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Note 5

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Notes 7 - 14


NOTE 5


Note 5: Affiliated Companies

Blue Ridge Health Alliance, Inc. The Medical Center is a participant with the Health Services Foundation (HSF) in Blue Ridge Health Alliance, Inc. (Blue Ridge Health Alliance or the Corporation), a joint venture to develop and operate a managed health care organization in central and western Virginia and certain counties in West Virginia. Blue Ridge Health Alliance, a for-profit corporation, was formed in April 1994, to develop a regional network of physicians, hospitals, and other health care providers through which to deliver health benefits to insured and self-funded employers and other groups. QualChoice of Virginia Health Plan, Inc. (QualChoice), is a wholly owned subsidiary of the Corporation formed to operate a health maintenance organization (HMO) serving employers and other groups in the Commonwealth of Virginia. QualChoice commenced operations on January 4, 1995.

Blue Ridge Health Alliance has authorized capital stock consisting of one million two (1,000,002) shares of common stock, par value $0.01 per share (the "Common Stock"). The authorized shares of common stock consist of 1,000,000 shares of Class A Voting Common Stock and two shares of Class B Voting Common Stock. In 1994, the Medical Center and the HSF each executed a Shareholders Subscription Agreement under which each agreed to contribute $4,550,000 as equity capital. Subsequently, the Medical Center and HSF each were issued one share of Class B Voting Common Stock and shares of Class A Voting Common Stock. Except for the original obligations of the founding shareholders under the Founding Shareholders Subscription Agreements, no shareholder has an obligation to make any loans, advances, or additional equity contributions whatsoever to the capital of the Corporation. The shareholders have acknowledged and agreed that the Corporation is expected to retain its earnings in order to finance growth and that there is no expectation that the Corporation will pay any cash dividends in the foreseeable future.

The Medical Center contributed a total of $15,000,000 to Blue Ridge Health Alliance during the period ended June 30, 1998. Also, on April 6, 1998, the Medical Center loaned $3,800,000 to the Corporation due on July 6, 1998, and bearing interest at 6.25 percent per annum. In July 1998, the Board of Directors of the Corporation issued a capital call to HSF and the Medical Center for $5,000,000. HSF elected not to participate in this capital call in accordance with their rights prescribed in the Shareholders Agreement; accordingly, the Medical Center contributed the entire $5,000,000, by converting the $3,800,000 loan to capital and contributing $1,200,000 in cash. This contribution increased the Medical Center's percentage ownership to 52.05 percent. By agreement between HSF and the Medical Center, HSF relinquished its share of Class B Voting Common Stock to the Medical Center. Corporate actions enumerated in the Amended Articles of Incorporation require approval of the holders of all of the shares of the Class B Voting Common Stock. Except for this special voting requirement, the shares of Class A and Class B Voting Common Stock have equal rights, privileges, and dividend distribution rights. On November 25, 1998, the Medical Center provided a loan to the corporation as evidenced by a promissory note in the amount of $6,678,595 due February 24, 1999, at 4.50 percent per annum. This note was renewed on February 25, 1999, with a due date of March 26, 1999. The note was renewed again on March 27, 1999, and was structured to have an optional renewal each month. On March 5, 1999, the Medical Center loaned $250,000 to the Corporation, which was to be due December 31, 1999, bearing interest at 4.50 percent per annum. Effective September 15, 1999, Blue Ridge Health Alliance revised its Shareholders' Agreement to provide additional capital and to effect a transfer of shares among the shareholders. Under this agreement, the debt owed to the Medical Center was converted to capital. HSF contributed an additional $12,181,232, and Martha Jefferson Hospital contributed an additional $22,881. Once these additional contributions had been made, the Medical Center owned 48.08 percent of the Class A Stock, HSF owned 48.08 percent and Martha Jefferson Hospital owned 3.84 percent. In addition, the University transferred to HSF one share of Class B Common Stock so that both HSF and the University each own one of the two shares, which have been authorized.

On May 30, 2001, the Medical Center loaned $3,000,000 to the Corporation due on May 30, 2004, bearing an interest rate of 6.19 percent per annum.

The net investment in Blue Ridge Health Alliance is summarized below. Complete financial statements for Blue Ridge Health Alliance, Inc., can be obtained from the corporate offices: Towncenter 1, 1000 Research Park Blvd., Charlottesville, Virginia 22911.

Central Virginia Health Network, Inc. In May 1995, the Medical Center joined the Central Virginia Health Network, Inc. (CVHN), a partnership of eight Richmond-area hospitals. Central Virginia Health Network was formed to provide an efficient and coordinated continuum of care, with services ranging from acute hospital treatment to primary physician care and home health services.

The Medical Center originally paid $100 for 10,000 shares of common stock and $109,900 as additional paid-in capital. In addition, the Medical Center is obligated for monthly dues to Central Virginia Health Network of $15,913. The net investment in CVHN is summarized below. Complete financial statements can be obtained from the registered agent: Steven D. Gravely, Esq., Mezzullo and McCandlish, Post Office Box 796, Richmond, Virginia 23206.

University of Virginia/HEALTHSOUTH L.L.C.
The Medical Center entered into a joint venture with HEALTHSOUTH Corporation to establish an acute rehabilitation facility. The new facility, located at the Fontaine Research Park in Charlottesville, Virginia, provides patient services to the region. The Medical Center made a capital contribution of $2,230,000 to capitalize the joint venture in May 1996, which represents a 50 percent interest in the joint venture. The net investment in HEALTHSOUTH is summarized below. Complete financial statements can be obtained from the managing member: HEALTHSOUTH Corporation, 7700 East Parham Road, Richmond, Virginia 23294.

Valiance Health, L.L.C.
In November 1997, the Medical Center became a participant with Rockingham Memorial Hospital and Augusta Health Care, Inc., in Valiance Health, L.L.C. (Valiance), a joint venture engaging in the business of integrating and coordinating the delivery of health care services in Central and Western Virginia. The Medical Center contributed $100,000 in initial capital, which entitles it to a pro-rata distribution of any profits and losses of Valiance.

University HealthSystem Consortium (UHC) In December 1986 the Medical Center became a member of the University HealthSystem Consortium (UHC). Founded in 1984, UHC is an alliance of the clinical enterprises of academic health centers. While focusing on the clinical mission, UHC is mindful of and supports the research and education missions. The mission of the University HealthSystem Consortium is to advance knowledge, foster collaboration, and promote change to help members compete in their respective health care markets. In keeping with this mission, UHC helps members pool resources, create economies of scale, improve clinical and operating efficiencies, and influence the direction and delivery of health care. Accordingly, UHC is organized and operated on a cooperative basis for the benefit of its member health systems as patrons.

UHC is a not-for-profit organization. It is incorporated as a nonstock corporation and designated as a nonexempt cooperative, which is taxable under Subchapter T (Section 1382-1388) of the Internal Revenue Code. As such, UHC's bylaws provide for distributions of patronage dividends to its patrons. This allocation is based on the value of business done with or for each patron by UHC. For fiscal year 2001 the Medical Center started recording the portion of the patronage dividends that were held by UHC as patronage equity.

HealthCare Partners, Inc.
In May 1995, HealthCare Partners, Inc. (HealthCare Partners), a non-stock, non-profit corporation, was established to support networking, external business relationships with neighboring hospitals and physicians groups and expansion of primary care activities. The Medical Center and the Health Services Foundation are the primary contributors to the funding of the corporation. The corporation is governed by a board of directors composed of Health Sciences Center staff, community members, and University Board of Visitors appointees.

AFFILIATED COMPANIES AS OF JUNE 30, 2001 (in thousands)

Blue Ridge Health Alliance
Central Virginia Health Network
HEALTHSOUTH
Valiance
UHC
Common Stock and Equity Contributions
$36,139
$233
$2,230
$100
$--
Share of Income/(Loss)
(32,338)
(19)
(1,996)
41
383
Net Investment
$3,801
$214
$234
$141
$383

AFFILIATED COMPANIES AS OF JUNE 30, 2000 (in thousands)

Blue Ridge Health Alliance
Central Virginia Health Network
HEALTHSOUTH
Valiance
UHC
Common Stock and Equity Contributions
$36,139
$232
$2,230
$100
$--
Share of Income/(Loss)
(29,570)
(54)
(1,974)
12
--
Net Investment
$6,569
$178
$256
$112
$--


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