PROSPECTUS
1,452,094 SHARES
MAGELLAN HEALTH SERVICES, INC.
COMMON STOCK
($.25 Par Value)
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The 1,452,094 shares (the "Shares") of common stock, $.25 par value
("Common Stock"), of Magellan Health Services, Inc. formerly Charter Medical
Corporation ("Magellan" or the "Company"), may be offered for sale from time to
time by and for the account of certain stockholders of Magellan (the "Selling
Stockholders"). See "Selling Stockholders." The Selling Stockholders acquired
the Shares on January 27, 1995, in connection with the acquisition of National
Mentor, Inc., formerly Magellan Health Services, Inc. ("Mentor"), by the
Company. Magellan is registering the Shares as required by an Investment and
Registration Rights Agreement dated January 27, 1995, among the Company and each
of the Selling Stockholders (the "Investment and Registration Rights
Agreement"), to provide the Selling Stockholders with freely tradeable
securities. Magellan will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders, but has agreed to bear certain expenses of
registration of the Shares. See "Plan of Distribution."
The Common Stock is listed on the American Stock Exchange under the
symbol "MGL." On April 25, 1996, the last reported sale price of the Common
Stock on the American Stock Exchange was $21.625 per share.
The Selling Stockholders from time to time may offer and sell the
Shares directly or through agents or broker-dealers on terms to be determined at
the time of sale. To the extent required, the names of any agent or
broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Shares to be made directly or through agents.
The Selling Stockholders and any agents or broker-dealers that
participate with the Selling Stockholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "1933 Act"), and any commissions received by them and any profit
on the resale of the Shares may be deemed to be underwriting commissions or
discounts under the 1933 Act. See "Plan of Distribution" herein for
indemnification arrangements among Magellan and the Selling Stockholders.
There are certain risks associated with an investment in Magellan
Common Stock. For a discussion of such risks, see "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is April 26, 1996.
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AVAILABLE INFORMATION
Magellan is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and Exchange
Commission ("Commission"). Such reports, proxy statements and other information
filed with the Commission by Magellan can be inspected and copied at the office
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
or at its Regional Offices located at 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Common Stock of Magellan is listed on the
American Stock Exchange, and such reports, proxy statements and other
information concerning Magellan can be inspected at the offices of the American
Stock Exchange, 86 Trinity Place, New York, New York 10006.
Magellan has filed with the Commission a registration statement on Form
S-3 (together with any amendments, the "Registration Statement") under the 1933
Act, covering the shares of Magellan Common Stock being offered by this
Prospectus. This Prospectus, which is part of the Registration Statement, does
not contain all of the information and undertakings set forth in the
Registration Statement and reference is made to such Registration Statement,
including exhibits, which may be inspected and copied in the manner and at the
locations specified above, for further information with respect to Magellan and
the Magellan Common Stock. Statements contained in this Prospectus concerning
the provisions of any documents are not necessarily complete and, in each
instance, reference is made to the copy of such documents filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by
Magellan (Commission File No. 1-6639) are incorporated by reference into this
Prospectus:
(i) Magellan's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, as amended on Form 10-K/A filed on
December 28, 1995;
(ii) Magellan's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995;
(iii) The description of the Magellan Common Stock in Magellan's
Registration Statement on Form 8-A filed on July 8, 1992.
In addition, all documents filed by Magellan pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made pursuant to the
Registration Statement shall be deemed to be incorporated by reference into and
to be a part of this Prospectus from the date of filing of such documents. Any
statement contained in a document so incorporated by reference shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained in this Prospectus, or in any other subsequently filed
document which is also incorporated by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superseded.
Magellan will provide, without charge, to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference (not including
exhibits to such documents unless such exhibits are specifically incorporated by
reference in such documents). Requests for copies of such documents should be
directed to Mr. Craig L. McKnight, Executive Vice President and Chief Financial
Officer, Magellan Health Services, Inc., 3414 Peachtree Road, N.E., Suite 1400,
Atlanta, Georgia 30326 , telephone (404) 841-9200.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Magellan Common Stock.
Acquisition Growth Strategy
The Company has historically grown through acquisitions and internal
growth. There can be no assurance that the Company will be able to make
successful acquisitions in the future or that any such acquisitions will be
successfully integrated into its operations. In addition, future acquisitions
could have an adverse effect upon the Company's operating results, particularly
in the fiscal quarters immediately following the consummation of such
transactions while the acquired operations are being integrated into its
operations.
Green Spring Health Services, Inc. Acquisition and Potential Adverse Reaction
On December 13, 1995, the Company acquired a controlling interest in
Green Spring Health Services, Inc. ("Green Spring"), a leading provider of
managed behavioral healthcare services. The Company's hospitals have contracts
with behavioral managed care companies other than Green Spring. Such other
companies could decide to terminate their contracts with the Company's hospitals
in reaction to the Company's acquisition of a majority interest in one of their
major competitors. In addition, there can be no assurance that Green Spring will
be successfully integrated into the Company's operations.
Historical Operating Losses
The Company has experienced losses from continuing operations before
reorganization items, extraordinary items and the cumulative effect of a change
in accounting principle in each fiscal year since the completion of a management
buyout in 1988. Such losses amounted to $167.2 million for the fiscal year ended
September 30, 1991, $81.7 million for the ten-month period ended July 31, 1992,
$8.1 million for the two-month period ended September 30, 1992 and $39.6
million, $47.0 million and $43.0 million for the fiscal years ended September
30, 1993, 1994 and 1995, respectively. Although the Company reported income from
continuing operations of approximately $9.7 million in the quarter ended
December 31, 1995, there can be no assurance that such profitability will
continue. The Company's history of losses could have an adverse effect on its
operations.
Potential Hospital Closures
The Company continually assesses events and changes in circumstances
that could affect its business strategy and the viability of its operating
facilities. During fiscal 1995, the Company consolidated, closed or sold fifteen
psychiatric hospitals. The Company has consolidated or closed six psychiatric
hospitals during fiscal 1996, including the April 1996 decision to close three
psychiatric hospitals. The Company anticipates recording charges of
approximately $200,000 and $2.5 million in the quarterly periods ended March 31,
1996 and June 30, 1996, respectively, as a result of these consolidations and
closures. The Company may elect to consolidate services in selected markets and
to close or sell additional facilities in future periods depending on market
conditions and evolving business strategies. If the Company closes additional
psychiatric hospitals in future periods, it could result in charges to income
for the cost necessary to exit the hospital operations.
Potential Reductions in Reimbursement by
Third-Party Payers and Changes in Hospital Payor Mix
The Company's hospitals have been adversely affected by factors
influencing the entire psychiatric hospital industry. Factors which affect the
Company include (i) the imposition of more stringent length of stay and
admission criteria and other cost containment measures by payers; (ii) the
failure of reimbursement rate increases from certain payers that reimburse on a
per diem or other discounted basis to offset increases in the cost of providing
services; (iii)
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an increase in the percentage of its business that the Company derives from
payers that reimburse on a per diem or other discounted basis; (iv) a trend
toward higher deductible and co-insurance for individual patients; and (v) a
trend toward limiting employee health benefits, such as reductions in annual and
lifetime limits on mental health coverage. All of these factors may result in
reductions in the amounts that the Company's hospitals can expect to collect per
patient day for services provided.
For the fiscal year ended September 30, 1995, the Company derived
approximately 47% of its gross psychiatric patient service revenue from
private-pay sources (including HMOs, PPOs, commercial insurance and Blue Cross),
26% from Medicare, 17% from Medicaid, 4% from the Civilian Health and Medical
Program for the Uniformed Services ("CHAMPUS") and 6% from other government
programs. Changes in the mix of the Company's patients among the private-pay,
Medicare and Medicaid categories, and among different types of private-pay
sources, can significantly affect the profitability of the Company's hospital
operations. Therefore, there can be no assurance that payments under
governmental and private third-party payor programs will remain at levels
comparable to present levels or will, in the future, be sufficient to cover the
costs of providing care to patients covered by such programs.
Previous Bankruptcy Reorganization
The Company was reorganized pursuant to Chapter 11 of the United States
Bankruptcy Code, effective on July 21, 1992 (the "Reorganization"). Prior to the
Reorganization, the Company's total indebtedness was approximately $1.8 billion;
and from February 1991 until July 1992, the Company was in default in the
payment of interest and principal, or both, on substantially all such
indebtedness. The indebtedness was incurred by the Company in connection with a
management buy-out of the Company in 1988 and a hospital-construction program.
As a result of the Reorganization, the Company's long-term debt was reduced by
approximately $700 million and its redeemable preferred stock of $233 million
was eliminated. The holders of such debt and preferred stock received
approximately 97% of Magellan's Common Stock outstanding on July 21, 1992.
Governmental Budgetary Constraints and Healthcare Reform
In the 1995 and 1996 sessions of the United States Congress, the focus
of healthcare legislation has been on budgetary and related funding mechanism
issues. A number of reports, including the 1995 Annual Report of the Board of
Trustees of the Federal Hospital Insurance Program (Medicare) have projected
that the Medicare "trust fund" is likely to become insolvent by the year 2002 if
the current growth rate of approximately 10% per annum in Medicare expenditures
continues. Similarly, federal and state expenditures under the Medicaid program
are projected to increase significantly during the same seven-year period. In
response to these projected expenditure increases, and as part of an effort to
balance the federal budget, both the Congress and the Clinton Administration
have made proposals to reduce the rate of increase in projected Medicare and
Medicaid expenditures and to change funding mechanisms and other aspects of both
programs. Congress has passed legislation that would reduce projected
expenditure increases substantially and would make significant changes in the
Medicare and the Medicaid programs. The Clinton Administration has proposed
alternate measures to reduce, to a lesser extent, projected increases in
Medicare and Medicaid expenditures. As of the date of this Prospectus, neither
proposal has become law.
The Medicare legislation that has been adopted by Congress would, with
some differences, reduce projected expenditure increases by a variety of means,
including reduced payments to providers (including the Company), increased
beneficiary premiums for physician and certain other services, and creation of
incentives for Medicare beneficiaries to enroll in managed care plans or to
accept Medicare coverage with a substantially increased deductible. Changes in
the Medicaid program would reduce the number and extent of federal mandates
concerning how state Medicaid programs operate (including levels of benefits
provided and levels of payments to providers) and would change the funding
mechanism from a sharing formula between the federal government and a state to
"block grant" funding. The Company cannot predict the effect of any such
legislation, if adopted, on its operations; but the Company anticipates that,
although overall Medicare and Medicaid funding may be reduced from projected
levels, the changes in such programs may provide opportunities to the Company to
obtain increased Medicare and Medicaid business through risk-sharing or partial
risk-sharing contracts with managed care plans and state Medicaid programs.
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Although the United States Congress, in 1995 and 1996, has not
considered healthcare reform proposals, the Company anticipates that numerous
healthcare reform proposals will continue to be introduced in future sessions of
Congress. The Company cannot predict whether any such proposal will be adopted
or the effect on the Company of any proposal that does become law.
A number of states in which the Company has operations have either
adopted or are considering the adoption of healthcare reform proposals of
general applicability or Medicaid reform proposals, partly in response to
possible changes in Medicaid law. Where adopted, these state reform laws have
often not yet been fully implemented. The Company cannot predict the effect of
these state healthcare reform and Medicaid reform laws on its operations.
Provider Business-Competition
Each of the Company's hospitals competes with other hospitals, some of
which are larger and have greater financial resources. Some competing hospitals
are owned and operated by governmental agencies, others by nonprofit
organizations supported by endowments and charitable contributions and others by
proprietary hospital corporations. The hospitals frequently draw patients from
areas outside their immediate locale and, therefore, the Company's hospitals
may, in certain markets, compete with both local and distant hospitals. In
addition, the Company's hospitals compete not only with other psychiatric
hospitals, but also with psychiatric units in general hospitals, and outpatient
services provided by the Company may compete with private practicing mental
health professionals and publicly funded mental health centers. The competitive
position of a hospital is, to a significant degree, dependent upon the number
and quality of physicians who practice at the hospital and who are members of
its medical staff. The Company has entered into joint venture arrangements with
other healthcare providers in certain markets to promote more efficiency in the
local delivery system. The Company believes that its provider business competes
effectively with respect to the aforementioned factors. However, there can be no
assurance that Magellan will be able to compete successfully in the provider
business in the future.
Competition among hospitals and other healthcare providers for patients
has intensified in recent years. During this period, hospital occupancy rates
for inpatient behavioral care patients in the United States have declined as a
result of cost containment pressures, changing technology, changes in
reimbursement, changes in practice patterns from inpatient to outpatient
treatment and other factors. In recent years, the competitive position of
hospitals has been affected by the ability of such hospitals to obtain contracts
with Preferred Provider Organizations ("PPO's"), Health Maintenance
Organizations ("HMO's") and other managed care programs to provide inpatient and
other services. Such contracts normally involve a discount from the hospital's
established charges, but provide a base of patient referrals. These contracts
also frequently provide for pre-admission certification and for concurrent
length of stay reviews. The importance of obtaining contracts with HMO's, PPO's
and other managed care companies varies from market to market, depending on the
individual market strength of the managed care companies. State certificate of
need laws place limitations on the Company's and its competitors' ability to
build new hospitals and to expand existing hospitals. Protection from new
competition is reduced in those states where there is no certificate of need
law, and opportunities for growth are limited by the certificate of need
requirement in states having such laws. As of December 31, 1995, the Company
operated 44 hospitals in 12 states (Arizona, Arkansas, California, Colorado,
Indiana, Kansas, Louisiana, Nevada, New Mexico, South Dakota, Texas and Utah)
which do not have certificate of need laws applicable to hospitals. In most
cases, these laws do not restrict the ability of the Company or its competitors
to offer new outpatient services. Proposals have been made in a number of
jurisdictions to repeal currently applicable certificate of need laws. Several
states have instituted moratoria on new certificates of need or otherwise stated
their intent not to grant approval for new facilities.
Managed Care Business - Competition
The Company, through its Green Spring subsidiary, now operates in the
managed healthcare industry. The managed healthcare industry is being affected
by various external factors including rising healthcare costs, intense price
competition, and market consolidation by major managed care companies. Magellan
faces competition from a number of sources including other behavioral health
managed care companies and traditional full service managed care
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companies that contract to provide behavioral healthcare benefits. Also, to a
lesser extent, competition exists from fully capitated multi-specialty medical
groups and individual practice associations that directly contract with managed
care companies and other customers to provide and manage all components of
healthcare for the members including the behavioral healthcare component. The
Company believes that the most significant factors in a customer's selection of
a managed behavioral healthcare company include price, the extent and depth of
provider networks and quality of services. The Company also believes that the
acquisition of Green Spring creates opportunities to enhance its revenues
through managed care contracts utilizing the continuum of care and through
information systems that support care management and at-risk pricing mechanisms,
although no such assurance can be given. Management believes that its managed
care business competes effectively with respect to these factors. However, there
can be no assurance that Magellan will be able to compete successfully in the
managed care business in the future.
Limitations Imposed by the Credit Agreement
and Senior Note Indenture
In May 1994, the Company entered into a Second Amended and Restated
Credit Agreement (the "Credit Agreement") with certain financial institutions
and issued $375 million of Senior Subordinated Notes (the "Senior Notes") to
institutional investors. The Credit Agreement and the indenture for the Senior
Notes contain a number of restrictive covenants which, among other things, limit
the ability of the Company and certain of its subsidiaries to incur other
indebtedness, enter into certain joint venture transactions, incur liens, make
certain restricted payments and investments, enter into certain business
combination and asset sale transactions and make capital expenditures. These
restrictions could adversely affect the Company's ability to conduct its
operations, finance its capital needs or to pursue attractive business
combinations and joint ventures if such opportunities arise. Under the Credit
Agreement, the Company also is required to maintain certain specified financial
ratios. Failure by the Company to maintain such financial ratios or to comply
with the restrictions contained in the Credit Agreement and the indenture for
the Senior Notes could cause such indebtedness (and by reason of
cross-acceleration provisions, other indebtedness) to become immediately due and
payable and/or could cause the cessation of funding under the Credit Agreement.
Regulatory Environment
The federal government and all states in which the Company operates
regulate various aspects of the Company's businesses. Such regulations provide
for periodic inspections or other reviews of the Company's provider operations
by, among others, state agencies, the United States Department of Health and
Human Services (the "Department") and CHAMPUS to determine compliance with their
respective standards of care and other applicable conditions of participation
which is necessary for continued licensure or participation in identified
healthcare programs, including, but not limited to, Medicare, Medicaid and
CHAMPUS. The Company is also subject to state regulation regarding the admission
and treatment of patients and federal regulations regarding confidentiality of
medical records of substance abuse patients. Although the Company endeavors to
comply with such regulatory requirements, there can be no assurance that the
Company will always be in full compliance. The failure to obtain or renew any
required regulatory approvals or licenses or to qualify for continued
participation in identified healthcare programs could adversely affect the
Company's operations. In addition, there is currently pending before Congress
legislation that would establish a program to control fraud and abuse with
respect to health plans maintained by all public and private payers, as opposed
to current fraud and abuse laws that relate only to specified governmental
payers.
The Company is also subject to federal and state laws that govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments between healthcare providers that
are designed to induce overutilization of services paid for by Medicare or
Medicaid. Such laws include the anti-kickback provisions of the federal Medicare
and Medicaid Patients and Program Protection Act of 1987. These provisions
prohibit, among other things, the offer, payment, solicitation or receipt of any
form of remuneration in return for the referral of Medicare and Medicaid
patients. GPA, the Company's subsidiary that owns or manages professional group
practices, is subject to the federal and the state illegal remuneration,
practice of medicine and certain other laws which prohibit the subsidiary from
owning, but not managing, professional practices. In addition, some states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. The Company
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endeavors to comply with all federal and state laws applicable to its business.
However, a violation of these federal and state laws may result in civil or
criminal penalties for individuals or entities or exclusion from participation
in identified healthcare programs.
Magellan's managed care business operations, in some states, are
subject to utilization review, licensure and related state regulation
procedures. Green Spring provides managed behavioral healthcare services to
various Blue Cross/Blue Shield plans that operate Medicare and Medicaid health
maintenance organizations or other at-risk managed care programs and that
participate in the Blue Cross Federal Employees health program. As a contractor
to these Blue Cross/Blue Shield plans, Green Spring is indirectly subject to
federal and, with respect to the Medicaid program, state monitoring and
regulation of performance and financial reporting requirements. Although
Magellan believes that it is in compliance with all current state and federal
regulatory requirements applicable to the managed care business it conducts,
failure to do so could adversely affect its operations.
Physician ownership of or investment in healthcare entities to which
they refer patients has come under increasing scrutiny at both state and federal
levels. Congress passed legislation (commonly referred to as "Stark I") which
prohibits physicians from referring Medicare patients for clinical laboratory
services to an entity with which the physician has a financial relationship. The
Department recently published final Stark I regulations on August 14, 1995. Such
regulations will govern how the Department views and reviews these financial
relationships. Additionally, Congress passed legislation (commonly referred to
as "Stark II") which prohibits physicians from referring Medicare or Medicaid
patients for certain designated health services, including inpatient and
outpatient hospital services, to entities in which they have an ownership or
investment interest or with which they have a compensation arrangement. The
entity is also prohibited from billing the Medicare or Medicaid programs for
such services rendered pursuant to a prohibited referral. To the extent
designated services are provided by the Company's provider and managed care
operations, physicians who have a financial relationship with the Company and
the Company will be subject to the provisions of Stark II. Some states have
passed similar legislation which prohibits the referral of private pay patients.
To date, the Department has not published Stark II regulations. However, the
Department indicated that it will review referrals involving any of the
designated services under the language and interpretations set forth in the
Stark I rule.
The Company's acquisitions and joint venture activities are also
subject to federal antitrust laws. The healthcare industry has recently been an
active area of antitrust enforcement action by the United States Federal Trade
Commission (the "FTC") and the Department of Justice ("DOJ"). The Company's
acquisitions and joint venture arrangements could be the subject of a DOJ or an
FTC enforcement action which, if determined adversely to the Company, could have
a material adverse effect upon the Company's operations.
Changes in laws or regulations or new interpretations of existing laws
or regulations can have an adverse effect on the Company's operating methods,
costs, reimbursement amounts and acquisition and joint venture activities. In
addition, the healthcare industry is subject to increasing governmental
scrutiny, and additional laws and regulations may be enacted which could require
changes in the Company's operations. A federal or state agency charged with
enforcement of such laws and regulations might assert an interpretation of such
laws and resolutions or may increase scrutiny of a previously ignored area,
which may require changes in the Company's operations.
Dependence on Healthcare Professionals
Physicians traditionally have been the source of a significant portion
of the patients treated at the Company's hospitals. Therefore, the success of
the Company's hospitals is dependent in part on the number and quality of the
physicians on the medical staffs of its hospitals and their admission practices.
A small number of physicians account for a significant portion of patient
admissions at some of the Company's hospitals. There can be no assurance that
the Company can retain its current physicians on staff or that additional
physician relationships will be developed in the future. Furthermore, hospital
physicians generally are not employees of the Company and in general Magellan
does not have contractual arrangements with hospital physicians restricting the
ability of such physicians to practice elsewhere.
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Potential General and Professional Liability
Effective June 1, 1995, Plymouth Insurance Company, Ltd. ("Plymouth"),
a wholly-owned Bermuda subsidiary of the Company, provides general and hospital
professional liability insurance up to $25 million per occurrence for the
Company's hospitals. All of the risk of losses from $1.5 million to $25 million
per occurrence has been reinsured with unaffiliated insurers. The Company also
insures with an unaffiliated insurer 100% of the risk of losses between $25
million and $100 million per occurrence, subject to an annual aggregate limit of
$75 million. The Company's general and professional liability coverage is
written on a "claims made or circumstances reported" basis. For reinsured claims
between $10 and $25 million per occurrence, the Company has an annual aggregate
limit of coverage of $30 million. For reinsured claims between $1.5 million and
$10 million per occurrence, the Company has no significant limitations on the
aggregate dollar amounts of coverage.
For the six years from June 1, 1989 through May 31, 1995, the Company
had a similar general and hospital professional liability insurance program. For
those years, the per occurrence deductible (with respect to which the Company
was self-insured) was $2.5 million for the years ended May 31, 1990 and 1991, $2
million for the years ended May 31, 1992 and 1993 and $1.5 million (relating to
the Company's general hospitals sold on September 30, 1993) for the year ended
May 31, 1994. For psychiatric hospitals, Plymouth's coverage did not contain a
per occurrence deductible for the years ended May 31, 1994 and 1995. In December
1994, the per occurrence deductible for the years ended May 31, 1989 and 1990
was eliminated. Plymouth provides coverage with no per occurrence deductible for
hospital system claims which had not been paid prior to December 31, 1994.
Plymouth does not underwrite any insurance policies with any parties other than
the Company or its affiliates and subsidiaries.
The amount of expense relating to Magellan's malpractice insurance may
materially increase or decrease from year to year depending, among other things,
on the nature and number of new reported claims against Magellan and amounts of
settlements of previously reported claims. To date, Magellan has not experienced
a loss in excess of policy limits. Management believes that its coverage limits
are adequate. However, losses in excess of the limits described above or for
which insurance is otherwise unavailable could have a material adverse effect
upon the Company.
Potential Expiration and Realization Uncertainties Related
to Estimated Tax Net Operating Loss Carryforwards
As of September 30, 1995, the Company had estimated tax net operating
loss ('NOL") carryforwards of approximately $233 million available to reduce
future federal taxable income. These NOL carryforwards expire in 2006 through
2009 and are subject to adjustment upon examination by the Internal Revenue
Service. Due to the ownership change which occurred as a result of the
Reorganization, the Company's utilization of NOLs generated prior to the
effective date of the Reorganization is limited. Based on this limitation and
certain other factors, the Company has recorded a valuation allowance against
the amount of the NOL deferred tax asset that in Management's opinion, is not
likely to be recovered. There can be no assurance that these NOL carryforwards
will not expire, be reduced or be made subject to further limitations prior to
their potential utilization in future periods.
Capitation Arrangements
The Company's managed care business contracts with companies holding
state HMO or insurance company licenses on a capitated or "at-risk" basis where
the risk of patient care is assumed by the Company in exchange for a monthly fee
per member regardless of utilization level. As of December 31, 1995,
approximately 30% of Green Spring's managed care members were under capitated
arrangements. During 1995, approximately 70% of Green Spring's revenues were
from at-risk contracts. Increases in utilization levels under capitated
contractual arrangements could adversely effect the operations of the managed
care business.
Some jurisdictions are taking the position that capitated agreements in
which the provider bears the risk should be regulated by insurance laws. In
this regard, Green Spring's primary customers are comprised of Blue Cross/Blue
Shield Plans and other insurance entities which are licensed insurance
organizations in their respective states. Green
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Spring offers "carved out" managed mental health benefits, on a wholesale basis,
as a vendor to the regulated insurance organizations. Most current employer
group relationships are also contracted through the respective regulated
insurance organizations. However, as Magellan and Green Spring develop more
direct risk arrangements on a retail basis directly with employer groups or
other non-insurance entity customers, the Company may be required to obtain
insurance licenses in the respective states where the direct risk arrangements
are to be pursued. There can be no assurance that the Company can obtain the
insurance licenses required by the respective states in a timely or cost
effective manner to respond to market demand.
Shares Eligible for Future Sale
Upon completion of this offering, the Shares will be eligible for sale
in the open market without restriction. On January 25, 1996, the Company
completed the sale of 4,000,000 shares of Common Stock (the "Rainwater Shares")
to Rainwater-Magellan Holdings, L.P. ("Rainwater-Magellan") in a private
placement transaction, along with a warrant to purchase an additional 2,000,000
shares of Common Stock (the "Warrant") pursuant to a Stock and Warrant Purchase
Agreement (the "Stock and Warrant Purchase Agreement"). The Warrant, which
expires in January 2000, entitles Rainwater-Magellan to purchase such additional
shares of Common Stock at a per share price of $26.15, subject to adjustment for
certain dilutive events, and provides registration rights for the shares of
Common Stock underlying the Warrant. The aggregate purchase price for the
Rainwater Shares and the Warrant was $69,732,000. Upon completion of the
acquisition of the Rainwater Shares (and prior to exercise of the Warrant),
Rainwater-Magellan owned approximately 12.2% of the outstanding voting
securities of Magellan. The Warrant becomes exercisable on January 25, 1997 and
expires on January 25, 2000. No more than 40,000 shares may be sold by
Rainwater-Magellan or its affiliates prior to January 25, 1997. In addition, the
2,000,000 shares of Common Stock underlying the Warrant will be eligible for
sale in the open market without restriction on or after January 25, 1997,
assuming registration of the offer and sale of such shares in the manner
required by the Stock and Warrant Purchase Agreement. In connection with the
acquisition of a majority interest in Green Spring, the remaining Green Spring
stockholders, consisting of four Blue Cross/Blue Shield plans (the "Minority
Stockholders") have the option, under certain circumstances, to exchange their
ownership interests in Green Spring for 2,831,739 shares of the Company's Common
Stock or $65.1 million in the Company's subordinated notes (the "Exchange
Option"). Assuming exercise by all of the Minority Stockholders of the Exchange
Option, all 2,831,739 shares of Common Stock issuable upon exercise of the
Exchange Option will be eligible for sale in the open market without
restriction. As of March 31, 1996, the Company's officers, directors and
employees held options for the purchase of 2,884,824 shares of Common Stock
(973,848 of which are currently vested and 1,910,976 of which are subject to
vesting periods of up to four years in duration). Upon exercise, the shares of
Common Stock underlying such options will be eligible for sale on the open
market without restriction, except that Directors and certain Officers of the
Company must effect such sales pursuant to Rule 144 under the 1933 Act.
Following this offering, sales and potential sales of shares of Common Stock in
the public market pursuant to Rule 144 or otherwise could adversely affect the
prevailing market prices for the Common Stock and impair the Company's ability
to raise additional equity capital.
Possible Volatility of Stock Price
The Company believes factors such as announcements with respect to
healthcare reform measures, reductions in government healthcare program
projected expenditures, acquisitions and quarter-to-quarter and year-to-year
variations in financial results could cause the market price of Magellan Common
Stock to fluctuate substantially. Any such adverse announcement with respect to
healthcare reform measures or program expenditures, acquisitions or any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
Magellan Common Stock in any given period. As a result, the market for Magellan
Common Stock may experience price and volume fluctuations unrelated to the
operating performance of Magellan. See "Price Range of Common Stock and Dividend
Policy" on page 12.
9
<PAGE>
THE COMPANY
Magellan is an integrated national behavioral healthcare company. The
Company operates through three principal subsidiaries engaging in (i) the
provider business, (ii) the managed care business and (iii) the public sector
business.
Charter Behavioral Health Systems, Inc., the Company's wholly-owned
subsidiary that engages in the provider business, operated 99 acute care
psychiatric hospitals and three residential psychiatric treatment centers with
an aggregate capacity of 9,070 licensed beds as of December 31, 1995.
Ninety-three of the Company's hospitals operate partial hospitalization programs
and the Company operates 141 outpatient centers, staffed by mental health
professionals. Approximately 91% of the Company's fiscal 1995 consolidated
revenue was contributed by the provider business. Management estimates that
approximately 75% of its fiscal 1996 consolidated revenue will be contributed by
the provider business.
Green Spring, the Company's 61% owned subsidiary that engages in the
managed care business, provides managed behavioral healthcare services, which
include (i) Enhanced Utilization Management, a utilization review process that
employs clinical criteria designed to provide each patient with accessible,
appropriate and affordable treatment across the entire continuum of care and
services; (ii) Care Management, a fully integrated healthcare model that offers
utilization review services and provides care to patients through the management
of a national network of contract providers and Green Spring-owned staff model
clinics; (iii) Employee Assistance Plans, employer-paid assessment, counseling
and referral programs that help employees address personal and workplace
problems; and (iv) Comprehensive Administrative Services, including member
assistance, management reporting, claims processing, clinical management
information and provider referral systems that are adaptable to customer
circumstances and requirements through a network of more than 30,000 providers
nationwide covering approximately 12 million members as of December 31, 1995.
The Company had no significant managed care revenue in fiscal 1995. Management
estimates that approximately 15% of its fiscal 1996 consolidated revenue will be
contributed by the managed care business.
Magellan Public Solutions, Inc. ("Public Solutions"), the Company's
wholly-owned subsidiary that engages in the public sector business, provides
specialty home-based behavioral healthcare services, behavioral services in
correctional facilities and troubled and delinquent adolescent facilities
services pursuant to contractual arrangements with governmental agencies.
Approximately 4% of the Company's fiscal 1995 consolidated revenue was provided
by the public sector business. Management estimates that less than 10% of its
fiscal 1996 consolidated revenue will be contributed by the public sector
business.
Magellan's business strategy is to provide access to a full continuum
of behavioral healthcare and managed care services and to perform such services
in a cost effective manner with predictable results. The Company's integrated
national behavioral healthcare system has the capability to deliver and to
manage the delivery of behavioral healthcare services for large public and
private payers who need assistance in managing the risk of behavioral healthcare
costs.
Magellan was incorporated in 1969 under the laws of the State of
Delaware. Magellan Common Stock is traded on the American Stock Exchange under
the symbols "MGL." Unless the context otherwise requires, references to Magellan
include Magellan Health Services, Inc. and its subsidiaries. Magellan's
principal executive offices are located at 3414 Peachtree Road, N.E., Suite
1400, Atlanta, Georgia 30326, and its telephone number is (404) 841-9200.
Certain Forward-Looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in certain
forward-looking statements made by or on behalf of the Company. Specifically,
the Company has projected the percentage contribution to total revenues for each
of its lines
10
<PAGE>
of business for the 1996 fiscal year. The projections are based on an analysis
of prevailing conditions and trends in the behavioral healthcare industry which
directly impact the Company.
Industry conditions and trends considered by the Company in making the
projections include (1) the effects of competition on each of the Company's
lines of business; (2) increased payer pressures in the behavioral healthcare
industry with respect to negotiated rates and other cost-containment measures;
and (3) the effects of hospital closures..
Industry conditions and trends not considered by the Company in making
the projections include (1) governmental budgetary constraints which could have
the effect of restricting the aggregate amount of funds available to support
governmental healthcare programs, including Medicare and Medicaid; (2)
uncertainties in the regulatory environment due to proposed healthcare reform
legislation, including changes in Medicare and Medicaid reimbursement programs;
and (3) increased payor and governmental investigations and/or inquiries into
alleged fraud and abuse concerns as the Company cannot project the effect of
such items. Any legislation subsequently passed could adversely effect any such
projection.
There can be no assurances that the projected results will be achieved.
As a result of the factors identified above, as well as the factors described
under "Risk Factors" and other factors, the Company's actual results could vary
significantly from the performance projected in the forward-looking statements.
RECENT DEVELOPMENTS
Green Spring Acquisition
On December 13, 1995, the Company acquired a 51% ownership interest in
Green Spring for approximately $68.9 million in cash, the issuance of 215,458
shares of Common Stock valued at approximately $4.3 million and the contribution
of Group Practice Affiliates, a wholly-owned Magellan subsidiary, which became a
wholly-owned subsidiary of Green Spring. On December 20, 1995, the Company
acquired an additional 10% ownership interest in Green Spring for approximately
$16.7 million in cash as a result of an exercise by a minority stockholder of
its Exchange Option for a portion of the stockholder's interest in Green Spring.
The Company currently has a 61% ownership interest in Green Spring.
The Green Spring acquisition created the first fully integrated
national behavioral healthcare system and gives the Company the capability to
provide case management and delivery services to large private organizations and
a public sector marketplace seeking increased privatization of services. The
Company changed its name to Magellan Health Services, Inc. on December 21, 1995
to reflect the broader range of services it expects to provide as a result of
the Green Spring acquisition and the creation of Public Solutions.
The minority stockholders of Green Spring consist of four Blue
Cross/Blue Shield organizations (the "Blues") that are key customers of Green
Spring. In addition, two other Blues organizations that formerly owned a portion
of Green Spring will continue as customers of Green Spring. As of December 31,
1995, the minority stockholders of Green Spring have the Exchange Option, which
under certain circumstances, allows the minority stockholders to exchange their
ownership interests in Green Spring for 2,831,739 shares of Magellan Common
Stock or $65.1 million in subordinated notes. The Company may elect to pay cash
in lieu of issuing the subordinated notes. The Exchange Option expires December
13, 1998.
Sale of Common Stock and Warrant
On January 25, 1996, the Company completed the sale to
Rainwater-Magellan of the Rainwater Shares, along with a warrant to purchase an
additional 2,000,000 shares of Common Stock, pursuant to the Stock and Warrant
Purchase Agreement. The Warrant, which expires in January, 2000, entitles
Rainwater-Magellan to purchase such additional shares of Common Stock at a per
share price of $26.15, subject to adjustment for certain dilutive events, and
provides registration rights for the shares of Common Stock underlying the
Warrant. The aggregate purchase price for
11
<PAGE>
the Rainwater Shares and the Warrant was $69,732,000. Upon completion of the
acquisition of the Rainwater Shares (and prior to exercise of the Warrant),
Rainwater-Magellan owned approximately 12.2% of the outstanding voting
securities of Magellan. The Warrant becomes exercisable on January 25, 1997 and
expires on January 25, 2000.
The Stock and Warrant Purchase Agreement places certain restrictions on
the sale or transfer of the Rainwater Shares and the Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares"). As a result, no more than
40,000 Rainwater Shares may be sold by Rainwater-Magellan or its affiliates
prior to January 25, 1997. Further, prior to January 25, 2000,
Rainwater-Magellan or its affiliates may not sell or transfer in a privately
negotiated transaction to a single purchaser and its affiliates or a "group"
(as defined in Rule 13d-5(b)(1) under the Exchange Act) Rainwater Shares or
Warrant Shares which would equal or exceed five percent (5%) of the Common Stock
then outstanding on a fully-diluted basis. Neither of these restrictions affect
the free transferability of the Rainwater Shares among Rainwater-Magellan and
its affiliates. In addition, the Stock and Warrant Purchase Agreement contains
certain standstill covenants on the part of Rainwater-Magellan which, among
other things, prohibit Rainwater-Magellan and its affiliates from purchasing
additional shares of Common Stock so that they collectively own in excess of 20%
of the outstanding shares of Common Stock prior to January, 1998. The Stock and
Warrant Purchase Agreement also grants Rainwater-Magellan certain board
representation rights.
The Company used $68.0 million of the proceeds from the sale of the
Rainwater Shares and the Warrant to Rainwater-Magellan to repay indebtedness
incurred under the Company's Credit Agreement, which indebtedness was incurred
in connection with the investments in Green Spring during the first quarter of
fiscal 1996. Total debt outstanding under the Credit Agreement after the $68.0
million repayment was approximately $80.6 million. The loans outstanding under
the Credit Agreement as of January 25, 1996 bear interest at a rate of 7.625%
per annum and mature on March 31, 1999.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All of the proceeds from the sale of the Shares will be received by the
Selling Stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed for trading on the American Stock Exchange
(ticker symbol "MGL"). As of January 31, 1996, there were 12,221 holders of
record of the Company's Common Stock. The following table sets forth the high
and low sales prices of the Company's Common Stock as reported by the American
Stock Exchange for the periods indicated:
12
<PAGE>
<TABLE>
<CAPTION>
Common Stock Sales Prices
-------------------------
Calendar Year High Low
- -------------------------------------------------- -------- ---------
<S> <C> <C> <C>
1993
Fourth Quarter............................. $ 27 $ 21
1994
First Quarter.............................. $ 28 $21 3/8
Second Quarter............................. 26 1/8 21 3/4
Third Quarter.............................. 28 1/2 21 1/4
Fourth Quarter............................. 28 1/2 19
1995
First Quarter.............................. $21 1/4 $13 7/8
Second Quarter............................. 19 5/8 15 5/8
Third Quarter.............................. 23 1/4 16 1/4
Fourth Quarter............................. 24 1/4 17 3/8
1996
First Quarter ............................. $ 25 $21 3/8
Second Quarter (through April 25, 1996).. 23 21 3/8
</TABLE>
The Company has not declared any cash dividends during the past three
fiscal years. The Company is prohibited from paying dividends (other than
dividends payable in shares of Common Stock) on its Common Stock under the terms
of the Credit Agreement, except for cash dividends that, in the aggregate, from
May 1994, do not exceed 6% of the net cash proceeds from issuances of capital
stock, reduced by the aggregate cost of stock purchases since May 1994 and
certain other limited circumstances.
CAPITALIZATION
The following table sets forth the consolidated capitalization of
Magellan as of December 31, 1995 and as adjusted to reflect the sale by the
Company of the Rainwater Shares and the Warrant on January 25, 1996 to
Rainwater-Magellan.
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------
Actual As Adjusted
-------- ---------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revolving Credit Agreement............................... $148,593 $ 80,593
11.25% Senior Subordinated Notes due 2004................ 375,000 375,000
Other long-term debt..................................... 97,528 97,528
Stockholders' equity:
Preferred stock, without par value;
10,000 authorized; none issued and outstanding.. -- --
Common Stock, $.25 par value; 80,000
authorized; 28,664 issued and outstanding;
32,664 issued and outstanding, as adjusted...... 7,166 8,166
Additional paid-in capital........................ 259,370 326,993
Accumulated deficit............................... (152,092) (152,092)
Warrants outstanding.............................. 64 64
Common Stock in Treasury, 462 shares.............. (9,238) (9,238)
Cumulative foreign currency adjustments........... (1,090) (1,090)
------- ------
Total stockholders' equity................... 104,180 172,803
------- -------
Total capitalization......................... $725,301 $725,924
======== =======
</TABLE>
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial data and
selected pro forma financial data for Magellan for the year ended September 30,
1995 and the three months ended December 31, 1995. The selected historical
financial data for the year ended September 30, 1995 has been derived from the
historical financial statements of Magellan audited by Arthur Andersen LLP,
independent public accountants. The selected historical financial data for the
three months ended December 31, 1995 has been derived from unaudited interim
statements of operations of Magellan. In the opinion of management, the
unaudited interim financial information includes all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
information set forth therein. The selected pro forma financial data gives
effect to the January 25, 1996 sale of the Rainwater Shares, as if such sale had
occurred on October 1, 1994.
<TABLE>
<CAPTION>
Fiscal year ended Three months ended
September 30, 1995 December 31, 1995
-------------------------- -----------------------------
Actual Pro Forma (1) Actual Pro Forma (1)
--------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Net income (loss)............................. $(42,963) $(39,731) $ 9,748 $ 10,493
Average number of common shares outstanding... 27,870 31,870 27,994 31,994
Income (loss) per common share................ (1.54) (1.25) 0.35 0.33
</TABLE>
<F1>
(1) The adjustments to pro forma net income (loss), income (loss) per
common share and average number of common shares outstanding result
from the issuance of the 4,000,000 shares to Rainwater-Magellan and a
related adjustment to reduce interest expense, net of tax, for the use
of $68.0 million of the proceeds from the issuance of such shares to
reduce outstanding borrowings under the Credit Agreement for the fiscal
year ended September 30, 1995 and the three months ended December 31,
1995.
</F1>
SELLING STOCKHOLDERS
The Selling Stockholders are former Mentor Stockholders. The Shares
were acquired by the Selling Stockholders in connection with the acquisition of
Mentor by the Company and related transactions. The following table provides the
names and the number of shares of Magellan Common Stock owned by each Selling
Stockholder. Since the Selling Stockholders may sell all, some or none of their
Shares, no estimate can be made of the aggregate number of Shares that are to be
offered hereby or that will be owned by each Selling Stockholder upon completion
of the offering to which this Prospectus relates.
The Shares offered by this Prospectus may be offered from time to time
by the Selling Stockholders named below:
<TABLE>
<CAPTION>
Shares of Shares of
Selling Stockholder Common Stock Selling Stockholder Common Stock
- ------------------- ------------ ------------------- ------------
<S> <C> <C> <C>
E. Byron Hensley, Jr.(1) 400,642 John G. Gleacher 7,997
Eric J. Gleacher 180,578 Sarah E. Gleacher 7,997
Olsten Service Corp. 127,534 Jeffrey H. Tepper 5,577
Thomas P. Riley(1)(2) 141,397 Susan MacKenzie Riley
Charles G. Phillips 111,875 and Mark Morin, Trustees 5,572
Harris & Harris Group, Robert A. Engel 4,808
Inc.(2). 108,736 Leonard O. Henry 4,598
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of
Selling Stockholder Common Stock Selling Stockholder Common Stock
- ------------------- ------------ ------------------- ------------
<S> <C> <C> <C>
James Goodwin 75,571 Alan L. Hollis 3,831
Gregory T. Torres 43,140 Donald R. Monack 3,831
Richard A. Derbes 23,970 Janice L. Quiram 3,831
H. Conrad Meyer 27,640 Andrew Gilman 3,199
Elizabeth J. Hopper 22,012 Lois Simon 3,065
Peter W. Mair 19,266 Lana Hensley Hoffman 2,476
Emil W. Henry, Jr. 16,309 Martha Faye Koysh 2,476
Robert W. Kitts 11,995 Ruth Ann Roberts 2,476
Gleacher 7 Investors L.P. 11,029 Frank N. Liguori(3) 5,520
Gerald M. Bereika 10,969 William F. Murdy(2) 2,148
Peter P. Polloni(2) 10,031 Marie A. Gentile 1,921
Eric J. Gleacher, as Christina Hensley Bair 1,857
custodian for Jay S. Dianne Hensley Ramponi
Gleacher 7,997 and Thomas P.
Eric J. Gleacher, as Riley, Trustees 1,857
custodian for Patricia Christina Hensley
G. Gleacher 7,997 Bair and Thomas
Eric J. Gleacher, as P. Riley, Trustees 1,609
custodian for William Wayne J. Stelk 766
R. Gleacher 7,997
James E. Gleacher 7,997
- ----------------------------
<F1>
(1) As a condition to Magellan's obligation to consummate the Merger, each
of Messrs. Riley and Hensley entered into a Noncompete and
Confidentiality Agreement with Magellan. In accordance with the terms
of such agreements, Messrs. Riley and Hensley agreed, among other
things: (i) to maintain in confidence trade secrets of Magellan and
Mentor at all times during such individuals' respective affiliation
with Magellan and at all times thereafter, and to maintain any
confidential information for periods of two years and five years,
respectively, after the date of such agreements; and (ii) not to enter
into certain arrangements competitive with Magellan for periods of one
year and five years, respectively, after the date of such agreements.
In consideration for the covenants set forth in the Noncompete and
Confidentiality Agreements, Magellan agreed to pay Messrs. Riley and
Hensley $350,339 and $230,839, respectively. Such amounts were to have
been paid by the issuance of shares of Magellan Common Stock to
Messrs. Riley and Hensley in July, 1995. The number of shares set
forth in the table above includes 23,355 and 15,389 shares of Magellan
Common Stock which were to have been issued to Messrs. Riley and
Hensley, respectively, pursuant to the Noncompete and Confidentiality
Agreements (assuming a $15 per share issuance price and payment of
cash in lieu of fractional shares). Such amounts were paid in cash.
</F1>
<F2>
(2) Harris & Harris Group, Inc. and Messrs. Riley, Polloni and Murdy own
50,000, 5,000, 500 and 500 shares of Magellan Common Stock,
respectively, that were not acquired in connection with the Merger and
which are excluded from the above table.
</F2>
<F3>
(3) Pursuant to the Merger Agreement, Magellan agreed to pay Mr. Ligouri
$50,585 for consulting services, which amount was paid by the issuance
of shares of Magellan Common Stock to Mr. Ligouri in July, 1995. The
number of shares set forth in the table above includes 2,911 shares of
Magellan Common Stock issued to Mr. Ligouri in payment of such amount.
</F3>
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Stockholders on
the American Stock Exchange or any national securities exchange or automated
interdealer quotation system on which shares of Magellan Common Stock are then
listed, through negotiated transactions or otherwise. The Shares will be sold at
prices and on terms then prevailing, at prices related to the then current
market price or at negotiated prices. The Selling Stockholders may effect sales
of the Shares directly or by or through agents, brokers, dealers or underwriters
and the Shares may be sold by one or more of the following methods: (a)
underwritten public offerings, (b) ordinary brokerage transactions, (c)
purchases
15
<PAGE>
by a broker-dealer as principal and resale by such broker-dealer for its own
account pursuant to this Prospectus, and (d) in "block" sales. At the time a
particular offer is made, a Prospectus Supplement, if required, will be
distributed that sets forth the name or names of agents, broker-dealers or
underwriters, any commissions and other terms constituting compensation and any
other required information. In effecting sales, broker-dealers engaged by any
Selling Stockholder and/or the purchasers of the Shares may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions,
concessions or discounts from the Selling Stockholder and/or the purchasers of
the Shares in amounts to be negotiated prior to the sale. Sales will be made
only through broker-dealers registered as such in a subject jurisdiction or in
transactions exempt from such registration. As of the date of this Prospectus,
there are no selling arrangements between the Selling Stockholders and any
broker or dealer.
In offering the Shares covered by this Prospectus, the Selling
Stockholders and any brokers, dealers or agents who participate in a sale of the
Shares by the Selling Stockholders may be considered "underwriters" within the
meaning of Section 2(11) of the 1933 Act, and any profits realized by the
Selling Stockholders and the compensation of any broker/dealers may be deemed to
be underwriting discounts and commissions.
As required by the Investment and Registration Rights Agreement,
Magellan has filed the Registration Statement, of which this Prospectus forms a
part, with respect to the sale of the Shares. Magellan has agreed to use its
best efforts to keep the Registration Statement current and effective through
January 28, 1997, with certain exceptions.
Magellan will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. Magellan will bear the costs of registering
the Shares under the 1933 Act, including the registration fee under the 1933
Act, legal and accounting fees and any printing fees. In addition, Magellan will
pay the reasonable fees and disbursements of one firm of counsel designated by
the holders of a majority of the Shares to act as counsel for all holders of
Shares in connection with the registration of such Shares. The Selling
Stockholders will bear all other expenses in connection with this offering,
including underwriting commissions and/or discounts, if any, and brokerage
commissions.
Pursuant to the terms of the Investment and Registration Rights
Agreement and certain related agreements, Magellan and the Selling Stockholders
have agreed to indemnify each other and certain other parties for certain
liabilities, including liabilities under the 1933 Act, in connection with the
registration of the Shares.
LEGAL MATTERS
The legality of the Shares has been passed upon for the Selling
Stockholders by King & Spalding, 191 Peachtree Street, Atlanta, Georgia
30303-1763.
EXPERTS
The audited, consolidated financial statements of Magellan Health Services,
Inc. and its subsidiaries and the related schedule included in the Magellan
Annual Report on Form 10-K for the year ended September 30, 1995 have been
incorporated by reference in this Prospectus and have been audited by Arthur
Andersen LLP, independent auditors, as stated in their report appearing therein
and are incorporated by reference in reliance upon the report of such firm and
upon their authority as experts in accounting and auditing.
16
<PAGE>
- ---------------------------------------- -----------------------------------
No person has been authorized in
connection with the offering made hereby
to give any information or to make any
representation not contained in this
Prospectus and, if given or made, such 1,452,094 SHARES
information or representation must not
be relied upon as having been authorized
by Magellan, or the Selling
Stockholders. This Prospectus does not MAGELLAN HEALTH
constitute an offer to sell or a SERVICES, INC.
solicitation of an offer to buy any of
the securities offered hereby in any
jurisdiction in which it is unlawful to
make such offer or solicitation. Neither
the delivery of this Prospectus nor any COMMON STOCK
sale made hereunder shall, under any
circumstances, create any implication
that the information contained herein is
correct as of any time subsequent to the
date hereof.
--------------------------- ---------------------------
PROSPECTUS
---------------------------
TABLE OF CONTENTS
Available Information..................2
Incorporation of Certain Documents
by Reference.........................2
Risk Factors...........................3
The Company...........................10
Recent Developments...................11
Use of Proceeds.......................12
Price Range of Common Stock
and Dividend Policy.................12
Capitalization........................13
Selected Financial Information........14
Selling Stockholders..................14
Plan of Distribution..................15
Legal Matters.........................16 APRIL 26, 1996
Experts .............................16
- ---------------------------------------- -----------------------------------
</TABLE>
