021616 Affiliation Agreement

69 Pages·2016·0.43 MB·English

by  Andrews, Kelly S.

AFFILIATION AGREEMENT
BY AND AMONG
TEHACHAPI VALLEY HEALTHCARE DISTRICT

AND
ADVENTIST HEALTH MEDICAL CENTER TEHACHAPI
AND
ADVENTIST HEALTH SYSTEM/WEST
Dated as of: [February __], 2016

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TABLE OF CONTENTS

Page

ARTICLE 1. DEFINITIONS ................................................................................................. 1
1.1 Defined Terms ....................................................................................................... 1
ARTICLE 2. TRANSFER OF ACQUIRED ASSETS .......................................................... 9
2.1 Transfer of Acquired Assets .................................................................................. 9
2.2 Excluded Assets ................................................................................................... 10
2.3 Employment Transition ....................................................................................... 11
2.4 Assumption of Liabilities ..................................................................................... 12
2.5 Excluded Liabilities ............................................................................................. 12
2.6 Affiliation Consideration ..................................................................................... 13
2.7 Closing Date Supplies Inventory ......................................................................... 13
ARTICLE 3. CLOSING ...................................................................................................... 14
3.1 Effective Time ..................................................................................................... 14
3.2 Deliveries by the District ..................................................................................... 14
3.3 Closing Date Reimbursement .............................................................................. 15
3.4 Deliveries by the Corporation .............................................................................. 15
3.5 Deliveries by the Adventist Parties ...................................................................... 15
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE DISTRICT ............ 16
4.1 Organization and Standing ................................................................................... 16
4.2 Subsidiaries .......................................................................................................... 16
4.3 Authority, Validity and Binding Effect ............................................................... 16
4.4 No Conflict or Violation ...................................................................................... 16
4.5 Required Approvals and Public Meetings ........................................................... 16
4.6 Financial Statements ............................................................................................ 17
4.7 Absence of Certain Changes or Events ................................................................ 17
4.8 Supplies ................................................................................................................ 18
4.9 Title to Acquired Assets....................................................................................... 18
4.10 District Real Property .......................................................................................... 18
4.11 Environmental Matters......................................................................................... 19
4.12 Employees ............................................................................................................ 20
4.13 Employee Plans .................................................................................................... 21
4.14 Licenses and Permits............................................................................................ 22
4.15 Insurance .............................................................................................................. 22
4.16 Government Healthcare Programs ....................................................................... 23
4.17 Cost Reports ......................................................................................................... 23
4.18 Medical Staff ........................................................................................................ 23
4.19 Sufficiency of Assets ........................................................................................... 24
4.20 Contracts .............................................................................................................. 24
4.21 Equipment Leases ................................................................................................ 25
4.22 Litigation, Claims and Proceedings ..................................................................... 25
4.23 Orders, Decrees and Rulings................................................................................ 25
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(continued)
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4.24 Compliance with Laws ........................................................................................ 26
4.25 Compliance with Healthcare Laws ...................................................................... 26
4.26 Broker’s and Finder’s Fees .................................................................................. 26
4.27 FIRPTA ................................................................................................................ 26
4.28 Accuracy of Representations and Warranties ...................................................... 26
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE ADVENTIST
PARTIES ....................................................................................................... 26
5.1 Organization and Standing ................................................................................... 26
5.2 Authority, Validity and Binding Effect ............................................................... 27
5.3 No Conflict or Violation ...................................................................................... 27
5.4 Litigation, Claims and Proceedings ..................................................................... 27
5.5 Broker’s and Finder’s Fees .................................................................................. 27
5.6 Orders, Decrees and Rulings................................................................................ 27
5.7 Compliance with Law .......................................................................................... 28
5.8 Accuracy of Representations and Warranties ...................................................... 28
5.9 Government Healthcare Programs ....................................................................... 28
5.10 Compliance with Healthcare Laws ...................................................................... 28
ARTICLE 6. PRE-CLOSING COVENANTS OF THE PARTIES .................................... 28
6.1 Ordinary Course ................................................................................................... 28
6.2 Operations Pending Closing ................................................................................ 28
6.3 Contracts and Process for Assumption ................................................................ 30
6.4 Title Reports......................................................................................................... 31
6.5 Access to Information .......................................................................................... 31
6.6 Material Changes ................................................................................................. 31
6.7 Interim Financial Statements ............................................................................... 32
6.8 Updates to Employee Roster ................................................................................ 32
6.9 Use of Space; Administrative Support ................................................................. 32
6.10 Further Assurances............................................................................................... 32
ARTICLE 7. CONDITIONS PRECEDENT TO CLOSING .............................................. 32
7.1 Conditions Precedent to Adventist Parties’ Obligations ...................................... 32
7.2 Conditions Precedent to the District’s Obligations .............................................. 34
ARTICLE 8. POST-CLOSING COVENANTS .................................................................. 35
8.1 District’s Continuing Operations ......................................................................... 35
8.2 Noncompete ......................................................................................................... 35
8.3 Transition Patients ............................................................................................... 35
8.4 Withholds ............................................................................................................. 36
8.5 Final Cost Reports; Other Reports ....................................................................... 36
8.6 Preservation of Records ....................................................................................... 36
8.7 Dissolution of District Neither Prohibited Nor Required .................................... 36
8.8 Corporation’s Pursuit of Tax-Exempt Status ....................................................... 36
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(continued)
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8.9 Continuing Disclosure Statement ........................................................................ 36
ARTICLE 9. Indemnification .............................................................................................. 37
9.1 Survival of Representations, Etc .......................................................................... 37
9.2 Indemnification of Adventist Parties ................................................................... 37
9.3 Indemnification of District ................................................................................... 37
9.4 Indemnification Procedures ................................................................................. 37
ARTICLE 10. TERMINATION ............................................................................................ 38
10.1 Termination Prior to Closing ............................................................................... 38
10.2 Liability in Event of Termination ........................................................................ 39
10.3 Extension, Waiver ................................................................................................ 39
ARTICLE 11. MISCELLANEOUS PROVISIONS .............................................................. 40
11.1 Governing Law .................................................................................................... 40
11.2 Entire Agreement ................................................................................................. 40
11.3 Amendment .......................................................................................................... 40
11.4 Assignment .......................................................................................................... 40
11.5 Multiple Counterparts .......................................................................................... 40
11.6 Expenses .............................................................................................................. 40
11.7 Notices ................................................................................................................. 40
11.8 Invalidity .............................................................................................................. 41
11.9 Number ................................................................................................................ 41
11.10 Titles .................................................................................................................... 41
11.11 Publicity ............................................................................................................... 42
11.12 Cumulative Remedies .......................................................................................... 42
11.13 Dispute Resolution ............................................................................................... 42
11.14 Attorneys’ Fees .................................................................................................... 43
11.15 No Third-Party Beneficiary Rights ...................................................................... 43
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AFFILIATION AGREEMENT
THIS AFFILIATION AGREEMENT (“Agreement”) is made and entered into as of
[February __], 2016 (the “Execution Date”), by and among Tehachapi Valley Healthcare
District, a political subdivision of the State of California (the “District”), Adventist Health
System/West, a California nonprofit religious corporation doing business as Adventist Health
(“Adventist Health”), and Adventist Health Medical Center Tehachapi, a California nonprofit
religious corporation (the “Corporation”). The District, Adventist Health and the Corporation
are sometimes referred to individually as a “Party” or collectively as the “Parties”. Adventist
Health and the Corporation are sometimes referred to at times individually as an “Adventist
Party” and collectively as the “Adventist Parties”.
RECITALS
A. The District is (i) the owner and operator of a general acute care general hospital
located generally at 115 West “E” Street, Tehachapi, California 93561, California, heretofore
known as Tehachapi Hospital (the “Existing Hospital”), (ii) the operator of rural health clinics
located in Tehachapi, Mojave and California City, California (the “Clinics”), and (iii) the owner
of a new hospital under construction located generally at 2000 Magellan Drive, Tehachapi,
California 93581 (the “New Hospital”).
B. The Corporation is a newly incorporated Affiliate of Adventist Health, formed for
the purpose of (i) acquiring certain tangible and intangible assets from the District in accordance
with Section 32121(p) of the California Health and Safety Code, (ii) leasing from the District the
Existing Hospital and the New Hospital in accordance with Section 32126 of the California
Health and Safety Code, and (iii) using and maintaining such property in connection with the
ownership and operation of an acute care hospital and associated operations related to the
delivery of health care for the benefit of communities served by the District.
C. The Board of Directors of the District, having determined that (i) the transfer to
the Corporation of certain tangible and intangible assets (other than Owned Real Property, as
defined below) related to the operation of the Existing Hospital and the Clinics, (ii) the lease by
the District to the Corporation of the Owned Real Property, and (iii) the Corporation’s operation
and maintenance of an acute care hospital and associated operations as described above, subject
to the conditions set forth in this Agreement and the Master Facilities Lease, as defined below
(collectively, the “Affiliation”), are in the best interest of the communities served by the District,
has approved this Agreement.
AGREEMENT
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Defined Terms. The following definitions apply in this Agreement:

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“Accounts Receivable” means (a) all trade accounts receivable and other rights
to payment from Payors, patients or other customers or contractors of the District, and (b) all
other accounts receivable or notes receivable of the District.
“Active Employees” means all of the active employees of the District as of the
Closing Date other than Senior Executives.
“Affiliate” means any Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with a Party.
“Agency Settlements” means rights to settlements and retroactive adjustments, if
any, whether arising under a cost report of the District or otherwise, for cost reporting periods
ending on or prior to the Closing Date, whether open or closed, arising from or against the
United States government under the terms of the Medicare program or TRICARE or the
Disproportionate Share Replacement Payments program or against the State of California under
the Medi-Cal program, and against any Payor programs which settle upon a basis other than
individual claims.
“Approval” means any no objection letter, variance, clearance and other
authorization, consent or approval of any Government Authority that is required to consummate
the transactions contemplated by this Agreement and the Related Agreements, including
Electorate Approval and applicable change of ownership application(s) with Medicare and Medi-
Cal.
“Business Day” means any weekday on which state-chartered banks are open to
conduct regular banking business with bank personnel.
“Closing” means the consummation of the transactions contemplated by this
Agreement.
“Closing Date” means June 30, 2016, or such other date mutually agreed to in
writing by the Parties.
“Code” means the Internal Revenue Code of 1986 and all and regulations
promulgated thereunder, each as amended as of the Closing Date.
“Condemnation” means (a) any temporary or permanent taking of (or of the right
to use or occupy) any Owned Real Property by condemnation, eminent domain, or any similar
proceeding, or (b) any action by any Government Authority not resulting in an actual transfer of
an interest in (or of the right to use or occupy) any Owned Real Property but creating a right to
compensation, such as a change in grade of any street upon which the Owned Real Property
abuts.
“Construction” means any alteration, construction, demolition, development,
expansion, reconstruction, redevelopment, repair, Restoration or other work affecting any
Improvements, including new construction.
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“Construction Contracts” means the Contracts set forth on Exhibit 1.1(a) and,
from and after the Effective Time, such other Contracts relating to the Construction of the New
Hospital as the District executes from time to time.
“Construction Funding Agreement” means that certain Construction Funding
Agreement by and between Adventist Health and the District dated as of the Execution Date.
“Contract” means any agreement, contract, note, loan, covenant, license,
instrument, obligation or other commitment to which the District is a party or is bound or which
relates to the Licensed Operations, the New Hospital or the Acquired Assets, whether oral or
written, but excluding all Leases.
“Default” means (a) a breach of or default under any Contract or Lease, (b) the
occurrence of an event that with the passage of time or the giving of notice or both would
constitute a breach of or default under any Contract or Lease, or (c) the occurrence of an event
that with or without the passage of time or the giving of notice or both would give rise to a right
of termination, renegotiation or acceleration under any Contract or Lease.
“Disclosure Schedule” means the schedule executed and delivered by the District
to the Adventist Parties as of the Execution Date that sets forth the exceptions to the
representations and warranties contained in Article 4 of this Agreement and certain other
information called for by this Agreement, provided that the Parties acknowledge and agree that a
disclosure of any matter or document in any numbered section of the Disclosure Schedule shall
not qualify as a disclosure with respect to any other numbered section of the Disclosure Schedule
unless and only to the extent such disclosure specifically cross-references or is specifically cross-
referenced in such other numbered section.
“District Employee Plan” means any Employee Plan sponsored, maintained or
contributed to, or required to be sponsored, maintained or contributed to by the District, or with
respect to which the District has any actual or contingent liability.
“District Real Property” means the Owned Real Property and the Leased Real
Property.
“Electorate Approval” means approval of the Affiliation by ballot initiative
placed before the residents of the District by the margin required by the Local Health Care
District Law.
“Effective Time” means 12:01 a.m. on the date immediately following the
Closing Date.
“Employee Notification Law” means the Worker Adjustment and Retraining
Notification Act (29 U.S.C. §§ 2101–2109) and any equivalent state Law.
“Employee Plan” means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Plan, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Plan (including any
Multiemployer Plan), (c) qualified defined benefit retirement plan or arrangement which is an
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Employee Pension Plan (including any Multiemployer Plan), or (d) Employee Welfare Plan or
material fringe benefit plan or program.
“Employee Pension Plan” shall have the meaning set forth in Section 3(2) of
ERISA (whether or not subject to ERISA).
“Employee Welfare Plan” shall have the meaning set forth in Section 3(1) of
ERISA (whether or not subject to ERISA).
“Encumbrance” means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction,
conditional sales agreement, encumbrance or other right of third parties, whether voluntarily
incurred or arising by operation of law, and includes any agreement to give any of the foregoing
in the future, and any contingent sale or other title retention agreement or lease in the nature
thereof.
“Environmental Laws” means all federal, state and local environmental
protection, occupational, health and safety or similar laws, ordinances, restrictions, licenses,
rules, regulations and permit conditions, including the Federal Water Pollution Control Act,
Resource Conservation & Recovery Act, Safe Drinking Water Act, Toxic Substances Control
Act, Clean Air Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right to Know or other federal, state, or local laws of
similar effect, each as amended as of the Closing Date.
“Equipment Leases” means all of the existing Leases with respect to the personal
property used in connection with the Existing Hospital, Clinics, New Hospital or Licensed
Operations to which the District is a party.
“ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.
“Existing Bonds” means, collectively, the District’s (a) General Obligation
Bonds, 2004 Election, 2004 Series A, 2006 and 2009 Series C, (b) General Obligation Refunding
Bonds, 2004 Election, 2013 Series A, and (c) General Obligation Bonds, 2004 Election, Series
2013.
“Facilities” means all offices, improvements, administration buildings and all real
property and related facilities owned or leased by the District.
“Facility Leases” means all Leases of Facilities.
“Financial Statements” means the audited financial statements of the District for
the fiscal years ended June 30, 2013, June 30, 2014, and June 30, 2015, the Most Recent Balance
Sheet, and any changes in fund balance and cash flows and any subsequent Interim Financial
Statements of the District.
“GASB” means Governmental Accounting Standards Board accounting
principles consistently applied, as in effect from time to time.
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“Government Authority” means any local, state or federal government,
including each of their respective branches, departments, agencies, commissions, boards, courts
or other subdivisions, including the California Department of Health Services, the Medicare and
Medi-Cal programs, TRICARE and Medicare Administrative Contractors.
“Government Healthcare Programs” means the Medicare, Medi-Cal and
TRICARE programs and similar or successor federal and state programs.
“Hazardous Substances” means flammable substances, explosives, radioactive
materials, asbestos, asbestos-containing materials, polychlorinated biphenyls, chemicals known
to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, medical
wastes, toxic substances or related materials, explosives, petroleum and petroleum products and
any “hazardous” or “toxic” material, substance or waste that is defined by those or similar terms
or is regulated as such under any Law, including any material, substance or waste that is (a)
defined as a “hazardous substance” under Section 311 of the Water Pollution Control Act (33
U.S.C. § 1317), as amended, (b) defined as a “hazardous waste” under Section 1004 of The
Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901, et seq., as amended, (c)
defined as a “hazardous substance” or “hazardous waste” under Section 101 of The
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Reauthorization Act of 1986, 42 U.S.C. § 9601 et seq. or any so-called
“superfund” or “superlien” law, including the judicial interpretations thereof, (d) defined as a
“pollutant” or “contaminant” under 42 U.S.C.A. § 9601(33), (e) defined as “hazardous waste”
under 40 C.F.R. Part 260, (f) defined as a “hazardous chemical” under 29 C.F.R. Part 1910, or
(g) subject to any other Law regulating, relating to or imposing obligations, liability or standards
of conduct concerning protection of human health, plant life, animal life, natural resources,
property or the enjoyment of life or property free from the presence in the environment of any
solid, liquid, gas, odor or any form of energy from whatever source.
“Hazardous Substances Discharge” means any deposit, discharge, generation,
release or spill of Hazardous Substances that occurs at, into or from the Owned Real Property or
that arises at any time from the use, occupancy or operation of the Owned Real Property or any
activities conducted therein or any adjacent or nearby real property, or resulting from seepage,
leakage or other transmission of Hazardous Substances from other real property to the Owned
Real Property, whether or not caused by the District.
“Healthcare Laws” means all relevant federal and state laws regulating health
services or payment applicable to the District, including, but not limited to, Title XVIII and Title
XIX of the Social Security Act, the federal Anti-Kickback Statute (42 U.S.C. Section 1320a-
7b(b)), the Stark Law (42 U.S.C. Section 1395nn), the Anti-Inducement Law (42 U.S.C. Section
1320a-7a(a)(5)), the civil False Claims Act (31 U.S.C. Sections 3729 et seq.), the administrative
False Claims Law (42 U.S.C. Section 1320a-7b(a)), Healthcare Privacy Laws and the exclusion
laws (42 U.S.C. Section 1320a-7), each as amended from time to time, the regulations
promulgated pursuant to such laws, and any other state or federal law, regulation or other
issuance of any Government Authority that regulates kickbacks, fee-splitting, patient or program
charges, claims submissions, recordkeeping, referrals, privacy, security, licensure or any other
aspect of providing health care, each as amended as of the Closing Date.
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“Healthcare Privacy Laws” means the Health Insurance Portability and
Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8) and the regulations promulgated
thereunder, the Health Information Technology for Economic and Clinical Health Act and the
regulations promulgated thereunder and comparable state privacy and security laws, each as
amended as of the Closing Date.
“Improvements” means all buildings, structures, and other improvements and
appurtenances located on the Owned Real Property.
“Indebtedness” shall mean (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes or similar instruments (together with all
premiums, penalties and accrued interest thereon and other costs, fees and expenses in
connection therewith), (c) all obligations under conditional sale or other title retention
agreements relating to property, (d) all obligations in respect of the deferred purchase price of
property or services (excluding trade accounts payable in the ordinary course of business), (e) all
indebtedness under interest rate swap or hedge agreements, (f) all indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any lien on property owned or acquired, whether or not the indebtedness secured
thereby has been assumed, (g) all guarantees of indebtedness of others, (h) all obligations of the
District under capital leases and (i) all obligations, contingent or otherwise, of the District as an
account party in respect of letters of credit and letters of guaranty.
“Indemnitee” means any Person entitled to indemnity under this Agreement.
“Indemnitor” means a Party that is obligated to indemnify any other Person
under this Agreement.
“Knowledge” means, as to a Party, the actual knowledge of any member of such
Party’s board of directors or any of such Party’s officers or senior managers and the knowledge
that any such Person would have had after reasonable inquiry, including inquiry into relevant
electronic databases and Persons known to such Person to have knowledge of the subject matter
in question, and review of his or her files.
“Laws” means any laws, statutes, ordinances, regulations, rules, notice
requirements, court decisions, agency guidelines, principles of law and orders of any
Government Authority, including Environmental Laws, Healthcare Laws, energy, motor vehicle
safety, public utility, zoning, building and health codes, occupational safety and health and laws
respecting employment practices, employee documentation, terms and conditions of employment
and wages and hours.
“Leases” means all of the existing leases held by the District with respect to
personal or real property of the District.
“Leased Real Property” means all leasehold or subleasehold estates and other
rights held by the District, as lessee, to use or occupy any land, improvements, or other interest
in real property.
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