Health Midwest v. Kline
District Court of Kansas.
HEALTH MIDWEST, et al. Plaintiffs,
v.
Phill KLINE, in his official capacity as the Attorney General for the State of
Kansas, Defendant.
No. 02-CV-08043.
Feb. 6, 2003.
Memorandum Decision
FOSTER, J.
On January 27, 28, 29, and 30, of 2003 this case was called for trial. On January 31, 2003 the court
made findings and rulings on the record herein. Plaintiffs, Health Midwest, Health Midwest
Development Group (“HMDG”), Health Midwest Johnson County, Inc. (“Health Midwest JC”),
Menorah Medical Center, Inc. (“Menorah”), Overland Park Regional Medical Center, Inc.
(“OPRMC”) and Trinity Lutheran Manor (“Trinity”) (collectively the “Health Midwest Plaintiffs”)
appeared by their attorneys Charles German, Larry Rouse, Douglas Anning, Matthew T. Geiger and
Anne Agnew. The Defendant, Kansas Attorney General Phill Kline, appears by and through his
counsel Robert T. Stephan and Reid F. Holbrook, Special Assistant Attorneys General and attorneys,
Mark Lynch and Frankie Forbes. The Court having heard the testimony presented, having reviewed
the exhibits admitted, having heard the arguments of counsel and being duly advised in the premises
makes its findings, conclusions, and orders herein.
Health Midwest, a non profit organization, has entered into an Asset Purchase Agreement (APA) to
sell its health system to HCA, a for profit company, for $1,125,000,000.00. It will be the largest
transaction of this type ever conducted in this country. This sale and any resulting foundations will
have significant short and long term consequences for the Kansas City Metropolitan Area and the
other counties which are served by the Health Midwest system.
On November 26, 2002, the plaintiffs brought this action against Carla J. Stovall in her official
capacity as Attorney General of the State of Kansas. Phill Kline was sworn in as the new Kansas
Attorney General and is now the defendant in this case in his official capacity as Attorney General.
A similar proceeding was initiated on the same day in the Circuit Court of Cole County, Missouri
against Jeremiah “Jay” Nixon, Attorney General, State of Missouri. Case No. 02-CV-326118.
The Health Midwest Plaintiffs have asked this Court to declare that the mergers and sale of the
Health Midwest hospital system to HCA for $1,250,000,000.00 comport with all aspects of Kansas
law. The Kansas Attorney General challenges the boards’ decisions to sell, the terms of the sale, and
the proposed disbursement of the proceeds to one Missouri foundation. The Court, for the reasons
set forth in this written decision and for reasons set forth on the record, finds that the sale process
used by the Health Midwest plaintiffs was appropriate and that the price is fair. The Court also finds
that 20% of the net proceeds of the Health Midwest sale are attributable to the Kansas corporations
and hereby authorizes the Kansas corporations to merge into one of the Health Midwest Kansas
corporations in order to complete the sale. The court also declares 2003 Kansas Senate Bill 44 to be
unconstitutional and inapplicable to this case.
The following issues were presented to the court:
1. Whether Kansas corporate law permits Health Midwest JC, Menorah, OPRMC and Trinity
to merge into Health Midwest as part of the larger transaction in which Health Midwest will
sell substantially all of its assets to HCA Inc. (“HCA”).
2. Whether the Kansas Attorney General has the authority to review the merges or the sale of
assets by Health Midwest to HCA.
3. Whether the Attorney General’s authority is limited to challenging ultra vires acts or
violations of the business judgment rule.
4. Whether the Attorney General can satisfy his burden of proving that the mergers should be
enjoined, or that the Attorney General can control governance of the sale proceeds.
5. Whether in the sale of Health Midwest to HCA, the price is unreasonable or the process is
defective enough to warrant disapproving the transaction, or in the alternative, adjusting the
covenants regarding non-competes and/or indigent care.
6. Whether the directors of the boards of Health Midwest, Johnson County, Inc., Menorah
Medical Center, Inc., Overland Park Regional Medical Center, Inc., Trinity Lutheran Manor,
Inc. and Allen County Hospital considered the effect of a merger upon their institutions and
exercised informed business judgment before ratifying the decision to merge.
7. Whether the compensation packages received by certain directors of Health Midwest,
Johnson County, Inc., Overland Park Regional Medical Center, Menorah Medical Center,
Inc. and Trinity Lutheran Manor, Inc. constituted self dealing.
8. Whether the decision to compensate executives at the “eleventh hour” constitutes a violation
of the Charitable Organizations and Solicitations Act, K.S.A. 17-1759, et. seq.
9. Whether the recently passed legislation, Senate Bill 44, should require Health Midwest’s
Kansas assets to be transferred to a Kansas foundation, and if so, the dollar and or percentage
amount that should be transferred.
Applicable Standards
Kansas East Conference of the United Methodist Church v. Bethany Medical Center, 266 Kan. 366,
969 P.2d 859 (1998) stands for the proposition that corporate law applies to all aspects of this
transaction. Kansas corporate law, which applies to Health Midwest JC, Menorah, OPRMC and
Trinity by virtue of Bethany, includes the presumption that boards of directors act on an informed
basis, in good faith and in the honest belief their decisions are in the best interests of the
corporations. Gray v. Manhattan Medical Center, Inc., 28 Kan.App.2d 572, 577 (2001). Under the
business judgment rule, the Kansas not for profit directors must exercise informed judgment in
recommending responses to merger or tender offers. See 46 A.L.R. 4th 887 (1986).
This Court is bound by Kansas law to begin with the presumption that: (1) the mergers of the Kansas
not-for-profit corporations into Health Midwest are supported by the business judgment of the boards
of those Kansas not-for-profit corporations; (2) the sale of Health Midwest assets is legitimate and
proper; and (3) the proposed use of sale proceeds is consistent with the purposes described in the
Articles of Incorporation of the Health Midwest Plaintiffs. The Attorney General’s authority in this
case comes from the common law and Kansas statutes. Non-profit hospitals and systems are
governed by statutory Non-Profit Corporation Law. The Attorney General’s common law authority
to prohibit or place conditions on the merger or sale of assets located in Kansas, is limited to
reing the presumption of good faith afforded to the boards of Health Midwest JC, Menorah,
OPRMC and Trinity.
Finding of Facts
The Court, having heard the evidence presented and having reviewed the exhibits admitted, makes
the following findings of fact:
1. Plaintiff Health Midwest is an integrated health care delivery system. It has established a
system for the delivery of health care in multiple locations and in multiple formats in order
to benefit from negotiating leverage and economies of scale in operation. (The system
organizational chart is set forth on the following page 2.)
2. Plaintiff Health Midwest (Health Midwest) is a nonprofit corporation organized and existing
under the Missouri Nonprofit Corporations Act, Mo.Rev.Stat. § 355.010 et seq.
3. Health Midwest is the sole member of a Kansas nonprofit corporation, Health Midwest
Johnson County, Inc. (“HMJC”).
4. HMJC is the sole member of two Kansas nonprofit corporations Menorah Medical Center
(“Menorah”) and Overland Park Regional Medical Center (“OPRMC”). Both of the hospitals
which these corporations operate are located in east central Johnson County. There are
hospitals in Johnson County that are located to the north, west, and south of them, and there
are one or more hospitals located in each of the neighboring counties. Menorah and OPRMC
primarily serve residents of Johnson County, Kansas and Jackson County, Missouri. Their
Kansas service area is Johnson County, Kansas.
5. Menorah is the sole member of a Missouri nonprofit corporation, Menorah Medical Center
Foundation (“MMCF”).
6. Health Midwest is the sole member of two Missouri nonprofit corporations, Health Midwest
Central Region (“HMCR”) and Health Midwest Development Group (“HMDG”).
7. HMCR is the sole member of three Missouri nonprofit corporations, Research Medical
Center (“RMC”), Research Psychiatric Center (“RPC”) and Baptist Lutheran Medical Center
(“BLMC”).
8. BLMC is the sole member of a Missouri nonprofit corporation, Baptist Lutheran Medical
Center Foundation (“BLMCF”).
9. BLMC is also the sole member of a Kansas nonprofit corporation, Trinity Lutheran Manor
(“TLM”).
10. HMDG is the sole member of seven Missouri nonprofit corporations, Research Mental
Health Services (“RMHS”), V.N.A. Corporation (“VNA”), Visiting Nurse Association
Foundation (“VNF”), Magnetic Imaging Inc. (“MII”), Community Partnership Health
Foundation of Lafayette County (“CPHFL”), Kansas City Hospice Inc. (“KCH”) and Kansas
City Hospice Foundation (“KCHF”).
11. HMDG is the sole member of a Kansas nonprofit corporation Allen County Hospital
Foundation (“ACHF”) and also leases Allen County Hospital (“ACH”) from the County
Commissioner of Allen County, Kansas.
12. Health Midwest traces its existence to the creation of Research Medical Center. RMC was
originally incorporated in 1886.
13. In 1904 RMC founded a training school for nurses.
14. Health Midwest was incorporated in 1979 under the name Research Development
Corporation. In 1980 the corporation changed its name to Research Health Services at which
time it became the sole member of RMC. The corporation changed its name to Health
Midwest in 1991.
15. In 1980 Health Midwest became the sole member of a Missouri nonprofit corporation called
Clinishare Inc. This corporation changed its name to Research Development Group in 1982
and then to Health Midwest Development Group (“HMDG”) in 1991.
16. In 1981 HMDG purchased and began operating Gardner Community Medical Center in
Gardner, Kansas. HMDG continued operating the Gardner Medical Center until it sold the
facility in 1987.
17. In 1982 HMDG began managing the Cass Medical Center in Harrisonville, Missouri.
18. In 1982 HMDG began operating the Allen County Hospital in Iola, Kansas under a lease
with Allen County and the Board of the Allen County Hospital. A new lease of the Allen
County Hospital was executed by HMDG in 1985 having a term which is scheduled to expire
in 2010. The Allen County Medical Foundation (ACMF) is not an entity that is being
transferred and sold to HCA. ACMF will revert to Allen County if the transaction closes. The
Allen County Hospital (ACH) assets and lease will be transferred to HCA. The ACH net
revenue represents less than 1% of the systems net revenue.
Allen County is approximately 80 miles from the Kansas City Metro Area. There are
hospitals in at least two of the neighboring counties. The Court finds that the ACH service
area is Allen County, Kansas.
If Allen County had one member of a Kansas City Metro Foundation, the board would have
to consist of more than 100 people for the board to be representative of the communities
Health Midwest serves. The needs of the people of Allen County are best understood by the
people who live there. Allen County is the only county in the Health Midwest system that is
not contiguous to any other county in the system.
19. HMDG operates Lafayette Regional Health Center in Lexington, Missouri.
20. In 1984 HMDG became the sole member of Research Mental Health Services.
21. In 1984 Health Midwest and Menorah incorporated Magnetic Imagining (MII). HMDG
became the sole member of MII after Health Midwest became the sole member of Menorah
in 1994.
22. In 1989 Health Midwest became the sole member of a Missouri nonprofit corporation,
Trinity Lutheran Hospital. Health Midwest acquired that membership interest by acquiring
the membership interest of a Missouri nonprofit corporation called Lutheran Health Services,
which was the sole member of Trinity Lutheran Hospital. Trinity Lutheran Hospital and
Lutheran Health Services merged with Trinity Lutheran Hospital surviving. Health Midwest’s
membership interest in Lutheran Health Services became a membership interest in Trinity
Lutheran Hospital as a result of the merger. At the time of the merger, Trinity Lutheran
Hospital was the sole member of the Kansas nonprofit corporation, TLM, and another
Missouri nonprofit corporation, Trinity Lutheran Hospital Foundation.
23. In 1991 Health Midwest acquired the sole membership interest in Baptist Medical Center.
At that time, Baptist Medical Center was the sole member of a Missouri nonprofit
corporation called Baptist Medical Center Foundation.
24. Health Midwest paid no cash in exchange for any of the membership interests it acquired in
Trinity Lutheran Hospital or Baptist Medical Center.
25. In 1999 Health Midwest entered into leases for two hospital facilities owned by Triad
Hospitals Inc. (“Triad”), a for profit corporation (hereinafter “the Triad Leases”).
26. Prior to entering the Triad Leases, Health Midwest formed HMJC and OPRMC, both Kansas
nonprofit corporations. HMJC (along with another Health Midwest subsidiary, Health
Midwest Independence (“HMI”)) entered into a fifteen-year lease with Triad under which
HMJC and HMI acquired the right to operate Triad’s hospital facility in Overland Park,
Kansas. HMJC and HMI assigned the lease to OPRMC.
27. As one of the conditions of the Triad Leases, Health Midwest guaranteed all rent payments
due to be made to Triad and posted a $50,000,000.00 letter of credit to secure that guarantee
obligation.
28. In 2001, Trinity Lutheran Hospital was merged into Baptist Medical Center and the surviving
corporation was BLMC. At the same time the Baptist Medical Center Foundation was
merged with the Trinity Lutheran Hospital Foundation forming BLMCF. As a result of these
transactions BLMC became the sole member of BLMCF and TLM.
29. Following the incorporation of HMCR, Health Midwest transferred its membership interests
in BLMC to HMCR.
30. Pursuant to the terms of the most recent Articles of Incorporation of the corporations and the
terms of the Operating Agreements of the LLCs, if all these entities were dissolved and
liquidated, then all the assets of those entities, after payment of liabilities, would ultimately
be distributed to Health Midwest.
31. Prior to entering the 1982 lease with HMDG, Allen County could not afford to operate its
hospital or make necessary capital improvements.
32. In 1985 Health Midwest contributed $1 million to make improvements to the Allen County
Hospital. In addition to this direct contribution, HMDG borrowed and Health Midwest
guaranteed $1.8 million of bond debt. The proceeds of this bond financing were invested in
the Allen County Hospital.
33. In 1994 the balance of the 1985 bond debt was refinanced by new bonds to take advantage
of lower rates obtained by the following Health Midwest Missouri organizations:
a.Health Midwest
b.Research Medical Center
c.Baptist Medical Center
d.Trinity Lutheran Hospital
e.Lee’s Summit hospital
f.Medical Center of Independence.
(hereinafter the “Obligated Group”). Health Midwest borrowed and the Obligated
Group guaranteed, the 1994 bond debt.
34. When Park Lane Medical Center was closed in 2000 and Trinity Lutheran Hospital was
closed in 2001, some of the equipment of those hospitals was transferred to Allen County
Hospital.
35. In anticipation of Health Midwest’s acquisition of control over the Menorah corporations a
new Missouri nonprofit corporation, Menorah Inc., was formed. Immediately prior to the
Health Midwest acquisition of control over the Menorah entities, Menorah Inc. became the
sole member of Menorah Medical Center Inc. and the sole member of MMCF. Prior to the
Health Midwest acquisition, Menorah Medical Center Inc. incorporated and became the sole
member of Menorah Health Center Inc., the Kansas nonprofit corporation holding title to the
Overland Park hospital site.
36. Health Midwest paid Menorah Inc. $21,000,000.00 in exchange for becoming the sole
member of Menorah Medical Center Inc. and $8,000,000.00 in exchange for becoming the
sole member of MMCF Foundation. Thereafter, Menorah Inc. changed its name to the Jewish
Heritage Foundation.
37. In 1994 Health Midwest became the sole member of Menorah Medical Center Inc., a
Missouri nonprofit corporation. Prior to that transaction Menorah Medical Center Inc.
operated a hospital in Kansas City, Missouri and had acquired property in Overland Park,
Kansas on which it planned to construct a new hospital. Menorah Medical Center Inc. had
formed a Kansas nonprofit corporation named Menorah Health Center Inc. which held title
to the Overland Park property.
38. In 1996 the Menorah hospital in Kansas City, Missouri was closed and the facility was sold
by the Missouri nonprofit corporation Menorah Medical Center Inc. Construction of the
Menorah hospital in Overland Park, Kansas was completed in 1996. At that time Menorah
Medical Center Inc., the Missouri nonprofit corporation, merged into Menorah Health Center
Inc., the Kansas nonprofit corporation, with the Kansas corporation surviving. As a result of
this merger the assets of the Missouri nonprofit corporation, Menorah Medical
Center–including the proceeds of the sale of its Missouri real estate–were transferred to
Menorah, the Kansas nonprofit corporation. Thereafter, the name of the Kansas nonprofit
corporation was changed to Menorah Medical Center (“Menorah”) and Health Midwest
became the sole member of Menorah, the Kansas non-profit corporation.
39. Prior to its acquisition by Health Midwest, Menorah Medical Center (“MMC” a Missouri
Nonprofit Corporation) had bad credit and was forced to establish a $26 million Line of
Credit with AHP, a lender of last resort. Despite the bad terms, MMC used this financing to
commence construction of a medical office building and outpatient facility in Johnson
County, Kansas.
40. Construction of the medical office building and outpatient facility was Phase I of a two phase
project, with Phase II being the construction of a Johnson County, Kansas Hospital.
41. Because of the bad loan terms and its bad financial condition MMC could not complete
Phase I or commence the Phase II construction of the hospital. Accordingly, MMC sought
out Health Midwest whose credit would allow it to complete the construction of the Johnson
County facilities.
42. Health Midwest refinanced MMC’s debt by paying off the AHP loan with proceeds from
more favorable financing obtained through the Obligated Group. Refinancing by the
Obligated Group created a number of benefits for MMC finances including a reduction of
the loan interest rate and release of certain assets as collateral.
43. Thereafter, Health Midwest issued $120 million in bonds to refinance all debt related to
MMC and the Johnson County facilities. Health Midwest was the borrower and the bonds
were guaranteed by the Obligated Group.
44. In 1995 MMC sold its Missouri hospital to the Stowers Institute for $4.9 million and these
proceeds were transferred to Menorah (the Kansas Corporation) and used to complete the
Johnson County facilities.
45. In 1996 and 1997, the first two years of operation for the Johnson County facilities, Menorah
(now a Kansas corporation) lost money. The cash shortfall was subsidized by drawing on the
cash reserves that had been created by the Missouri predecessor corporation MMC when it
operated and later sold the Missouri hospital.
46. When Park Lane Medical Center and Trinity Luther Hospital were closed some of the
equipment used by those hospitals was transferred to Menorah.
47. Prior to 1996, MMC operated for 70 years as a Missouri nonprofit charitable corporation.
48. The Overland Park Regional Medical Center facility was operated from the late 1970s until
1999 as a for-profit hospital.
49. Because this hospital is still owned by a for-profit corporation, Triad has continued to
generate real and personal property tax revenue of more than $3.3 million since it has been
leased by OPRMC.
50. HMJC and OPRMC were created to lease the Overland Park facility from Triad. Because
they were both shell corporations with no assets, Triad required that Health Midwest
guaranty the lease payments and provide a $50 million letter of credit to secure the payment
obligation.
51. When Park Lane Medical Center and Trinity Lutheran Hospital were closed some of the
equipment was transferred to OPRMC.
52. Since Health Midwest took over operation of OPRMC in 1999, it has suffered significant
negative cash flow in the amounts set for below.
1999 (18,623,000)
2000 (20,860,551)
2001 (24,620,968)
2002* (26,691,000)
53. In 2002, Health Midwest attempted to obtain financing to convert the terms of OPRMC’s
lease with Triad into more favorable bond debt to be used to purchase the leasehold interest.
This was attempted through HUD Section 242 Mortgage Insurance, lending of last resort.
Because of its poor financial condition, OPRMC could not qualify for this type of financing.
54. TLM borrowed money to finance its construction. This bond debt was originally guaranteed
by Trinity Lutheran Hospital (the Missouri corporation) and subsequently by the Obligated
Group.
55. The Health Midwest Plaintiffs were incorporated to pursue broad purposes that are not
restricted in any way by geographic region. The Articles of Incorporation include:
The corporations is organized exclusively for charitable, scientific and educational
purposes, including, for such purposes, the receiving of contributions and the making
of distributions to, and otherwise supporting the following organizations:
Research Medical Center
Research Development Group
Baptist Medical Center
Lutheran Health Services
Trinity Lutheran Hospital
The Rehabilitation Institute
Medical Center of Independence, Inc.
provided, however, that such organizations are described in section 501(c)(3) of the
Internal Revenue Code of 1986 (or the corresponding provisions of any future United
States Internal Revenue Law) and are exempt from taxation under Section 501(a) of
the Internal Revenue Code of 1986 (or the corresponding provisions of any future
United States Internal Revenue Law), which purposes include, among others, the
making of distributions to organizations that qualify as tax-exempt organizations
under said Code, and particularly the following specific charitable, scientific and
educational purposes and objects, to wit:
(a) To care for the sick and to carry on research and teaching and to foster the
health of the community, and in such connection to establish, operate and
maintain health care centers, hospitals, clinics, laboratories, medical office
buildings, pharmacies and all manner of other facilities for the study and care
of the human body or any part thereof, and the causes, effects diagnosis,
treatment and prevention of diseases, disorders, maladjustments and
abnormalities of the human body;
(b) To engage in, carry on and conduct research, experiments, analyses, studies,
laboratory work and all manner of scientific investigation relating to the mind
or human body or any part of functioning thereof, or to the causes, effects,
diagnosis, treatment and prevention of diseases, disorders, maladjustments
and abnormalities of the human body;
(c) To carry on, conduct or take part in educational and training programs and
courses of instruction in the field of medicine and preventive medicine and
in nursing and in the regulation, diagnosis, treatment and cure of diseases,
disorders, maladjustments and abnormalities of the human body;
(d) To engage in, carry on and conduct any and all of the foregoing promote or
assist in promoting the good health of the community and the encouragement
of providing means and facilities for such purposes.
56. The initial Health Midwest proposal was for one Missouri Foundation made up of Missouri
and Kansas residents govern the Foundation. The initial proposal was widely criticized
Health Midwest made a second proposal which called for separate Missouri and Kansas
foundations. The second proposal was criticized also.
57. Health Midwest efforts to structure a foundation or foundations which were acceptable to
Health Midwest, the Missouri Attorney General, and the Kansas Attorney General were
unsuccessful.
58. During February 2002, Ardent Health Services (“Ardent”) and HCA Inc. (“HCA”) separately
contacted Richard Brown, President and CEO of Health Midwest, to express interest in
acquiring the assets of Health Midwest.
59. Brown and Bernard Erdman, Chairman of the Board of Directors of Health Midwest, met
with representatives of Ardent and HCA to evaluate their respective expressions of interest.
60. Following these meetings in March 2002, Ardent and HCA sent letters to both Brown and
Erdman describing the possible purchase of Health Midwest assets, or in the alternative, a
partnership with Health Midwest.
61. Health Midwest provided information to Ardent and HCA in response to their expressions
of interest.
62. By letters dated May 20, 2002 and June 13, 2002, HCA reconfirmed interest in a transaction
with Health Midwest.
63. By letter dated May 31, 2002, Ardent proposed the general terms of an asset purchase
agreement between Ardent and Health Midwest.
64. On July 16, 2002, Health Midwest engaged Ponder & Company (“Ponder”) to provide advice
regarding the transactional and other options available to Health Midwest.
65. Ponder received a retainer fee of $100,000 from Health Midwest pursuant to the terms of
engagement. If Health Midwest consummates a transaction with a third party, Ponder will
receive a percentage fee based on the aggregate consideration of the transaction. The term
“transaction” is defined to include a broad range of business combinations which includes,
but is not limited to, the sale of assets. The terms of engagement provide for a $250,000
breakup fee for Ponder if significant work is performed and a transaction does not close.
66. The terms of engagement between Ponder and Health Midwest are reasonable and consistent
with industry standards and in fact are on the lower end of the industry standards.
67. Following its engagement by Health Midwest, Ponder requested and received financial,
organizational and other information from Health Midwest to facilitate Ponder’s advisory
role.
68. On August 6, 2002, Bernard Erdman described to the Board of Directors of Health Midwest
the expressions of interest by Ardent and HCA, as well as the meetings between and among
Mr. Erdman, Mr. Brown and representatives of Ardent and HCA.
69. Health Midwest faces may challenges and pressures which are identified in the August 6,
2002, Board Resolution which listed financial challenges and market pressures Health
Midwest had encountered up to that time, including:
a. Operational losses that had increased from a 1999 loss of $17 .7 million to a 2000
loss of $25 million.
b. Net revenues increasing at a rate of 2% while overall expenses were increasing at a
rate of 3.4%, resulting in a growing operating margin loss.
c. Diminished reimbursement for services resulting from declining payment rates and
declining lengths of stay and increasing acuity of inpatient populations.
d. Reduced availability of capital for maintenance and expansion due to the inability of
Health Midwest to break into the capital markets based on the large amount of debt
the system was carrying.
e. Increased competition for services as well as physician practices that were competing
for ancillary revenues.
f. Physician and personnel shortages which resulted in the payment of premium wages
to compensate for shortages.
g. A growing need to invest in technology and the increased costs associated with
Health Midwest’s aging facilities.
h. Adverse relationships with certain lenders.
i. Increasing difficulty in obtaining insurance.
70. Prior to approving the sale Health Midwest considered the alternatives available to it in
facing its challenges:
a. Maintain the status quo;
b. Maintain the status quo with new management;
c. Desystemize;
d. Seek a merger with or sale to a not-for-profit partner;
e. Seek a merger with or sale to St. Luke’s Shawnee Mission;
f. Renegotiate the Triad lease;
g. Renegotiate the Triad letter of credit;
h. Develop a Joint Venture with a for profit partner; or
i. Sell the system assets to a for profit entity.
71. From the time of the Triad Leases through August 6, 2002, Health Midwest’s financial
condition and potential means for addressing the financial issues faced by Health Midwest
were frequently discussed by Board Members and officers.
72. All options remained open after August 6, 2002 and until November 22, 20002.
73. Health Midwest and Ponder developed and applied a competitive bidding process calculated
to obtain the most favorable terms a ready, willing and able buyer would offer in exchange
for Health Midwest assets.
74. In addition to price, Heath Midwest decided to include in the competitive bid process
consideration of a bidder’s willingness to make capital investments in Health Midwest’s
operating facilities, commit to charitable and indigent care and continue providing the
services previously provided for Health Midwest. These additional considerations were
designed to identify those potential purchasers willing to commit to make investments,
contributions and provides services consisted with Health Midwest’s nonprofit purposes and
quantify the level of that commitment.
75. Health Midwest reserved the right to reject any and all bids.
76. Health Midwest and Ponder developed a list of covenants (the “Operating Covenants”)
designed to obligate a potential purchaser to make contributions and deliver services which
served the nonprofit purposes of Health Midwest and to enhance the quality and availability
of health care in the communities in which Health Midwest conducts its operations.
77. The Operating Covenants required the purchaser of Health Midwest’s assets to perform the
following duties:
a. Buyer will not close any hospitals in the urban core (Research Medical Center,
Baptist Lutheran Medical Center, and Research Psychiatric Center) for three years
and during the same period will not close any other hospitals previously operated by
Health Midwest unless Buyer provides the community with the same or substantially
similar health care services within 8 miles of the closed hospital through either a
newly constructed facility or an expanded existing facility.
b. Buyer will not terminate or change in any material way a substantial service,
program, type or level of care offered at any hospital previously operated by Health
Midwest for a period of three years unless in connection with a closure permitted
under Paragraph 86(A).
c. Buyer will not close the emergency department of any hospital for a period of five
years unless in connection with a closure permitted under paragraph 86(A).
d. Buyer will maintain for a period of ten years at least the same aggregate dollar
amount of charity, indigent and other uncompensated care as were provided by the
Health Midwest system during the 12-month period prior to closing of the
Agreement.
e. Buyer will participate for a period of ten years in the Medicare and Medicaid
programs at each hospital consistent with the participation of Health Midwest entities
prior to the closing.
f. Buyer will make available to Kansas City residents up to $1 million in nursing and
other health related scholarships.
g. Buyer will offer employment to all existing employees at wages and salaries at least
equal to those paid by Health Midwest and at benefit levels offered by Buyer to
existing employees, recognizing existing seniority and granting credit for years of
service with Health Midwest under the employee benefit plans of Buyer.
h. Buyer will maintain the medical staff membership and clinical privileges of all
physicians in good standing on the medical staff of a Health Midwest hospital as of
the date of closing.
i. Buyer will maintain for a period of ten years the religious and cultural identity and
traditions of each of the hospitals and maintain the name of each hospital as it exists
as of the date of closing. Thereafter, such traditions will be maintained until, if ever,
the medical staff, the community board of the hospital and the communities served
by the hospital no longer support such operation and name.
j. Buyer will maintain community boards at each hospital consisting of local
community members and medical staff that are racially and ethnically diverse and
that will have the authority over medical staff issues and will be consulted on
budgeting and strategic planning.
k. Buyer will maintain compliance programs to prevent and detect violations of laws
governing the delivery of health care goods and services in order to maintain the
ethical integrity of the hospitals.
l. Buyer will implement diversity initiatives for employment and purchasing activities
consistent with such initiatives at other hospitals operated by Buyer.
m. Buyer will implement as safety initiatives electronic medication administration
systems and electronic physician order-entry systems, including bar code
confirmation of medication administration.
n. Buyer will work with the Federal Emergency Management Agency to offer to
sponsor a DMAT team or support any similar team in the Kansas City area.
o. Buyer will report compliance with these covenants on an annual basis to Health
Midwest and Health Midwest retains certain enforcement rights in the event of
Buyer’s breach of any of these covenants including indemnification rights and any
other rights at law or equity.
78. Relying on its experience and knowledge of the market for the purchase and sale of health
care facilities, Ponder identified the organizations most likely to offer the highest purchase
price and most favorable terms in exchange for Health Midwest’s assets.
79. Ponder contacted all organizations it concluded would be most likely to offer the highest
purchase price, commit to the largest capital investment and commit to the contributions and
services required by the Operating Covenants. Ponder developed a description of Health
Midwest assets and created a bid package which informed potential purchasers of the assets
available. The bid package set forth the Operating Covenants and invited bidders to submit
the amounts of purchase price and capital investment it was willing to pay and invest in order
to be awarded a contract to purchase Health Midwest’s assets on terms which included the
Operating Covenants.
80. During August 2002, the bid packages were distributed. In addition to potential for-profit
bidders it selected to receive bid packages, Ponder identified and contacted certain
not-for-profit health care systems which Ponder believed were likely to have an interest in
and be capable of submitting a competitive bid for Health Midwest’s assets. In addition to
the amount of money to be paid for Health Midwest’s assets, each bidder was required to
state its positions on the Operating Covenants Health Midwest sought to be included in any
contract for the sale of its assets, and the amount of capital investments the bidder was
willing to make to provide and enhance the quality and availability of health care.
81. As a result of the competitive bidding process, Health Midwest received four bids from
potential buyers on or about September 5, 2002.
82. HCA Inc. submitted a bid to purchase substantially all the assets of the Health Midwest
system for $925,000,000.00. Tenet Healthcare Inc. (“Tenet”) submitted the second highest
bid of $875,000,000.00. The third highest bid was received from Ardent in the amount of
$765,000,000.00.
83. Following a review of the bids submitted, the Health Midwest Board on or about September
10, 2002, decided to focus its discussions with HCA and Tenet.
84. During September 2002, members of the Board visited hospitals owned and operated by
HCA and Tenet spoke with HCA and Tenet employees, physicians and board members and
evaluated the corporate citizenship of HCA and Tenet in communities where they purchased
nonprofit hospitals. The Board conducted this due diligence to determine the reputation,
commitment and experience of HCA and Tenet in delivering compassionate and quality
health care to the communities where they operated. The Board also sought to determine
whether the bidders had honored the commitments they made to such communities.
85. HCA and Tenet submitted their final bids and formal offers to purchase the Health Midwest
Assets on or about October 8, 2002. HCA bid $1,125,000.000 and Tenet bid $982,000.000
86. On or about October 15, 2002, the Board determined to negotiate exclusively with HCA in
an attempt to enter into a definitive asset purchase agreement. HCA offered a higher
purchase price than Tenet or any other bidder. Based on this determination and other factors,
the Board made the reasonable and informed decision to negotiate exclusively with HCA
with the intent of reaching a final agreement for sale of the Health Midwest Assets.
87. Prior to November 22, 2002, Ponder conducted a summary valuation assessment to
determine the fairness of the purchase price offered by HCA. Ponder concluded that the
enterprise value range of Health Midwest’s assets was between $718 million and $1.15
billion based on revenues and a value of between $533 million and $943 million based on
cash flow.
88. On November 22, 2002, Health Midwest entered into an Asset Purchase Agreement (the
“Agreement”) with HCA’s wholly owned subsidiary, Health Midwest Acquisition, LLC
(collectively “HCA”). HCA guaranteed the performance of each and every covenant,
obligation and agreement, connected with or related to the Agreement, including the
continuation of services previously provided by the Health Midwest Plaintiffs.
89. Under the Agreement, Health Midwest will convey at closing the purchased assets (the
“Health Midwest Assets”) to HCA in exchange for $1,125,000,000.00 (subject to certain
purchase price adjustments) and HCA’s agreement to assume a large portion of Health
Midwest’s liabilities. Health Midwest will not accept any equity in HCA, nor will Health
Midwest finance any part of the sale.
90. The Agreement obligates HCA to perform the Operating Covenants, which Health Midwest
has the contractual right to enforce, providing for and enhancing the quality and the benefit
of the communities served by Health Midwest.
91. The purchase price of $1,125,000,000.00 included in the Agreement is at the high end or
exceeds the revenue and cash flow range of values determined by Ponder.
92. In addition to payment of the sale price, HCA is contractually obligated to commit $450
million for capital improvements to the purchased hospitals.
93. The Health Midwest Board has made a reasonable, informed and good faith business
decision in the best interests of the Health Midwest Plaintiffs and the communities they serve
by providing in the Agreement a commitment for continued services. HCA has committed
to provide charitable and uncompensated care in covenants in the Agreement. HCA is also
required to comply with federal laws concerning indigent care including the federal EMTLA
statute which requires that all hospitals, whether profit or non profit, provide services to their
patients who cannot afford to pay. In connection with the board’s reverse due diligence
process the board determined that HCA is a responsible corporate citizen that provides
indigent care at reasonable levels.
94. No evidence has been presented which establishes that any donation has been used for
unintended or has been misused.
95. The terms of Health Midwest’s Agreement with HCA are more favorable to Health Midwest
than any other bidder offered in exchange for Health Midwest’s assets.
96. No evidence suggests that any person or organization who did not submit a bid would have
agreed to purchase Health Midwest’s Assets on terms more favorable to Health Midwest than
those provided in the Agreement.
97. The health care market conditions have changed since the execution of the Agreement on
November 22, 2202. In the event HCA’s obligation to purchase the Assets of Health Midwest
were terminated and Health Midwest’s assets were placed up for bid, the price and terms
which Health Midwest would receive for their assets may be substantially less favorable to
Health Midwest than the terms set forth in the Agreement.
98. The process employed by the Board in reaching the decision to sell the Health Midwest
Assets to the Buyer was reasonable, informed, and good faith business process which were
conducted in the best interests of Health Midwest and the Kansas subsidiaries.
99. The purposes of Health Midwest as set forth in its current Articles of Incorporation are as
follows:
The corporations is organized exclusively for charitable, scientific and educational
purposes, including, for such purposes, the receiving of contributions and the making
of distributions to, and otherwise supporting the following organizations:
Research Medical Center
Research Development Group
Baptist Medical Center
Lutheran Health Services
Trinity Lutheran Hospital
The Rehabilitation Institute
Medical Center of Independence, Inc.
provided, however, that such organizations are described in section 501(c)(3) of the
Internal Revenue Code of 1986 (or the corresponding provisions of any future United
States Internal Revenue Law) and are exempt from taxation under Section 501(a) of
the Internal Revenue Code of 1986 (or the corresponding provisions of any future
United States Internal Revenue Law), which purposes include, among others, the
making of distributions to organizations that qualify as tax-exempt organizations
under said Code, and particularly the following specific charitable, scientific and
educational purposes and objects, to wit:
(a) To care for the sick and to carry on research and teaching and to foster the
health of the community, and in such connection to establish, operate and
maintain health care centers, hospitals, clinics, laboratories, medical office
buildings, pharmacies and all manner of other facilities for the study and care
of the human body or any part thereof, and the causes, effects diagnosis,
treatment and prevention of diseases, disorders, maladjustments and
abnormalities of the human body;
(b) To engage in, carry on and conduct research, experiments, analyses, studies,
laboratory work and all manner of scientific investigation relating to the mind
or human body or any part of functioning thereof, or to the causes, effects,
diagnosis, treatment and prevention of diseases, disorders, maladjustments
and abnormalities of the human body;
(c) To carry on, conduct or take part in educational and training programs and
courses of instruction in the field of medicine and preventive medicine and
in nursing and in the regulation, diagnosis, treatment and cure of diseases,
disorders, maladjustments and abnormalities of the human body;
(d) To engage in, carry on and conduct any and all of the foregoing promote or
assist in promoting the good health of the community and the encouragement
of providing means and facilities for such purposes.
100. The Articles of Menorah, OPRMC, TLM and HMJC state that each of these corporations are
authorized to engage in activities aimed at achieving charitable, scientific and educational
purposes.
101. The fundamental purposes of Health Midwest, HMDG, OPRMC, Menorah, HMJC and TLM
are to improve the quality and availability of health care in the community each hospital
serves.
102. Section 12.6 of the Agreement provides that Health Midwest, the corporations it controls and
their successors, if any, cannot compete against HCA for a ten-year period beginning
immediately at closing of the sale. Specifically, the restrictions state as follows:
“Health Midwest cannot (1) engage in the construction or operation of any Competing
Business within the Kansas City metropolitan statistical areas or a radius of 10 miles of any
Facility or (2) acquire, lease, own or be a shareholder, partner, member or equity holder of,
exercise management control over, provide consulting services for, or acquire or maintain
any interest in, any Competing Business that is operated or conducted within the Kansas City
metropolitan statistical area or radius of 10 miles of any facility.”
103. Section 12.6(c) carves out exceptions to the non-compete provisions of the Agreement.
Pursuant to Section 12.6(c), Health Midwest can engage in many activities within the scope
of Health Midwest’s current corporate purposes. Those activities include, among others,
operating and providing support for services such as: charity care to the underserved,
providing pastoral counseling, services, training and education programs; community
outreach services that meet health care needs of the Kansas City region; postgraduate medical
education and research; medical education seminars; medical and clinical research programs
seeking to develop prevention and/or treatment products and/or services for diseases and
conditions; transportation services to assist those needing transportation to access health care
services; complementary medicine programs; wellness, nutrition, health management and
environmental health programs; education and training for physicians, nurses and medical
technical professionals; emergency medical response and ambulance services; home
companion/housekeeper and other social welfare programs for the elderly, disabled, and
mentally challenged; regional community health policy, planning and strategic direction;
programs to address family violence and other similar situations; and services for oral health
care needs.
104. The Health Midwest board is made up of 16 Kansas residents and 4 Missouri residents who
are respected community members and who are independent minded people. Health Midwest
directors Steve Wilkinson, Linda Sims, Norman Arnell, Barbara Atlas, Beverly Bodker, Dr.
Stanley Brand, Richard Brown, Kenneth Brown, Jeffery Alpert, Teri Cohn, Bernard Ernman,
Leo Moron, Frank Friedaman, Steven Gershon, Bernard Brown, Joseph Hersteimer, Gina
Kaiser, all of whom live in Kansas and Mr. Holkins, Mr. Pletz, Mr. Sloan and Mr. Graham,
who live in Missouri, approved the transaction.
105. James Klein, Stuart Lang, Dr. Harriet Langley, Dr. Michelle Lentell, T. Nelson Mann, John
McConnell, Rodney Minkin, Marcia Schoenfeld, Arthur Stern, Dr. Kathleen Stone, Jay
Yedlin, Jeanette Wishna, Francis Creeden, E. Wynn Presson, Debra Gafford, Kim Logan,
Carolyn Wilson and Reverend Jearald Shaft are the members of the Kansas subsidiary boards
and are Kansas residents approved the agreement.
106. It is important to Health Midwest and its Kansas subsidiaries for the hospitals in its system
to retain their cultural and religious affiliations.
107. The Health Midwest executive committee, based upon an in depth evaluation, determined
that if the proceeds where required to be split up that an 80%/20% Missouri/Kansas split
would be fair representation of the division of net assets between Kansas and Missouri. This
decision was made after a full and fair evaluation and is supported by the expert testimony
in this case.
108. The Health Midwest system is an integrated health system which was sold as a system and
not as individual assets. The corporations debt is system debt.
109. Throughout the period from August 6 through November 22, 2002, the Boards of Directors
of HMJC, Menorah, OPRMC, TLM and HMDG were kept informed of the competitive
bidding process formulated by Health Midwest and Ponder. Throughout and prior to that
period these Boards were also well aware of the adverse financial circumstances facing the
Health Midwest system entities and the alternatives set forth in the August 6, 2002 Health
Midwest Board Resolutions. These Boards were aware of the adverse financial conditions
of their own corporations as well as the overall adverse financial condition of the Health
Midwest system. These Boards were also informed that they and the Board of Health
Midwest had a fiduciary duty to consider the possible sale of Health Midwest’s assets to
HCA.
110. Prior to voting to approve the mergers of their corporation into Health Midwest, the Boards
of Directors of HMJC, Menorah, OPRMC, TLM and HMDG were informed of the terms of
the Asset Purchase Agreement, including:
a. The role the mergers of their corporations would play in the sale of Health Midwest’s
assets to HCA;
b. The purchase price of $1,125,000,000.00 and the capital investments of
$450,000,000.00 HCA had agreed to pay and invest for and to improve the assets of
Health Midwest;
c. The Operating Covenants HCA had committed to perform; and
d. The approximate net proceeds from the sale that Health Midwest would realize
following payment of liabilities.
111. Prior to voting to approve the mergers of their corporations into Health Midwest, the Boards
of Directors of HMJC, Menorah, OPRMC, TLM and HMDG were informed that Health
Midwest would use the net proceeds received from the sale in a manner consistent with the
non-profit purposes set forth in the articles of incorporation of their corporations and the
articles of incorporation of Health Midwest, namely, to enhance the quality and availability
of health care in the communities served by the Health Midwest System.
112. According to the 2001 U.S. Census Bureau, the poverty population in the following counties
are:
Jackson County, Missouri 78,000
Johnson County, Kansas 16,000
Wyandotte County, Kansas 26,000
Allen County, Kansas 2000
113. On January 21, 2003 a Memorandum of Understanding entered into between Health Midwest
and the Attorney General of the State of Missouri, Health Midwest now intends to transfer
the net proceeds from the sale of assets to HCA to a new foundation that was not envisioned
previously. More than 20% of the board seats will be filled with Kansas residents, Kansas
political officials will appoint members to the foundation advisory committee, which will
control nominations to the board. However, as little as 10% of the foundation expenditures
will benefit Kansas residents. The MOU grants the Missouri Attorney General to further
reduce spending targets for Kansas. The Missouri Attorney General makes all of the
appointments, which will have fifteen Missouri residents and four Kansas residents. In effect,
the Missouri Attorney General will have full control of the funds, how the funds are
allocated, and total control of the Board. On January 23, 2003 Health Midwest reached an
agreement with the Missouri Attorney General which would result in one Missouri
Foundation with representatives from both Kansas and Missouri to direct the foundation.
114. The Missouri foundation created by the Memorandum of Understanding between Health
Midwest and the Missouri Attorney General provides that “not less than 10% of the spending
will benefit residents of Kansas.” The Missouri Attorney General will control the Missouri
Foundation and “these targets will be adjusted, with the consent of the AG required …”
115. Health Midwest’s approval of the Missouri Foundation, in light of its position that a 80/20
split of the net proceeds is the appropriate division, is a breach of its duty and a violation of
trust as it relates to its obligations to the residents of its Kansas service area.
116. The Board of Directors of HMJC, Menorah, OPRMC, TLM and HMDC were not aware of
the terms of the MOU entered into between Health Midwest and the Missouri Attorney
General at the time the merger into Health Midwest was approved.
117. After Health Midwest’s bond indebtedness is paid off, the parties estimate $700 million will
be left over for transfer to the foundations.
Discussion
The subject of Chapter 17 of the Kansas statutes is corporations, and Article 17 of the corporation’s
chapter contains provisions specific to religious, charitable, and other organizations. K.S.A. 17-1701
to 17-1775. Articles 60 through 77 constitute the general corporation code. K.S.A. 17-6001 provides,
in part: “Any corporation organized under the laws of this state or authorized to do business in this
state shall be governed by the applicable provisions of this code.” The Attorney General is limited
to reviewing the decisions of the board of directors of the Kansas corporations under the business
judgment rule.
The Kansas corporate code is based on the Delaware corporate code. Delaware case law is, therefore,
useful as instructive authority. See Arctic Financial Corp. v. OTR Exp., Inc., 38 P.3d 701 (2002);
See also Gray v. Manhattan Medical Center, Inc., 28 Kan App.2d 572, 18 P.3d 291 (2001) In Oberly
v. Kirby, 592 A.2d 445 (Del.1991), the Delaware Supreme Court ruled that a court can not second
guess the wisdom of facially valid decisions made by a charitable fiduciary of a non stock charitable
corporation created for limited charitable purposes, any more than it can question the business
judgment of directors of for profit corporations. However, because of the limited charitable purposes,
those who control charitable corporations have a special duty to advance its charitable goals and
protect its assets, and any action that poses palpable and identifiable threat to those goals, or that
jeopardizes its assets, is contrary to certificate of incorporation and hence ultra vires.
The decision to sell and price.
The Attorney General claims that the boards of Health Midwest JC, Menorah, OPRMC and Trinity
failed to exercise reasonable business judgment as to price, process and use of proceeds in approving
their mergers into Health Midwest. The evidence shows that each Kansas not-for-profit corporation
has significant capital needs that will not be met in the long-term without the sale of assets to HCA.
The evidence establishes that the boards of Health Midwest JC, Menorah, OPRMC and Trinity were
informed regarding the comprehensive process undertaken by the Health Midwest Board, and that
each board unanimously approved the sale in good faith and in the best interests of those Kansas
not-for-profit corporations. The Attorney General has failed to identify a missed detail or conflict
of interest in the process that would prohibit or place conditions on the sale of assets. The evidence
establishes that the sale price and overall value of the transaction is reasonable. In fact, the price
obtained was on the high end of both Health Midwest and the Attorney General experts’
expectations. The process employed to reach the transaction was extensive, informed, and supported
by objective expert advice and consideration of all reasonable options.
Health Midwest considered all possible alternatives other than selling the system. Health Midwest
hired a consulting team to assist it in improving efficiencies. After considering the alternatives
Health Midwest decided that a sale was the best way to proceed.
Health Midwest used good business judgment in the choice of the financial consultant selected to
guide Health Midwest through the sale process. This consultant, “Ponder and Co.” had worked with
Health Midwest in the past. Health Midwest and Ponder engaged in a reasonable agreement to
compensate Ponder on a contingent fee basis.
The Court finds that the Kansas Boards adequately considered alternatives to selling the corporate
assets. The Board members reviewed sufficient information to adequately review the sale to HCA,
and made a sound business judgment in determining whether an alternative to sale was a better
alternative for their institution. In terms of dollars and cents, Health Midwest obtained a high
purchase price through the bidding process that it conducted.
Contractual conditions.
The Attorney General’s authority to review the conditions of the sale comes from the Kansas
Corporation Code. K.S.A. § 17-6104 permits the Attorney General to enjoin the “transaction of
unauthorized business” or to challenge that the board’s business judgment by proving that the
decision was ultra vires or a perversion of corporate purpose.
The Attorney General also claims common law authority to bar the transaction under Memorial
Hospital Association, Inc. v. Knutson, 239 Kan. 663, 772 P.2d 1093 (1986). In Knutson, which
involved the Attorney General’s authority under the Kansas Open Meetings Act, the Supreme Court
stated that the Attorney General’s powers are “as broad as the common law unless restricted or
modified by statute.” Id. at 666
The Attorney General argues that, in the Asset Purchase Agreement, Health Midwest failed to secure
sufficient indigent care commitments from HCA. This is a disagreement over contract terms that
does not overcome the business judgment rule presumption. The evidence established that the Health
Midwest Plaintiffs faced substantial short-term and long-term capital needs and would have had
difficulty to sustain the level of indigent care HCA has committed to. The reverse due diligence by
board members of the Health Midwest Plaintiffs indicates that HCA provides indigent care in the
communities it serves. The Asset Purchase Agreement will result in proceeds that may be applied
to indigent care, as well as the other charitable, scientific and educational purposes historically
fostered by the Health Midwest Plaintiffs through a foundation. Not only did Health Midwest obtain
a good price, it also obtained other covenants from HCA. § 5.5 of the Asset Purchase Agreement
contains a covenant from HCA to provide $50,000,000.00 of indigent care as per year for ten years.
Non-competition provisions in an Asset Purchase Agreement are customary and reasonable, and
without those provisions, it is doubtful that HCA would not have executed the Asset Purchase
Agreement.
HCA’s minimum commitment to indigent care is established by the Agreement. The Court will not
interfere with the contractual obligations entered into between the parties thereto.
Executive compensation.
On November 11, 2002, Health Midwest awarded additions to the supplemental executive retirement
plans, entitled “Wrap SERPS,” of 150% of the annual base salaries to four senior vice presidents and
100% of the annual base salaries to ten vice presidents. The total payout to the executives is in
excess of four million dollars and is payable at closing. The evidence does not show that the directors
of the Kansas corporations approved the “eleventh hour” severance packages for executives.
The executive corporation packages are not part of the Asset Purchase Agreement. The
appropriateness of the packages (even though they appear on their face to be excessive) has no
bearing in regard to whether the Agreement should be approved. Health Midwest’s decision to
approve the compensation is an internal matter of the Missouri company and is subject to review by
a Missouri court.
COSA
Kansas statutes have given authority to the Attorney General to monitor certain actions of not for
profit corporations, including in some instances, interfering in internal matters of the corporation.
For example, under COSA, the Attorney General has the authority to seek declaratory relief to insure
that solicited donations are used for the purpose for which they were solicited. See K.S.A.
17-1768(a).
The funds here are either generated by the corporation’s business or are proceeds from the sale of the
corporate assets and are not ‘solicited’ funds as defined by COSA. Health Midwest’s decision to
award the executive vice presidents severance packages is not a violation of COSA, which requires
that solicited funds be used for the purposes for which they were solicited. See COSA, K.S.A.
17-1759, et seq.
UMIFA
The funds here are either generated by the corporation’s business or are proceeds from the sale of the
corporate assets and are not managed funds or donations as defined by UMIFA. Therefore, UMIFA
does not apply in this case.
Cy Pres
The Kansas cy pres statute, K.S.A. § 59-22a01, governs changes to the purposes of charitable trusts,
devises and bequests. The cy pres statute does not apply to changes to the purposes of nonprofit
corporations. The cy pres statute applies only to any restricted gifts and not the entity as a whole.
Bethany Medical Center, 266 Kan. at 372-73. No restricted gifts have been identified herein and
therefore the cy pres statute does not apply.
When holders of charitable funds propose to modify the purposes to which a charitable fund is
devoted, UMIFA and Cy Pres require the Attorney General’s participation. See K.S.A. 58-3607(b)
and 59-22a01. The assets are proceeds of the sale of corporate assets and not assets of a trust,
therefore the cy pres statute does not apply.
2003 Senate Bill 44
On January 24, 2003 the Kansas Legislature passed Senate Bill 44. The Bill requires a nonprofit
corporation to forfeit its “Kansas hospital assets” to a “new foundation”. The Board of this new
foundation is to be appointed by Kansas elected officials. The Attorney General argues that Senate
Bill 44 governs the ultimate disposition of Health Midwest’s Kansas charitable assets. The Bill was
presented to the Legislature five days prior to trial herein, and passed and signed by the Governor
three days prior to this case being called for trial. The Bill is clearly intended to be applied in this
case. The provisions of the Bill which call for the confiscation of the assets of a corporation and
affects the rights of third parties without compensation or due process are unconstitutional.
Even if the Bill is constitutional, neither the proposed sale of Health Midwest’s assets to HCA nor
the mergers scheduled to precede that sale are events which trigger the confiscation of any Health
Midwest’s assets under the provisions of the Bill. The Bill is effective retroactively to January 1,
2003 and therefore cannot affect any obligations arising from the November 22, 2002 contract
between Health Midwest and HCA.
The Attorney General argues that the Bill ‘requires’ Health Midwest’s Kansas assets to be transferred
to a “new foundation” (apparently formed by the Attorney General, the Governor, and other state
officeholders). The Bill would require the transfer of “Kansas assets” to the “new foundation …
before there is any transfer” to a third party by the nonprofit corporation. In this case, the state would
be required to form three foundations in two counties (Johnson and Allen Counties) for three
separate hospitals which are controlled by three separate corporations. The Bill does not apply to
nursing homes and, therefore, it would not apply to the transfer of the Trinity Lutheran Manor
nursing home assets being sold to HCA. Specific valuations would need to be established for the four
separate holdings.
The forfeiture provision clearly interferes with the plaintiffs’ and HCA’s contractual rights, as set
forth in the November 22, 2003 contract. HCA has no obligation to purchase assets from the “new
foundations” created under the Bill. [In the event Health Midwest is unable to transfer its Kansas
assets to HCA.] In the event Health Midwest is unable to transfer its Kansas assets to HCA, HCA
would have no obligation to complete the transaction under the Asset Purchase Agreement. The Bill
is not applicable to this transaction and even if it were, the Bill could not be applied in accord with
either the Kansas or United States Constitutions.
The rule of strict construction applies here. The Bill purports to confiscate the assets of a nonprofit
corporation and as such is in derogation of private property rights and rights of individual ownership.
Am Jur 2d Statutes § 187, 188, ICC v. Cincinnati N.O. T.P.R. Co. 167 U.S. 479 (1897); National
Council on Compensation v. Todd, 258 Kan 535 (Kan 1995). Many principles of law announced in
Kansas East Conference of the United Methodist Church v. Bethany Medical Center, 266 Kan. 366
(1998), are applicable in this case. Nonprofit corporations have private property rights in their assets
which are protected by the Kansas and United States Constitutions. Id. at 380. The rule of strict
construction is particularly applicable to statutes which purport to take property against the will of
the owner. Western Union v. Pennsylvania R. Co., 195 U.S. 540 (1904); Christiansen v. Virginia
Drilling Co., 170 Kan 355 (1951). When the rule of strict construction is applicable, all doubts are
resolved in favor of the property owner. Id.
The following circumstances trigger the Bill’s requirement that nonprofit assets be transferred to a
“new foundation”:
1. A proposed “change of control” of a nonprofit “hospital”,
2. by sale or merger or integration,
3. which “may” result in:
a. change or loss of the “hospital’s” federal tax exempt status, or
b. forfeiture of the “hospital’s articles of incorporation”, or
c. amendment to the “hospital’s” articles of incorporation that alters the “original
purpose of the hospital”.
Once these three elements are established, all “Kansas assets” of the “hospital” must be transferred
to the “new foundation … before there is any transfer or depletion of the hospital’s assets.” The
second element, “sale or merger,” is present in the HCA transaction. But the first and third elements
are arguably missing, depending upon how those terms are interpreted. The transaction is not a
“proposed change of control” of the non-profit corporation, but would lead to a change in control of
the physical “hospital” operation. The transaction may “result” in any of the three consequences set
forth in the Bill depending upon the interpretation of the language.
The “Change of Control” Requirement
In order to interpret the first element defining the scope of the Bill, the following terms must be
understood:
1. “proposed change of control”; and
2. “hospital”.
“Proposed Change of Control”
Accordingly, the usual customary meaning of the phrase will be applied. Does ‘change of control’
refer to a change in control of the corporate entity or a change in control over the physical hospital
plant? Change of control–as applied to a corporation or other business entity–typically means the
right to elect or select the governing body of the entity.
It is ambiguous whether the phrase “change of control” applies to any change in control over an
entity, only changes of ultimate control, or change in control of the physical plant.
“Hospital”
This term is the only word defined in the statute. Section (1)(g) provides three meanings of hospital:
1. A “hospital” defined and licensed by K.S.A. 65-425 et. seq. which is not subject to federal
income tax pursuant to 501(c)(3),
2. Health Midwest, Inc. or a similarly situated “hospital holding company”, or
3. A licensed Kansas nonprofit hospital that is a “subsidiary or affiliate of a domestic or foreign
hospital holding company”.
Under these definitions, the term “hospital” could be interpreted to mean the person or entity
operating a hospital and not the building in which hospital operations are conducted.
K.S.A. 65-425 et seq. provides that hospital licenses are given to persons and entities, not bricks and
mortar. Equally important, the definition of “hospital,” referencing K.S.A. 65-425, adds the
requirement that the hospital is exempt from federal income tax under § 501(c)(3). This establishes
that hospitals are entities, not properties under this part of the definition. While property can be
exempt from state taxes, only entities are exempt from federal taxation under § 501(c)(3).
Similarly, the Bill indicates that “hospitals” have articles of incorporation which are subject to
forfeiture or amendment. The specific reference to Health Midwest and “subsidiaries” of nonprofit
hospital companies are likewise strong indications that “hospital” means a nonprofit entity operating
hospital facilities.
This distinction between entities and property is important because the statute requires that there be
a change of control over a “hospital.” The sale to HCA will not result in any change of control over
any nonprofit entity. Nor will the sale result in the loss of any Health Midwest entity’s tax exempt
status, forfeiture of any Health Midwest entity’s articles or change in the purposes stated in the
articles of a Health Midwest entity. The “change of control” requirement is arguably not satisfied by
any aspect of the Health Midwest/HCA transaction and the confiscation provisions would not be
triggered.
The Three “Results” of a Proposed Change of Control
The third element of the Bill which must be satisfied in order for it to mandate the transfer of assets
to a “new foundation” concerns the “results” which “may” occur from a proposed “change of
control.” Any one of three “results” is sufficient to satisfy this element. It can be argued that none
of the three consequences will follow from the Health Midwest/HCA transaction.
Their first “result” is a “change or loss” of “federal tax exempt status.” The transaction will have no
effect on the federal tax-exempt status of any Health Midwest entity. The second “result” is a
“forfeiture of … articles of incorporation.” Again, no aspect of the transaction would yield this
consequence. The grounds upon which a corporation is subject to revocation or forfeiture of its
articles are set forth in K.S.A. § 17-6812. All aspects of the Health Midwest/HCA transaction
involving Kansas corporations are expressly authorized by Kansas law. The transaction is not a basis
for a forfeiture of articles of incorporation under K .S.A. § 17-6812. The only “result” remaining is
a change in “original purpose.”
The “Original Purpose of the Hospital”
This term is used in connection with the last of the three “results” of a “change of control” which
trigger application of the “new foundation” requirements. The term “original” must mean the
nonprofit entities’ purposes existing before a change of control. But, as the Kansas Supreme Court
held in Bethany, the purposes of a nonprofit corporation like Health Midwest and its subsidiaries are
not strictly limited to hospital operations. Bethany Medical Center, 266 Kan. at 374. No aspect of
the transaction requires any amendment to the purposes set forth in the articles of incorporation of
Health Midwest or any of its subsidiaries. Thus the third element of the Bill–the “results”
requirement–is not satisfied by the Health Midwest/HCA transaction. The transaction will not result
in the loss of federal tax-exempt status, the forfeiture of articles of incorporation or an amendment
to the purposes stated in any articles. Since there is no “change of control” and no requisite potential
“results” which follow from the proposed transaction, the Health Midwest sale of assets to HCA is
not covered by the terms of the Bill.
State ex rel. Stephan v. Board of County Commissioners of Seward County, 254 Kan. 466, 866 P 2d
1024 (1994). A statute which calls for the confiscation of property owned by a person or corporation
must do so in plain unambiguous terms. Even then, the statute must pass muster under the Kansas
and United States Constitutions.
Retroactive Application
The Bill is to become effective on publication in the Kansas Register and apply “from and after
January 1, 2003.” Statutes are given retroactive application only when such an intent is clearly stated
in the legislation or will not impair vested property rights. Am Jur 2d Statutes § 245, KPERS v.
Reimer and Koger, 261 Kan. 17 (Kan.1996). Even when retrospective intent is clearly expressed,
retroactive application must be constitutional.
The Bill lacks any provision for notice and hearing before property is confiscated under its
provisions. Section 18 of the Kansas Bill of Rights and the Fifth Amendment to the Constitution
guarantee that no person will be deprived of property without due process of law. No process
whatsoever is provided for in the Bill.
The Contract Clause of the United States Constitution provides: “No state shall … pass any … Law
impairing the Obligation of the Contract.” U.S. Const Art I § 10. It is difficult to imagine legislation
imposing impairments on contracts which are as sweeping and onerous as those set forth in this new
legislation.
The second question, Health Midwest’s right to compensation, requires analysis of the protections
provided in the 5th and 14th Amendments to the United States Constitution. Again, the Bill makes
no provision for compensation to any person whose property is confiscated and turned over to a “new
foundation.”
The Legislature’s Intent
The legislation expressly stated that it applies retroactively to January 1, 2003. But the Bill’s
requirements are triggered by a “proposed change in control” which “may result” in one of the three
consequences described in the Bill. Transfer of assets to a new foundation must occur before the
assets are transferred or depleted by the sale or merger.
The sale of assets to HCA and the mergers which will precede that sale were “proposed” long before
January 1, 2003. The Attorney General was informed of the proposed transaction in August of 2002.
Indeed, contractually binding obligations requiring Health Midwest to complete the mergers and
convey assets to HCA were established on November 22, 2002. Retroactive application of the Bill,
to the Health Midwest sale to HCA is unconstitutional. Substantive laws that affect vested property
rights are not subject to retroactive legislation that would a constitute taking of property without due
process. Harding v. K.C. Wall Products, Inc., 250 Kan. 655 (1992).
Constitutional Prohibition Against Impairment of Contract Rights
The Contracts Clause does not prohibit all legislation which impairs contract rights. A two-step
process is applied to analyze whether state legislation runs afoul of the Contracts Clause:
1. The change in the law made by the statute must operate as a “substantial impairment” of the
legitimate contractual relationship and expectations of the contracting parties, and
2. If a substantial impairment exists, then the State must demonstrate a legitimate public purpose
for impairment.
Am Jur 2d Constitutional Law, § 708. The degree of impairment created by the Statute is directly
proportional to the scrutiny applied to the State’s purported justification for the impairment. Id.
There is no question that the Bill constitutes a “substantial impairment” to the Health Midwest/HCA
contract. [Moreover, the undefined term “Kansas assets” could be read to cause disassociation of the
assets from the debt that created them, the entity that invested in them and the contract rights of
bondholders, general creditors, and capital contributors.] The issue is whether the State can
demonstrate a legitimate public purpose behind the Bill. This issue could quickly evolve into a
philosophical and economic analysis of the nature of nonprofit corporations and property rights. But
claiming that, once located in Kansas all assets owned by nonprofits must remain in Kansas, is not
sufficient. That argument rests solely on charitable trust theories squarely rejected in Bethany, and
has no support in Kansas corporate law which expressly authorizes the transaction. K.S.A. §
17-6706. If the legislature prohibits removal of charitable assets from the State of Kansas and there
is no opportunity to recover these assets upon sale of the hospitals, foreign and domestic nonprofits
like Health Midwest, Children’s Mercy, St. Luke’s, and Sister’s of Charity could withdraw from their
missions to provide health care facilities in Kansas.
Taking Without Compensation
Senate Bill 44 violates the constitutional prohibition against the uncompensated taking of property
embodied in Section 18 of the Kansas Constitution and in the 5th Amendment made applicable to
States by the 14th Amendment of the U.S. Constitution. The effect of the Bill is the confiscation of
the property of a nonprofit corporation.
As a general rule, property owned and used by a private charitable organization is subject to the
sovereign’s power of eminent domain. Am.Jur.2d Eminent Domain § 130. But no authority remotely
suggests that assets of a nonprofit charitable or public benefit corporation may be confiscated
without compensation. Furthermore, compensation is required whenever the government takes
private property, regardless of the extent to which the taking achieves a valuable–or even an
essential–public purpose.
Since confiscation without compensation is the whole purpose of the Bill, the Attorney General
establish that the Bill constitutes a regulation and not a taking. Laws which merely regulate the use
of property fall short of a taking requiring compensation. The key distinction lies in whether the law
leaves the property owner impaired but with some degree of dominion in each of the three rights
associated with ownership of property; the right to possess, use and to dispose. But the distinction
between regulation and taking is an issue in the context of an outright confiscation of property.
Am.Jur.2d Eminent Domain § 144. Consequently, the State must rely on the argument that nonprofit
corporations do not have rights in their property which are subject to protection under the
Constitution. An indistinguishable proposition was rejected by the Kansas Supreme Court in Bethany
Medical Center. “The statutes, particularly 17-6805 seem to create a definite property interest in the
corporation’s governing body’s determining how the corporate assets are to be distributed.” Bethany
Medical Center, 266 Kan. At 380.
The Attorney General has not established that the effect of the Bill is not a taking requiring
compensation. The Bill does not provide for compensation. Indeed, compensation would entirely
contradict the whole purpose of the Bill. Accordingly, the Bill provides for unconstitutional taking,
and cannot be enforced.
Once the assets are transferred to the “new foundation” prior to closing of the APA, HCA would be
under no obligation to close with the new foundation for purchase of those assets. Section 14.3 of
the Asset Purchase Agreement provides:
“… no party man assign this Agreement without the prior written consent of the other party, which
consent may be withheld in the sole discretion of the other party. The Section 14.1 requirement of
reasonableness does not apply to the granting or withholding of consent to assignment of this
Agreement.”
HCA has no duty to accept any assignment to a new foundation given the evidence of the changes
in the marketplace following execution of the Asset Purchase Agreement. HCA would have little
incentive to waive an event which would trigger a right to renegotiate its deal with Health Midwest.
If HCA refuses to close with the new foundation, then they will not be obligated to close on any
other Health Midwest assets. Article 9 of the Agreement, “Conditions Precedent to Obligations of
Buyer”, make it clear that the closing obligation of HCA is contingent upon the ability of Health
Midwest to deliver all of the Core Facilities at closing. (APA Sections 9.3, 9.7 and 9.8) MMC and
OPRMC are included within the definition of Core Facilities (APA Schedule 9.8)
The result of a confiscation of Health Midwest’s Kansas assets by the Attorney General could kill
the deal and result in the loss of hundreds of millions of dollars that would otherwise be used for
charitable health purposes.
The Court declares that the provisions of 2003 Senate Bill 44 are unconstitutional. Further, the Court
declares that the provisions of 2003 Senate Bill 44, even if it were constitutional, would not apply
retroactively to the Health Midwest/HCA November 22, 2003 transaction.
Merger
Kansas not-for-profit corporations are governed by Chapter 17 of the Kansas statutes. Bethany, 266
Kan. at 372. The mergers of Health Midwest JC, Menorah, OPRMC and Trinity into Health Midwest
are authorized by K.S.A. § 17-6706, which places only one condition on the merger of a Kansas
not-for- profit corporation into a Missouri nonprofit corporation: “Any one or more nonstock
corporations of this state may merge or consolidate with one or more other nonstock corporations
of any other state or states of the United States or of the District of Columbia, if the laws of such
other jurisdiction permit a corporation of such jurisdiction to merge with a corporation of another
jurisdiction.”
Pursuant to Mo.Rev.Stat. § 355.621.1, a Missouri nonprofit corporation can merge into a Kansas
not-for-profit corporation, satisfying the only statutory condition under K.S.A. § 17-6706. Mergers
contemplated by K.S.A. § 17- 6706 necessarily permit the “transfer” of assets out of state if the
foreign corporation absorbs the Kansas corporation. Even a direct sale of assets by the Kansas
subsidiaries rather than a merger would be authorized under K .S.A. § 17-6801, which expressly
authorizes a nonprofit corporation to sell substantially all of its assets, with no restriction on the
geographic location of the purchaser.
The board decisions of Health Midwest JC, Menorah, OPRMC or Trinity must be upheld unless the
directors are guilty of “willful abuse of their discretionary power or of bad faith, neglect of duty,
perversion of corporate purpose, or when fraud or breach of trust are involved …” See Bethany, 266
Kan. at 370.
The proposed mergers of Health Midwest JC, Menorah, OPRMC and Trinity into Health Midwest,
would result in a metropolitan foundation with little Kansas participation in its governance and
nebulous spending commitments to benefit the citizens of Kansas in Health Midwest’s Kansas
service area. The Kansas boards have not determined that the proposed metropolitan foundation will
carry on Health Midwest’s mission of meeting its charitable, nonprofit purposes in Kansas. As stated
earlier, those who control charitable corporations have a special duty to advance its charitable goals
and protect its assets, and any action that poses palpable and identifiable threat to those goals, or that
jeopardizes its assets, is contrary to certificate of incorporation and hence ultra vires.
The Attorney General has met his burden of proof under K.S.A. § 60-414 and has persuaded the
Court that the decision to merge into a Missouri Foundation is a “perversion of corporate purpose”
and that the Kansas boards have neglected their duties to the communities in their service areas and
have breached the trust placed in them. The announced foundation plan does not confirm that Health
Midwest’s Kansas subsidiaries’ historic charitable purposes will remain intact following the
transaction.
Conclusions of Law
1. This Court has jurisdiction to resolve disputes and issue declarations of law with respect to
the proposed mergers of four Kansas nonprofit corporations; HMJC, Menorah, OPRMC and
TLM.
2. The Court’s analysis of the Four Mergers is governed by applicable principles of corporate
law. Kansas East Conference of the United Methodist Church v. Bethany Medical Center,
266 Kan. 366, 372, 969 P.2d 859 (Kan.1998).
4. The assets of HMJC, Menorah, OPRMC and/or TLM are not subject to any express or
constructive trust which prohibits the Four Mergers or the sale of the assets of these four
Kansas nonprofit corporations. Bethany Medical Center, 266 Kan. 366 at 370-371.
5. The Kansas cy pres statute, K.S.A. § 59-22a01, governs changes to the purposes of charitable
trusts, devises and bequests. The cy pres statute does not apply to changes to the purposes
of nonprofit corporations. The cy pres statute applies only to any restricted gifts and not the
entity as a whole. Bethany Medical Center, 266 Kan. at 372-73. No restricted gifts have been
identified herein and therefore the cy pres statute does not apply.
6. The Boards of Directors of Health Midwest, HMJC, Menorah, OPRMC, TLM and HMDG
had a fiduciary duty to consider the unsolicited offers from HCA and Ardent to purchase the
assets of the Health Midwest system. These Boards had a fiduciary duty to determine the
purchase price and other consideration ready, willing and able buyers would offer in
exchange for the assets. The process through which these Boards solicited the final purchase
offer from HCA satisfied these fiduciary duties.
7. The Boards of Directors of Health Midwest, HMJC, Menorah, OPRMC, TLM and HMDG
had a fiduciary duty to consider whether to sell the assets of the Health Midwest system in
light of the other available alternatives to such a sale. The Boards’ consideration of these
alternatives and its decision to sell satisfied these fiduciary duties.
8. The decisions by the Boards of Directors of HMJC, Menorah, OPRMC and TLM to approve
the mergers of their corporations into Health Midwest are permitted by the Kansas statutes.
9. The actions of the Boards of Directors of HMJC, Menorah, OPRMC and TLM are presumed
to be within the discretion of those Boards. However, the Court finds that there is a basis to
depart from this presumption as there has been a showing that the four Boards neglected their
duty, and breached their trust in this regard.
10. Neither the Four Mergers nor the sale of Health Midwest’s assets to HCA violate any
applicable provision of the Kansas Charitable Organizations Solicitations Act, K.S.A. §§
17-1759 et seq. or any applicable provision of the Uniform Management of Institutional
Funds Act, §§ 58-3601, et seq. and the Attorney General has established no other facts to
support any violations of these Acts.
11. Kansas law does not prohibit Health Midwest or its Missouri nonprofit subsidiary, Health
Midwest Development Group, from selling any of their assets located in Kansas.
12. The Kansas Attorney General has no authority underK.S.A. § 59-22a01, to regulate the
internal functions or decision making of Missouri nonprofit corporations.
13. Even though selling their hospitals and being bound by a non-competition provision, the
Health Midwest Plaintiffs are not drained of corporate purpose and may continue to pursue
those purposes even after the sale to HCA. Bethany Medical Center, 266 Kan. at 377. Even
if the Health Midwest Plaintiffs were to change their purpose, such a change is permitted by
K.S.A. § 17-6602(a)(2).
14. The proposed use of the proceeds attributable to the Kansas assets by Health Midwest is
inconsistent with the historical purposes of MJC, OPRMC, Menorah and TLM as determined
in the Health Midwest December board meeting approving an 80%/20% allocation of assets.
15. Other than the Attorney General’s claim the merger of the Kansas corporations into a
Missouri corporation is inappropriate, he counterclaims asserted by the Attorney General do
not have sufficient merit, and therefore the Court finds against the Attorney General as to the
remaining counterclaims.
THE COURT HEREBY DECLARES that the process used by the Health Midwest plaintiffs in
deciding to sell their assets to HCA was appropriate and that the price and contractual covenants
entered into between Health Midwest and HCA are reasonable.
THE COURT specifically authorizes the Health Midwest plaintiffs to consummate the Agreement
entered into on November 22, 2002.
THE COURT finds that the Kansas boards have not made a ‘good business judgment decision’ to
merge into Health Midwest Missouri and hereby restrains Plaintiffs, Health Midwest, Health
Midwest Development Group (“HMDG”), Health Midwest Johnson County, Inc. (“Health Midwest
JC”), Menorah Medical Center, Inc. (“Menorah”), Overland Park Regional Medical Center, Inc.
(“OPRMC”) and Trinity Lutheran Manor (“Trinity”) (collectively the “Health Midwest Plaintiffs”)
from merging the Kansas subsidiaries into a Missouri corporation.
THE COURT finds that Health Midwest has made commercially reasonable efforts to satisfy the
merger of the system entities as required by Section 10.1 of the Agreement.
THE COURT declares 2003 Kansas Senate Bill 44 to be unconstitutional and inapplicable to this
case.
THE COURT further finds that 20% of the net proceeds of the Health Midwest sale are attributable
to the Kansas corporations and hereby authorizes the Kansas corporations to merge into one of the
Health Midwest Kansas corporations in order to complete the sale on the condition that the Kansas
entity receive 20% of the net proceeds of the sale and the resulting Kansas corporation shall conduct
its business in compliance with its Articles of Incorporation, by-laws, and the state and federal laws.
IT IS SO ORDERED.
Certificate of Service
BRENNEMAN, J.
This will certify that a copy of the above and foregoing document was mailed postage pre-paid this
4th day of February, 2003, to:
Mr. Reid F. Holbrook
HOLBROOK & OSBORN, P.A.
757 Armstrong, P.O. Box 171927
Kansas City, Kansas 66117-0927
Mr. Robert T. Stephan
14243 West 84th Terrace
Lenexa, Kansas 66215
Ms. Eliehue Brunson
120 S.W. 10th Avenue
2nd Floor Memorial Hall
Topeka, Kansas 66612-1597
Mr. Lawrence A. Rouse
Mr. Charles W. German
ROUSE, HENDRICKS, GERMAN, MAY P.C.
One Petticoat Lane Building
1010 Walnut Street, Suite 400
Kansas City, MO 64106
Mr. Douglas K. Anning
Mr. Paul A. Schepers
SEIGFREID, BINGHAM, LEVY, SELZER & GEE
2800 Commerce Tower
911 Main Street
Kansas City, MO 64105
Mr. Thomas G. Kokoruda
SHUGHART, THOMAS AND KILROY
120 West. 12th Street
Kansas City, MO 64105
Mr. W. Russell Welsh
POLSINELLI, SHELTON & WELTE, P.C.
700 West 47th Street, Suite 1000
Kansas City, MO 64112-1802
Mr. Michael Jay Abrams
LATHROP AND GAGE
2345 Grand Boulevard, Suite 2800
Kansas City, MO 64108-2612