provided that the fees and 158 expenses of such counsel incurred after delivery of notice by the Company of its assumption of such defense shall be at Indemnitee's own expense; and (ii) the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company if (aa) the employment of counsel by Indemnitee has previously been authorized in writing by the Company and has not subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense and has provided the Company with written notice of such conclusion (provided that the Company shall not be required to pay for more than one counsel to represent two or more Indemnitees where such Indemnitees have reasonably concluded that there is no conflict of interest among them in the conduct of such defense), or (cc) the Company shall not have provided Indemnitee with written notice that it has employed counsel to assume the defense of such action, suit or proceeding within forty-five (45) days of the date on which the Indemnitee provided the Company with the Notice required under Section 10. (d) All payments on account of the Company's advancement obligations under Section 3 of this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor and the undertaking of Indemnitee contemplated by Section 3. All other payments on account of the Company's obligations under this Indemnity Agreement shall be made within ninety (90) days of the Company's receipt of Indemnitee's written request therefor, unless a Determination is made that the claims giving rise to Indemnitee's request are not payable under this Indemnity Agreement. Each request for payment hereunder shall be accompanied by evidence reasonably satisfactory to the Company of Indemnitee's incurrence of the costs and expenses for which such payment is sought. Section 5. Enforcement of Indemnification; Burden of Proof. If a claim for indemnification or advancement of costs and expenses under this Indemnity Agreement is not paid in full by or on behalf of the Company within the time period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of such claim. In any such action, the Company shall have the burden of proving that indemnification is not required under this Indemnity Agreement. Section 6. Partial Indemnification. If the Indemnitee is entitled under any provision of this Indemnity Agreement to indemnification by the Company for some portion of any Payments, but not, however, for the total amount thereof, the Company shall 159 nevertheless indemnify the Indemnitee for the portion of any such Payment to which the Indemnitee is entitled. Section 7. Employee Benefit Plans. The term "other enterprises," as used in this Indemnity Agreement, shall include employee benefit plans and any administrative committees thereof. All references in this Indemnity Agreement to "serving . . . at the Company's request" shall include any service by Indemnitee as a director, officer, employee, trustee and/or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries. If Indemnitee acts in good faith and in a manner he or she reasonably believes to be in the interests of the participants and beneficiaries of any employee benefit plan, then, for purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a manner he or she "reasonably believed to be in, or not opposed to, the best interests of the Company." Section 8. Rights Not Exclusive. The rights to indemnification and advancement of costs and expenses provided hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any charter document, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 9. Subrogation. In the event of payment under this Indemnity Agreement by or on behalf of the Company, Indemnitee shall subrogate to the Company his or her rights of recovery to the extent of the Company's payment. Indemnitee shall execute all papers that may be required and shall do all things that may be necessary to secure such rights, including, without limitation, the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. Section 10. Notice of Claim. The Indemnitee, as a condition precedent to his or her right to be indemnified under this Indemnity Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him or her for which indemnity will or could be sought under this Indemnity Agreement, provided, however, that the Indemnitee's right to indemnification hereunder shall not be forfeited if the Indemnitee's failure to provide the notice required under this Section 10 does not materially prejudice the Company. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or (c) the expiration of five business days after the day when received by certified or registered mail, postage prepaid, addressed as follows (or at such other address as the parties hereto shall specify by like notice): 160 If to Indemnitee: ---------------------------- ---------------------------- ---------------------------- with a copy to: ---------------------------- ---------------------------- ---------------------------- If to the Company: Paracelsus Healthcare Corporation 515 West Greens Road, Suite 800 Houston, TX 77067 Attention: Robert C. Joyner Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Thomas C. Janson, Jr. Telecopier No.: (213) 687-5600 Section 11. Provision of Insurance Coverage. The Company shall provide the Indemnitee with insurance covering all Payments no less than $10 million for any single Covered Claim that would be required to be indemnified by the Company under this Agreement without regard to the limitations on the Company's ability to indemnify the Indemnitee under the Employee Retirement Income Security Act of 1974, as amended, or other applicable law, provided such insurance is available on commercially reasonable terms and shall be equal to that provided by the Company to similarly situated individuals. Section 12. Choice of Law. This Indemnity Agreement shall be governed by and construed and enforced in accordance with the laws of the State of incorporation of the Company. Section 13. Jurisdiction. The Company and Indemnitee hereby irrevocably consent to the jurisdiction of the courts of the State of incorporation of the Company for all purposes in connection with any action, suit or proceeding which arises out of or relates to this Indemnity Agreement as between each other, and agree that any action 161 instituted under this Indemnity Agreement shall be brought only in the state courts of the State of incorporation of the Company. Section 14. Coverage. The provisions of this Indemnity Agreement shall apply to the Indemnitee's service as a director, officer, employee and/or agent of the Company and/or at the Company's request, as a director, officer, employee, trustee and/or agent of another corporation, partnership, joint venture, trust or other enterprise with respect to all periods of such service prior to and after the date of this Indemnity Agreement, even though the Indemnitee may have ceased such service at the time of indemnification hereunder. Section 15. Attorneys' Fees. If any action, suit, or proceeding is commenced in connection with or related to this Indemnity Agreement, the Company shall, consistent with Section 4(d), bear the reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation, paid by the Indemnitee within ninety (90) days of presentation of documentation supporting such expenses. Section 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 17. Successors and Assigns. This Indemnity Agreement shall be binding upon all successors and assigns of the Company, including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law, and shall be binding upon and inure to the benefit of the heirs, executors and administrators of Indemnitee. Section 18. Descriptive Headings. The descriptive headings in this Indemnity Agreement are included for the convenience of the parties only and shall not affect the construction of this Indemnity Agreement. 162 Section 19. Counterparts. This Indemnity Agreement may be executed in two counterparts, both of which taken together shall constitute one document. Section 20. Amendment. No amendment, modification, termination or cancellation of this Indemnity Agreement shall be effective unless made in writing and signed by each of the parties hereto. Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity Agreement as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ CHARLES R. MILLER ------------------------------- Name: Charles R. Miller Title: President/COO Charles R. Miller ------------------------------- INDEMNITEE EX-10.64 26 PARCELSUS' 6.51% SUBORDINATED NOTES 1 EXHIBIT 10.64 6.51% SUBORDINATED NOTE DUE AUGUST 30, 2006 US $7,185,467 HOUSTON, TEXAS AUGUST 30, 1996 1. PRINCIPAL AND INTEREST PAYMENTS. For value received, Paracelsus Healthcare Corporation, a California corporation with a business address at 515 W. Greens Road, Suite 800, Houston, Texas 77067 (the "Maker" or the "Company"), hereby promises to pay to the order of Park Hospital GmbH, a German corporation with a business address at AM Natruper Holz 69, D-49076 Osnabruck, Federal Republic of Germany, or its registered assigns (the "Holder"), the principal sum of SEVEN MILLION, ONE HUNDRED EIGHTY FIVE THOUSAND AND FOUR HUNDRED SIXTY-SEVEN DOLLARS ($7,185,467), with interest on unpaid principal at the rate of 6.51% per annum from this date until paid, principal and interest payable in lawful money of the United States of America in equal, successive yearly installments of $1 million, consisting of 1/10 of the principal amount hereof together with interest thereon, commencing on August 30, 1997 and continuing on each annual anniversary thereof until August 30, 2006, at which time any unpaid balance of principal and all accrued and unpaid interest thereon will be due and payable. Interest will be computed on the basis of a 360-day year of twelve 30- day months. The Company will pay interest on the Note (except defaulted interest) to the person who is the registered holder of Note at the close of business on the fourth business day prior to the interest payment date. The Company may mail an interest check to the Holder's registered address. Each payment will be applied first to interest then due and the remainder to principal. Certain capitalized terms used herein are defined in Section 11 below. 2. SUBORDINATION 2.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS. The Company for itself and its successors, and the Holder by its acceptance of the Note, agree that the payment of the Note by the Company is subordinated, to the extent and in the manner provided in this Section 2, to the prior payment in full of all Senior Indebtedness, whether outstanding on the date of this Note or thereafter incurred. This Section 2 will constitute a continuing offer to all persons who, in reliance upon its provisions, become holders of, or continue to hold, Senior Indebtedness, and such holders are made obligees under this Section 2 and they and/or each of them may enforce its provisions. 2.2 NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES (a) No payment or distribution of cash or property (other than capital stock of the Company or other securities of the Company that are subordinated to Senior Indebtedness to at least the same extent as the Note) of the Company will be made on account of principal of or interest on the Note, or to defease or acquire the Note (i) upon the 2 maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all Senior Indebtedness shall first be paid in full in cash, or such payment duly made in a manner satisfactory to the holders (or a trustee or authorized agent on behalf thereof) of such Senior Indebtedness, (ii) in the event that the Company defaults in the payment of any principal of, premium, if any, or interest on or any other amounts payable on or due in connection with any Senior Indebtedness when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, unless and until such default has been cured or waived in writing or has ceased to exist., (iii) in the event any judicial proceeding shall be pending with respect to any of the events described in clauses (i), (ii) or (iv) of this Section 2.2(a) or (iv) any other default shall have occurred and be continuing that would permit the holders (or a trustee or authorized agent on behalf thereof) of the Designated Senior Indebtedness to accelerate the maturity of Designated Senior Indebtedness, upon written notice (a "Payment Blockage Notice") of the default given to the Company and the Holder by the holders of, or an agent, trustee or other representative for, such Designated Senior Indebtedness, then, unless and until such default has been cured or waived in writing, no payment or distribution of cash or property (other than capital stock of the Company or other securities of the Company that are subordinated to Senior Indebtedness to at least the same extent as the Note) shall be made by the Company with respect to the principal of or interest on the Note or to acquire or repurchase the Note for cash or property other than Capital Stock of the Company. With respect to clause (iv) above, if such Designated Senior Indebtedness is not declared due and payable within 270 days after the Payment Blockage Notice is given, promptly after the end of the 270-day period the Company will pay all sums due in respect of the Note and not paid during the 270-day period. Payments on the Note may and shall be resumed in the case of a payment default upon the date on which such default is cured or waived. During any 540-day consecutive period, only one such period during which payment with respect to the Note may not be made pursuant to clause (iv) above may commence and the duration of such period may not exceed 270 days. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Holder shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. (b) if any payment or distribution of assets of the Company is received by the Holder in respect of the Note at a time when that payment or distribution should not have been made because of paragraph (a) of this Section 2.2, such payment or distribution will be received and held and will be paid over to the holders of Senior Indebtedness (PRO RATA as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) until all such Senior Indebtedness has been paid in full, after giving effect to any 3 concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. 2.3 NOTE SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership or similar proceeding relating to the Company or its property or upon an assignment for the benefit of creditors or any marshalling of the Company's assets or liabilities or otherwise): (a) the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due on or in respect of on Senior Indebtedness (including interest accruing after the commencement of a bankruptcy or insolvency at the rate specified in the applicable Senior Indebtedness and including, without limitation, in respect of premiums, indemnities or otherwise, and all indebtedness under the Credit Agreement which is disallowed, avoided or subordinated pursuant to Section 548 of Title 11, United States Code or any applicable state fraudulent conveyance law) in cash before the Holder is entitled to receive any payment or distribution on account of the principal of or interest on the Note; (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (except that the Holder may receive securities that are subordinated at least to the same extent as the Note is subordinated to Senior Indebtedness as provided in this Section 2 and any securities issued in exchange for Senior Indebtedness), to which the Holder would be entitled except for the provisions of this Section 2.3, will be paid by the liquidating trustee or agent or other persons making such a payment or distribution directly to the holders of Senior Indebtedness (PRO RATA to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives to the extent necessary to make or provide for payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness or provision for that payment or distribution; and (c) if, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (except that the Holder may receive securities that are subordinated at least to the same extent as the Note is so subordinated to Senior Indebtedness as provided in this Section 2 and any securities issued in exchange for Senior Indebtedness) is received by the Holder on account of the principal of or interest on the Note (notwithstanding the provisions of this Section 2.3) before all Senior Indebtedness is paid in full such payment or distribution will be received and held in trust for and will be forthwith paid over to the 4 holders of the Senior Indebtedness remaining unpaid or unprovided for or their representatives for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for the payment of such Senior Indebtedness until all such Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. The Company will give prompt written notice to the Holder of any dissolution, winding up, liquidation or reorganization of it or any assignment for the benefit of its creditors. 2.4 HOLDER TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject to the prior payment in full of all Senior Indebtedness, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until all amounts owing on the Note shall be paid in full; and, for the purposes of such subrogation: (a) no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holder would be entitled except for the provisions of this Section 2 and no payment pursuant to the provisions of this Section 2 to the holders of Senior Indebtedness by the Holder shall, as between the Company, its creditors (other than holders of Senior Indebtedness) and the Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness; and (b) no payment or distributions of cash, property or securities to or for the benefit of the Holder pursuant to the subrogation provisions of this Section 2, which would otherwise have been paid to the holders of Senior Indebtedness, shall be deemed to be a payment by the Company to or for the account of the Note. It is understood that the provisions of this Section 2 are intended solely for the purpose of defining the relative rights of the Holder, on the one hand, and the holders of the Senior Indebtedness, on the other hand. 2.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in this Section 2 or elsewhere in this Note is intended to or will impair, as between the Company and the Holder, the obligations of the Company, which are absolute and unconditional, to pay to the Holder the principal of and interest on the Note as and when they become due and payable in accordance with their terms, or is intended to or will affect the relative rights of the Holder and creditors of the Company other than the holders of the Senior Indebtedness, nor will anything herein or therein prevent the Holder from exercising all remedies otherwise 5 permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 2 of the holders of Senior Indebtedness to receive the cash, property or securities of the Company receivable upon the exercise of any such remedy. 2.6 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future holders of any Senior Indebtedness to enforce subordination as provided herein will at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such holder, or by any noncompliance by the Company with the terms of this Note, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing, the holders of Senior Indebtedness may extend, renew, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with the Company, all without affecting the liabilities and obligations of the parties to the Note or the Holder. 2.7 THIS SECTION NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment on account of the principal of or interest on the Note by reason of any provision of this Section 2 will not be construed as preventing the occurrence of an Event of Default. 2.8 REPRESENTATIVE OF SENIOR INDEBTEDNESS. Any notices to be given or payments to be made to any holders of Senior Indebtedness pursuant to this Note may be made or given to their authorized representative. 3. EVENTS OF DEFAULT 3.1 EVENTS OF DEFAULT. Each of the following constitutes an "Event of Default": (a) default for 30 days in the payment when due of interest on the Note (whether or not prohibited by Section 2 of this Note); (b) default in payment when due of principal on the Note, either at maturity, by declaration or otherwise (whether or not prohibited by Section 2 of this Note); (c) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries) whether such indebtedness or guarantee exists as of the date of this Note, or is created after the date of this Note, after which default the holders of such Indebtedness accelerate 6 the maturity of such Indebtedness having an outstanding principal amount of at least $15 million, or a failure to pay such Indebtedness having an outstanding principal amount of at least $15 million at its stated maturity, as such maturity may be extended, provided that such acceleration or failure to pay is not cured within 30 days after such acceleration or failure to pay; (d) failure by the Company or any of its Subsidiaries to pay final non-appealable judgments (to the extent not covered by insurance and as to which the insurer has not acknowledged coverage in writing) aggregating in excess of $15 million which are not stayed within 60 days after their entry: (e) a decree, judgment, or order by a court of competent jurisdiction shall have been entered adjudging the Company or any of its Significant Subsidiaries as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of the Company or any of its Significant Subsidiaries under any bankruptcy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of 60 days; or a decree or order of a court of competent jurisdiction appointing a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of the Company or any of its Significant Subsidiaries, or of the property of any such person, or for the winding up or liquidation of the affairs of any such person, shall have been entered, and such decree, judgment, or order shall have remained in force undischarged and unstayed for a period of 60 days; (f) the Company or any of its Significant Subsidiaries shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a custodian, receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of its assets or property, or shall make a general assignment for the benefit of creditors, or shall be generally unable to pay its debts as they become due. The Subordination provisions set forth in Section 2 prohibiting the Company from making a payment or distribution of cash or property on account of principal or interest on the Note, or to defease or acquire the Note, shall not prevent the occurrence of an Event of Default. 3.2 ACCELERATION. If an Event of Default occurs and is continuing (other than an Event of Default specified in clause (e) or (f) of Section 3.1 relating to the Company), unless the principal of the Note shall have already become due and payable, the Holder, by notice in writing to the Company (an "Acceleration Notice"), may declare all 7 principal and accrued interest on the Note to be due and payable (a) immediately if no Senior Bank Debt or Existing Senior Subordinated Notes are outstanding or (b) if Senior Bank Debt or Existing Senior Subordinated Notes are outstanding, upon the earlier of (i) ten days after such Acceleration Notice is received by the Company or (ii) the acceleration of Senior Indebtedness; PROVIDED, that (x) prior to the expiration of such period, such acceleration shall be automatically rescinded and annulled without further action required on the part of the Holder in the event that any default specified in the Acceleration Notice under the Note shall have been cured, waived or otherwise remedied and (y) at any time before the entry of a judgment or decree for the payment of moneys due under this Note, the Holder may waive all defaults and annul the consequences thereof if certain conditions are satisfied, including that all Events of Default (other than the non-payment of the principal of the Note which became due by acceleration) shall have been cured, waived or otherwise remedied. If an Event of Default specified in clause (e) or (f) of Section 3.1 above relating to the Company occurs, all principal and accrued interest shall be immediately due and payable on this Note without any declaration or other act on the part of the Holder. Prior to the declaration of acceleration of the maturity of the Note, the Holder may waive any default, except where such waiver would conflict with any judgment or decree of a court of competent jurisdiction. 3.3 WAIVER OF PAST DEFAULTS. The Holder may waive in writing an existing Default or Event of Default and its consequences except a continuing Default or Event of Default in the payment of the principal of or interest on the Note. Upon any such waiver in writing, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Note; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. 3.4 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Note, the right of the Holder to receive payment of principal and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. 4. REMEDIES. Upon the occurrence of an Event of Default (and for so long as it continues), the Holder shall have the option to declare the entire balance of principal, together with all accrued interest thereon, immediately due and payable. Upon the Holder so declaring the principal and interest to be immediately due and payable, the entire principal balance of this Note, together with all interest theretofore accrued thereon, shall thereafter bear interest at a per annum rate equal to eight and one-half percent (8-1/2%). No delay or 8 omission on the part of the Holder hereof in exercising any right under this Note shall operate as a waiver of such right. 5. TRANSFER AND EXCHANGE; REPLACEMENT NOTES. 5.1 TRANSFER AND EXCHANGE. Where the Note is presented to the Company with a request to register a transfer or to exchange it for an equal principal amount of Notes of other denominations, the Company shall register the transfer or make the exchange if its reasonable requirements for such transactions are met; PROVIDED, HOWEVER, that any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Company duly executed by the Holder thereof or by its, his or her attorney duly authorized in writing. No service charge shall be made to the Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. 5.2 REPLACEMENT NOTES. If any mutilated Note is surrendered to the Company and the Company receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and authenticate a replacement Note. If reasonably required by the Company, an indemnity bond must be supplied by the Holder that is in the judgment of the Company sufficient to protect the Company from any loss which it may suffer if a Note is replaced. Every replacement Note issued pursuant to this Section 5.2 in lieu of any destroyed, lost or stolen Note shall constitute an additional obligation of the Company. 6. WAIVER. The Maker hereby waives diligence, presentment, protest and demand, notice of protest, dishonor and nonpayment of this Note and expressly agrees, without in any way affecting the liability of the Maker hereunder, that the Holder may extend any maturity date or the time for payment of any amount due hereunder. 7. ATTORNEYS' FEES; COSTS OF COLLECTION. If this Note is not paid when due or if any Event of Default occurs, the Maker promises to pay all reasonable costs of enforcement and collection, including but not limited to the Holder's reasonable attorneys' fees whether or not legal proceedings were commenced. 8. SEVERABILITY. Every provision of this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. 9 9. INTEREST RATE LIMITATION. It is the intent of the Maker and the Holder in the execution of this Note and in all transactions related hereto to comply with the Usury Laws. In the event that, for any reason, it should be determined that the Usury Laws apply to this Note, the Holder and the Maker stipulate and agree that none of the terms and provisions contained herein or in the Dividend and Note Agreement shall ever be construed to create a contract for use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by the Usury Laws. In such event, if the Holder shall collect monies or other property which are deemed to constitute interest which would otherwise increase the effective interest rate on this Note to a rate in excess of the maximum rate permitted to be charged by the Usury Laws, all such sums or property deemed to constitute interest in excess of such maximum rate shall, at the option of the Holder, be credited to the payment of the principal sum due hereunder. 10. NO RECOURSE AGAINST OTHERS. A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Note or for any claim based on, in respect of or by reason of such obligations or their creation. The Holder by accepting the Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Note. 11. CERTAIN DEFINITIONS. "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by agreement or otherwise. "ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the interest rate implicit in the lease, compounded semiannually) of the obligation of the lessee of the property subject to such sale-leaseback transaction for rental payments during the remaining term of the lease included in such transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended or until the earliest date on which the lessee may terminate such lease without penalty or upon payment of penalty (in which case the rental payments shall include such penalty), after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and similar charges. 10 "BANKRUPTCY LAW" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the discounted present value of the rental obligations of any person under any lease of any property that would at such time be so required to be capitalized on the balance sheet of such person in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), and (iv) any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of the issuing Person. "CONSOLIDATED SUBSIDIARY" of any person means a person which for financial reporting purposes is or, in accordance with GAAP should be, accounted for by such person as a consolidated subsidiary. "CREDIT AGREEMENT" means that certain Credit Agreement, dated as of December 8, 1995, by and among the Company and Bank of America National Trust and Savings Association and NationsBank of Tennessee, N.A., providing for up to $280 million of revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time when such agreement is refinanced, that certain Credit Agreement, dated as of August 16, 1996, by and among the Company and Bank of America N.T.S.A. and the other lenders party thereto, providing for up to $400 million of revolving credit borrowing's including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy law. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DESIGNATED SENIOR INDEBTEDNESS" means (i) the Senior Bank Debt and (ii) any other Indebtedness constituting Senior Indebtedness permitted under the Existing Senior Subordinated Notes Indenture or the New Senior Subordinated Notes Indenture and which at the time of 11 determination has an aggregate amount outstanding of at least $10 million and is specifically designated in the instrument creating or evidencing such Senior Indebtedness as "Designated Senior Indebtedness." "DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is, pursuant to a sinking fund obligation or redeemable for cash at the option of the holder thereof, in whole or in part, on or prior to October 15, 2006. "DIVIDEND AND NOTE AGREEMENT" means the Dividend and Note Agreement dated as of August 16, 1996, by and between Park Hospital GmbH and the Company. "EXISTING SENIOR SUBORDINATED NOTES" means the Company's 9-7/8% Senior Subordinated Notes due 2003. "EXISTING SENIOR SUBORDINATED NOTES INDENTURE" means the indenture, dated as of the October 15, 1993, between the Company and The Bank of New York, as successor to NationsBank of Tennessee, N.A., as trustee, with respect to the Existing Senior Subordinated Notes. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession of the United States, which are in effect from time to time. "HEDGING OBLIGATIONS" means, with respect to any person, the obligations of such person under (i) interest rate swap agreements, interest rate cap agreements interest rate floor agreements, and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such person against fluctuations in interest rates. "INDEBTEDNESS" of any person means at any date, without duplication, (i) all obligations of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such person to pay the deferred price of property or services required to be accrued on the balance sheet of such person, except accounts payable arising in the ordinary course of business, (iv) all Capital Lease Obligations of such person, (v) all Indebtedness of others secured by a Lien on any asset of such person, whether or not such Indebtedness is assumed by such person (the amount of such obligation being deemed to be the lesser of the value of the property or assets or the amount of the obligation 12 so secured), (vi) all Indebtedness of others guaranteed by such person, (vii) all obligations of such person to reimburse the issuer of any letter of credit, (viii) Attributable Debt of such person, (ix) preferred stock issued by a Subsidiary of such person, (x) Disqualified Stock, and (xi) Hedging Obligations; PROVIDED, HOWEVER, that "Indebtedness" does not include any obligations pursuant to receivables not required under GAAP to be booked as liabilities on the balance sheet of such person. "NEW SENIOR SUBORDINATED NOTES" means the Company's 10% Senior Subordinated Notes due 2006. "NEW SENIOR SUBORDINATED NOTES INDENTURE" means the indenture dated as of August 16, 1996, between the Company and AmSouth Bank of Alabama, as trustee, with respect to the New Senior Subordinated Notes. "SENIOR BANK DEBT" means, with respect to any person, the Indebtedness outstanding under the Credit Agreement as such agreement may be restated, further amended, supplemented or otherwise modified or replaced from time to time hereafter, together with any refunding or replacement of such Indebtedness, up to an aggregate maximum principal amount outstanding or available at any time of $400 million, less the aggregate amount of all proceeds of sales or other disposition of assets (i) applied to reduce the outstanding amount of such Indebtedness and (ii) not reinvested in the business or businesses of the Company or any of its Consolidated Subsidiaries or otherwise in accordance with the terms of the New Senior Subordinated Notes Indenture. and the Existing Senior Subordinated Notes Indenture. "SENIOR INDEBTEDNESS" means (i) the Senior Bank Debt, the New Senior Subordinated Notes, the Existing Senior Subordinated Notes and all indebtedness ranking senior to or PARI PASSU with the Existing Senior Subordinated Notes or New Senior Subordinated Notes; (ii) all obligations consisting of the principal, premium, if any, and accrued and unpaid interest, whether existing on the date of this Note or thereafter incurred, in respect of (A) indebtedness of the Company for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other instruments of indebtedness for which the Company is responsible or liable; (iii) all Capital Lease Obligations of the Company; (iv) all obligations of the Company (A) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (B) under interest rate swaps, caps, collars, options or similar arrangements and foreign currency hedges entered into in respect of any obligations described in clauses (i), (ii) and (iii) immediately above and (C) issued or assumed as the deferred purchase price of property or services and all conditional sale obligations and all obligations under any title retention agreement; (v) all obligations of the type referred to in clauses (ii), (iii) and (iv) immediately above and all dividends of other persons for the 13 payment of which, in either case, the Company is responsible or liable as obligor, guarantor or otherwise; (vi) all obligations consisting of modifications, renewals, extensions, replacements and refundings of any obligations described in clause (i), (ii), (iii), (iv) or (v) immediately above; (vii) any other Indebtedness which by its terms or the terms of any instrument creating it is designated as "Senior Indebtedness" under the terms of the Existing Senior Subordinated Notes Indenture or the New Senior Subordinated Notes Indenture, or is otherwise expressed as being senior in right of payment to the Existing Senior Subordinated Notes or the New Senior Subordinated Notes. Notwithstanding anything to the contrary in the foregoing, "Senior Indebtedness" shall not include any Indebtedness, liability or obligation of the Company (i) as to which the terms of the instrument creating or evidencing the same provide that such Indebtedness is not senior in right of payment to this Note, (2) to any trade credit, (3) owed to a person when such person is a Subsidiary or any other Affiliate of the Company, (4) that portion of which is incurred in violation of this Note and (5) for Federal, state, local or other taxes owed or owing by the Company. "SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulations S-X promulgated pursuant to the Act, as such Regulations S-X is in effect on the date hereof. "SUBSIDIARY" means with respect to any person (i), any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any person or one or more of the other Subsidiaries of such person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the general managing partner of which is such person or a Subsidiary of such person or (b) the only general partners of which are such person or one or more Subsidiaries of such person (or any combination thereof). "USURY LAWS" means, collectively, the usury laws of the State of New York (or the usury laws of any other state that might be determined by a court of competent jurisdiction to be applicable notwithstanding such notice of law). 12. APPLICABLE LAW AND VENUE. This Note shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to the conflicts of laws principles thereof. The Maker irrevocably submits to (and this Note shall be subject only to) the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York 14 solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby, and hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts. It is irrevocably agreed that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. Any such court shall have jurisdiction over the person of such party and over the subject matter of such dispute and agrees that mailing of process or other papers in connection with any such action or proceeding in the manner provided in applicable law, shall be valid and sufficient service thereof. IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as of the year and date first above written. PARACELSUS HEALTHCARE CORPORATION By: \s\ Deborah H. Frankovich ------------------------------------------ Name: Deborah H. Frankovich Title: Vice President and Treasurer EX-11.1 27 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 PARACELSUS HEALTHCARE CORPORATION COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ------- ------- ------ ------ Primary: - ------- (1) Net income (loss) $(80,123) $ 3,323 $(86,864) $10,505 -------- ------- -------- ------- Shares used in this computation: Weighted average common shares outstanding 42,290 29,772 33,975 29,772 Shares applicable to stock options and warrants, net of shares assumed to be purchased from proceeds at average market price (a) - (a) - -------- ------- -------- ------- (2) Total shares for net income per share computation 42,290 29,772 33,975 29,772 ======== ======= ======== ======= Income (loss) per share: Continuing operations $ (1.19) $ 0.12 $ (1.34) $ 0.31 Discontinued operations (0.60) (0.01) (1.08) 0.04 Extraordinary loss (0.10) - (0.14) - -------- ------- -------- ------- Net Income (loss) per share (1 divided by 2) $ (1.89) $ 0.11 $ (2.56) $ 0.35 ======== ======= ======== ======= Fully Diluted: - ------------- (3) Net income (loss) (1) $(80,123) $ 3,323 $(86,864) $10,505 ======== ======= ======== ======= Shares used in this computation: Total primary shares (2) 42,290 29,772 33,975 29,772 Shares applicable to stock options and warrants in addition to those used in primary computation due to the use of period-end marker price when higher than average (a) - (a) - -------- ------- -------- ------- (4) Total fully diluted shares 42,290 29,772 33,975 29,772 ======== ======= ======== ======= Income (loss) per share: Continuing operations $ (1.19) $ 0.12 $ (1.34) $ 0.31 Discontinued operations (0.60) (0.01) (1.08) 0.04 Extraordinary loss (0.10) - (0.14) - -------- ------- -------- ------- Net Income (loss) per share (3 divided by 4) $ (1.89) $ 0.11 $ (2.56) $ 0.35 ======== ======= ======== =======
(a) The effect of options and warrants were anti-dilutive for the quarter and nine months ended September 30, 1996. EX-27 28 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-q FOR THE QUARTER ENDED SEPTEMBER 30, 1996. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 14,611 16,713 93,159 53,362 0 233,567 442,894 64,647 867,814 112,078 490,202 213,465 0 0 (9,909) 867,814 0 350,200 0 382,889 0 24,453 18,433 (75,575) (30,066) (45,509) (36,798) (4,557) 0 (86,864) (2.56) (2.56)
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