As filed with the Securities and Exchange Commission on May 28, 1996
Registration No. 333-01217
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
------------------------------------
STEVE J. DAVIS, ESQ.,
EXECUTIVE VICE PRESIDENT, ADMINISTRATIVE SERVICES
AND GENERAL COUNSEL
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
(Name , address, including zip code, and
telephone number, including area
code, of agent for service)
------------------------------------
Copy to:
CRAIG L. MCKNIGHT, EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
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Approximate date of commencement of proposed
sale to public: From time to time after the
effective date of the Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
PROSPECTUS May 28, 1996
4,000,000 SHARES
MAGELLAN HEALTH SERVICES, INC.
COMMON STOCK
($.25 Par Value)
------------------------------------
The 4,000,000 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 Rainwater-Magellan Holdings, L.P. (the "Selling
Stockholder"). See "Selling Stockholder." The Selling Stockholder acquired the
Shares, along with a warrant to purchase an additional 2,000,000 shares of
Common Stock (the "Warrant") on January 25, 1996 in a private placement
transaction with the Company. Magellan will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholder.
Magellan is registering the Shares as required by a Stock and Warrant
Purchase Agreement dated December 22, 1995, as amended, among Magellan and the
Selling Stockholder (the "Stock and Warrant Purchase Agreement"), to provide the
Selling Stockholder with freely tradeable securities. Magellan has also agreed
to pay all fees and expenses incident to such registration, other than any
underwriting discounts or any selling commissions payable in respect of sales of
the Shares, which will be paid by the Selling Stockholder. It is estimated that
the fees and expenses payable by the Company in connection with the registration
of the Shares will be approximately $55,000. Magellan has agreed to keep the
Registration Statement (as hereinafter defined) current and effective with
certain exceptions for so long as the Selling Stockholder and its affiliates
collectively own at least 25% of the Shares and the shares underlying the
Warrant. See "Plan of Distribution."
The Common Stock is listed on the American Stock Exchange under the
symbol "MGL." On May 24, 1996, the last reported sale price of the Common Stock
on the American Stock Exchange was $24.00 per share.
The Selling Stockholder from time to time may offer and sell the Shares
directly or through agents or broker-dealers on the American Stock Exchange or
otherwise on prices and terms related to the then current market price or in
privately negotiated transactions. 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." The Selling
Stockholder 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.
Certain transfer restrictions have been placed on the Shares offered
hereby pursuant to the Stock and Warrant Purchase Agreement. As a result, no
more than 40,000 Shares may be sold by the Selling Stockholder or its affiliates
prior to January 25, 1997. Further, prior to January 25, 2000, the Selling
Stockholder or its affiliates may not sell or transfer in a privately negotiated
transaction to a single purchaser and its affiliates, or any "group" (as defined
in Rule 13d-5(b)(1) under the Securities Exchange Act of 1934, as amended)
Shares and shares underlying the Warrant 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 Shares or
shares issued upon exercise of the Warrant among the Selling Stockholder and its
affiliates.
The Selling Stockholder and any agents or broker-dealers that
participate with the Selling Stockholder 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 Stockholder.
THERE ARE CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN MAGELLAN
COMMON STOCK. FOR A DISCUSSION OF SUCH RISKS, SEE "RISK FACTORS" BEGINNING ON
PAGE 3.
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 May 28, 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 (the "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 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 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) Magellan's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, as amended on Form 10-Q/A filed on May 15,
1996; and
(iv) 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. The Company reported net revenue and loss
from continuing operations of approximately $299.8 million and $15.1 million,
respectively, for the quarter ended March 31, 1995 compared to net revenue and
income from continuing operations of approximately $355.0 million and $20.1
million, respectively, for the quarter ended March 31, 1996. The Company also
reported net revenue and loss from continuing operations of approximately $563.7
million and $14.8 million, respectively, for the six months ended March 31, 1995
compared to net revenue and income from continuing operations of approximately
$650.6 million and $29.8 million, respectively, for the six months ended March
31, 1996. The results of operations for such interim periods are not necessarily
indicative of the actual results expected for the year. There can be no
assurance that the Company's profitability in the quarter and the six months
ended March 31, 1996 will continue in future periods. 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.
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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) 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"
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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.
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 April 30, 1996, the Company
operated 40 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.
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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 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
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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 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 of
approximately $93.2 million 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 March 31, 1996, approximately
30% of Green Spring's managed care members were under capitated arrangements.
During the quarter and the six months ended March 31, 1996, 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 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
8
<PAGE>
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, except that no more than 40,000 shares
may be sold by the Selling Stockholder 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 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. In January 1995,
the Company acquired National Mentor, Inc. by issuing 1,409,978 shares of Common
Stock which have been registered for resale. 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 13.
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 94 acute care
psychiatric hospitals and two residential psychiatric treatment centers with an
aggregate capacity of 8,682 licensed beds as of April 30, 1996. Eighty-nine 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
9
<PAGE>
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 12.6 million members as of March 31,
1996. 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 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.
10
<PAGE>
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 Company believes 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 March 31,
1996, 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 the Selling
Stockholder of the 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 the Selling
Stockholder 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 Shares and the Warrant was $69,732,000. Upon
completion of the acquisition of the Shares (and prior to exercise of the
Warrant), the Selling Stockholder 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 Shares and the Common Stock issuable upon exercise
of the Warrants (the "Warrant Shares"). As a result, no more than 40,000 Shares
may be sold by the Selling Stockholder or its affiliates prior to January 25,
1997. Further, prior to January 25, 2000, the Selling Stockholder 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) 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 Shares among the Selling Stockholder and its affiliates.
In addition, the Stock and Warrant Purchase Agreement contains certain
standstill covenants on the part of the Selling Stockholder which, among other
things, prohibit the Selling Stockholder 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 the Selling Stockholder certain board
representation rights. See "Selling Stockholder".
The Company used $68.0 million of the proceeds from the sale of the
Shares and the Warrant to the Selling Stockholder 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
11
<PAGE>
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 Stockholder.
DILUTION
No dilution will occur from sales of the Shares under this Registration
Statement. At December 31, 1995, the net tangible book value of the Company's
Common Stock was a deficit of $72.0 million or $2.51 per share. "Net tangible
book value" per share represents stockholders' equity less intangible assets of
the Company, divided by the number of shares of Common Stock outstanding. Giving
effect to the sale by the Company of the Shares and the Warrant to the Selling
Stockholder at the offering price of $17.43 per share, the pro forma net
tangible book value of the Common Stock at December 31, 1995 was a deficit of
$3.4 million or $0.10 per share. This represented an immediate increase in net
tangible book value of $2.41 per share to existing stockholders and an immediate
dilution of $17.53 per share book value to the Selling Stockholder.
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 April 30, 1996, there were 11,951 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:
<TABLE>
<CAPTION>
Common Stock Sales Prices
------------------------------
Calendar Year High Low
- ----------------------------------------------------- ---------- ----------
<S> <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 May 24, 1996)...... 24 7/8 21
</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.
12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of
Magellan as of March 31,
1996.
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------
(in thousands, except per share data)
<S> <C>
Revolving Credit Agreement................................. $ 70,593
11.25% Senior Subordinated Notes due 2004.................. 375,000
Other long-term debt....................................... 96,313
Stockholders' equity:
Preferred stock, without par value;
10,000 authorized; none issued and outstanding.... --
Common Stock, $.25 par value; 80,000
authorized; 32,915 issued and outstanding:....... 8,229
Additional paid-in capital.......................... 326,601
Accumulated deficit................................. (132,023)
Warrants outstanding................................ 64
Common Stock in Treasury, 462 shares................ (9,238)
Cumulative foreign currency adjustments............. (1,867)
--------
Total stockholders' equity..................... 191,766
--------
Total capitalization........................... $ 733,672
========
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 six months ended March 31, 1996. 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 six months
ended March 31, 1996 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 Shares to the Selling Stockholder, as if such sale had occurred
on October 1, 1994 (in thousands, except per share data).
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended Six months ended
September 30, 1995 March 31, 1996
------------------------------ -------------------------------
Actual Pro Forma (1) Actual Pro Forma (1)
----------- -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Net income (loss)............................... $ (42,963) $ (39,731) $ 29,817 $ 30,789
Average number of common shares outstanding:
Primary...................................... 27,870 31,870 30,099 32,635
Fully Diluted................................ 27,870 31,870 31,851 34,387
Earnings (loss) per common share:
Primary...................................... (1.54) (1.25) 0.99 0.94
Fully Diluted................................ (1.54) (1.25) 0.96 0.92
</TABLE>
(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 the Selling Stockholder
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
13
<PAGE>
outstanding borrowings under the Credit Agreement for the fiscal year
ended September 30, 1995 and the six months ended March 31, 1996.
SELLING STOCKHOLDER
The following table sets forth certain information with respect to the
ownership of the Shares as of December 22, 1995, and as adjusted to reflect the
sale of the Shares offered hereby, by the Selling Stockholder. The Selling
Stockholder has sole voting and investment power with respect to the Shares.
<TABLE>
<CAPTION>
Ownership of Number of Ownership of
Common Stock Before Shares Being Common Stock After
the Offering Offered (1) the Offering (2)
----------------------------- ---------------- ------------------------------
Number of Number of
Name Shares Percent Shares Percent
- --------------------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Rainwater-Magellan
Holdings, L.P. (3) 4,000,000 12.25% 4,000,000 (4) None --
</TABLE>
- ------------------------------------
(1) The Shares being offered hereby were acquired by the Selling
Stockholder pursuant to the terms of the Stock and Warrant Purchase
Agreement. Under the terms of the Stock and Warrant Purchase Agreement,
the Selling Stockholder obtained registration rights with respect to
the Shares. Magellan has registered the Shares for sale pursuant to
this Prospectus as required by the Stock and Warrant Purchase
Agreement.
(2) Assumes that all Shares being offered are sold.
(3) Under the rules of the Securities and Exchange Commission, Rainwater,
Inc., the general partner of the Selling Stockholder, and Richard
E. Rainwater, the sole shareholder and a director of Rainwater, Inc.
are also deemed to be beneficial owners of the Shares. Darla Moore,
Vice President and Director of Rainwater, Inc. was appointed to the
Board of Directors of Magellan on February 22, 1996 pursuant to
the Stock and Warrant Purchase Agreement.
(4) No more than 40,000 Shares may be sold by the Selling Stockholder or
its affiliates prior to January 25, 1997. Further, prior to January 25,
2000, the Selling Stockholder or its affiliates may not sell or
transfer in a privately negotiated transaction to a single purchaser
and its affiliates or any "group" (as defined in Rule 13d-5(b)(1) under
the Exchange Act) Shares (including shares underlying the Warrant)
which would equal or exceed five percent (5%) of the Common Stock then
outstanding on a fully-diluted basis.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Stockholder on
the American Stock Exchange or any national securities exchange or automated
interdealer quotation system on which shares of Common Stock are then listed,
through negotiated transactions or otherwise. Certain transfer restrictions have
been placed on the Shares offered hereby pursuant to the Stock and Warrant
Purchase Agreement, which in general restrict the sale of the Shares prior to
January 25, 1997. See "Recent Developments -- Sale of Common Stock and Warrant".
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
Stockholder 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 by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this Prospectus, (d) in "block"
sales, and (e) privately negotiated transactions. 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 Stockholder and any broker
or dealer.
14
<PAGE>
In offering the Shares covered by this Prospectus, the Selling
Stockholder and any brokers, dealers or agents who participate in a sale of the
Shares by the Selling Stockholder may be considered "underwriters" within the
meaning of Section 2(11) of the 1933 Act, and any profits realized by the
Selling Stockholder and the compensation of any broker/dealers may be deemed to
be underwriting discounts and commissions.
As required by the Stock and Warrant Purchase 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 keep the Registration
Statement current and effective, with certain exceptions, for so long as the
Selling Stockholder and its affiliates collectively own at least 25% of the
Shares (including shares underlying the Warrant) issued pursuant to the Stock
and
15
<PAGE>
Warrant Purchase Agreement.
Magellan will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholder. Magellan will bear the costs of registering
the Shares under the 1933 Act, including the registration fee under the 1933
Act, its legal and accounting fees and any printing fees. The Selling
Stockholder will bear the cost of underwriting commissions and/or discounts, if
any, and selling commissions.
Pursuant to the terms of the Stock and Warrant Purchase Agreement,
Magellan and the Selling Stockholder have agreed to indemnify each other and
certain other related 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 are passed upon for the Selling Stockholder
by Steve J. Davis, Esq., Executive Vice President, Administrative Services and
General Counsel of the Company, 3414 Peachtree Road, N.E., Atlanta, Georgia
30326.
EXPERTS
The audited, consolidated financial statements and schedule of Magellan
Health Services, Inc. and subsidiaries included in the Magellan Annual Report on
Form 10-K for the year ended September 30, 1995 incorporated by reference in
this Prospectus and elsewhere in this Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports thereto, and are incorporated by reference herein in reliance upon the
authority of said firm, as experts in giving said reports.
Future consolidated financial statements and schedules of Magellan
Health Services, Inc. and subsidiaries and the reports thereon of Arthur
Andersen LLP also will be incorporated by reference in this Registration
Statement of which this Prospectus is a part in reliance upon the authority of
that firm as experts in giving those reports to the extent said firm has audited
those financial statements and consented to the use of their reports thereon.
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
information or representation must not 4,000,000 SHARES
be relied upon as having been authorized
by Magellan, or the Selling Stockholder.
This Prospectus does not constitute an
offer to sell or a solicitation of an MAGELLAN HEALTH
offer to buy any of the securities SERVICES, INC.
offered hereby in any jurisdiction in
which it is unlawful to make such offer
or solicitation. Neither the delivery of
this Prospectus nor any sale made COMMON STOCK
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..........................9
Recent Developments.................11
Use of Proceeds.....................12
Dilution ...........................12
Price Range of Common Stock
and Dividend Policy
..........................12
Capitalization......................13
Selected Financial Information......13
Selling Stockholder.................14
Plan of Distribution................14
Legal Matters.......................15
Experts ...........................15
MAY 28, 1996
- ---------------------------------------- -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 31,810.34
Legal Fees and Expenses 10,000.00
Accounting Fees and Expenses 4,000.00
Blue Sky Fees and Expenses (including legal fees and expenses) 1,000.00
Printing 5,000.00
Miscellaneous 3,189.66
-----------
Total $ 55,000.00
==========
</TABLE>
All of the above items, except for registration fee, are estimates.
Although the Selling Stockholder will not bear any of the expenses set forth
above, the Selling Stockholder will bear the cost of underwriting commissions
and/or discounts, if any, and selling commissions.
Item 15. Indemnification of Directors and Officers
The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law (the "DGCL") provides that a Delaware corporation has
the power to indemnify its officers and directors in certain circumstances.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such action or suit provided that such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such director or officer shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such director or officer is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) or (b) or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith; provided that indemnification provided for by Section 145 or granted
pursuant thereto shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled. Section 145 also empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Article VII of the Bylaws of Magellan provide, in substance, that
Magellan shall indemnify directors and officers against all liability and
related expenses incurred in connection with the affairs of Magellan if: (a) in
the case of actions not by or in the right of Magellan, the director or officer
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of Magellan, and (with respect to a criminal
proceeding) had no reasonable cause to believe his conduct was unlawful; and (b)
in the case of actions by or in the right of Magellan, the
17
<PAGE>
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Magellan, provided that no
indemnification shall be made for a claim as to which the director or officer is
adjudged liable to Magellan unless (and only to the extent that) an appropriate
court determines that, in view of all the circumstances, such person is fairly
and reasonably entitled to indemnity.
In addition, Section 102(b)(8) of the DGCL permits Delaware
corporations to include a provision in their certificates of incorporation
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary as a director,
provided that such provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of the law, (iii) for
unlawful payment of dividends or other unlawful distributions, or (iv) for any
transactions from which the director derived an improper personal benefit.
Article Twelve of Magellan's Certificate of Incorporation sets forth such a
provision.
Magellan maintains directors' and officers' liability insurance with
various providers in the aggregate amount of $60 million.
The Selling Stockholder has agreed to indemnify the Company, its
directors and officers (who sign the Registration Statement), and certain
controlling persons against certain liabilities, including liabilities under the
1933 Act subject to such limitations as set forth in the Stock and Warrant
Purchase Agreement.
The foregoing summaries are necessarily subject to the complete text of
the statutes, Certificate of Incorporation, Bylaws, insurance policies and
agreements referred to above and are qualified in their entirety by reference
thereto.
For the undertaking with respect to indemnification, see Item 17.
Item 16. Exhibits
4.1 Restated Certificate of Incorporation of the Company, as filed
in Delaware on October 16, 1992, which was filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1992, and is incorporated herein by
reference.
4.2 Certificate of Ownership and Merger merging Magellan Health
Services, Inc. (a Delaware corporation) into Charter Medical
Corporation (a Delaware corporation), as filed in Delaware on
December 21, 1995, which was filed as Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and is incorporated herein by reference.
4.3 Form of Share Purchase Rights Plan among the Company and First
Union National Bank of North Carolina, N.A., which was filed
as Exhibit 2.5 to the Company's Registration Statement on Form
8-A dated July 8 1992, and is incorporated herein by
reference.
4.4 Stockholders' Agreement, dated December 13, 1995, among Green
Spring Health Services, Inc., Blue Cross and Blue Shield of
New Jersey, Inc., Health Care Service Corporation,
Independence Blue Cross, Pierce County Medical Bureau, Inc.
and the Company, which was filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995, and is incorporated herein by
reference.
4.5 Exchange Agreement, dated December 13, 1995, among Blue Cross
and Blue Shield of New Jersey, Inc., Health Care Service
Corporation, Independence Blue Cross, Pierce County Medical
Bureau, Inc. and the Company, which was filed as Exhibit 4(e)
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1995, and is incorporated
herein by reference.
18
<PAGE>
4.6 Stock and Warrant Purchase Agreement, dated December 22, 1995,
between the Company and Richard E. Rainwater, which was filed
as Exhibit 4(f) to the Company's quarterly report on Form 10-
Q for the quarterly period ended December 31, 1995, and is
incorporated herein by reference.
* 4.7 Amendment No. 1 to Stock and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Rainwater-Magellan
Holdings, L.P.
* 5.1 Opinion of Steve J. Davis as to the legality of the Common
Stock to be registered.
*23.1 Consent of Steve J. Davis (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP.
*24.1 Powers of Attorney.
- ------------------------------------
*Previously filed
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
securities registered hereby, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section 10(a)3 of the 1933
Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
Provided, however, that the undertakings set forth in paragraphs (i)
and (ii) above not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the 1933 Act, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
that is incorporated by reference in this Registration Statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
19
<PAGE>
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the registrant,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling persons of the registrant in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 28th
day of May, 1996.
MAGELLAN HEALTH SERVICES, INC.
By:/s/ Howard A. McLure
-----------------------
Howard A. McLure
Vice President and Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons on May 28, 1996 in the capacities and on the date indicated.
* Date: May 28, 1996
- ----------------------------------- -----------------------
E. Mac Crawford
President and Chairman of the Board
(Principal Executive Officer)
* Date: May 28, 1996
- ----------------------------------- -----------------------
Craig L. McKnight
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Howard A. McLure Date: May 28, 1996
- ----------------------------------- -----------------------
Howard A. McLure
Vice President and Controller
(Principal Accounting Officer)
* Date: May 28, 1996
- ----------------------------------- -----------------------
Edwin M. Banks
Director
21
<PAGE>
* Date: May 28, 1996
- ----------------------------------- -----------------------
G. Fred DiBona, Jr.
Director
* Date: May 28, 1996
- ----------------------------------- -----------------------
Andre C. Dimitriadis
Director
* Date: May 28, 1996
- ----------------------------------- -----------------------
A. D. Frazier, Jr.
Director
* Date: May 28, 1996
- ----------------------------------- -----------------------
Raymond H. Kiefer
Director
* Date: May 28, 1996
- ----------------------------------- -----------------------
Gerald L. McManis
Director
* Date: May 28, 1996
- ----------------------------------- -----------------------
Darla Moore
Director
*The undersigned Attorney-in-Fact, by signing his name below, does hereby sign
this Amendment No. 2 to the Registration Statement on behalf of the indicated
officers and directors of the Registrant pursuant to a Power of Attorney
executed by such persons and filed with the Securities and Exchange Commission.
By: /s/ Howard A. McLure Date: May 28, 1996
- ----------------------------------- -----------------------
Howard A. McLure
22
<PAGE>
INDEX TO EXHIBITS
Exhibit
4.1 Restated Certificate of Incorporation of the Company, as filed
in Delaware on October 16, 1992, which was filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1992, and is incorporated herein by
reference. IBR
4.2 Certificate of Ownership and Merger merging Magellan Health
Services, Inc. (a Delaware corporation) into Charter Medical
Corporation (a Delaware corporation), as filed in Delaware on
December 21, 1995, which was filed as Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and is incorporated herein by reference. IBR
4.3 Form of Share Purchase Rights Plan among the Company and First
Union National Bank of North Carolina, N.A., which was filed
as Exhibit 2.5 to the Company's Registration Statement on Form
8-A dated July 6, 1992, and is incorporated herein by
reference. IBR
4.4 Stockholders' Agreement, dated December 13, 1995, among Green
Spring Health Services, Inc., Blue Cross and Blue Shield of
New Jersey, Inc., Health Care Service Corporation,
Independence Blue Cross, Pierce County Medical Bureau, Inc.
and the Company, which was filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995, and is incorporated herein by
reference. IBR
4.5 Exchange Agreement, dated December 13, 1995, among Blue Cross
and Blue Shield of New Jersey, Inc., Health Care Service
Corporation, Independence Blue Cross, Pierce County Medical
Bureau, Inc. and the Company, which was filed as Exhibit
4(e) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1995, and is incorporated
herein by reference. IBR
4.6 Stock and Warrant Purchase Agreement, dated December 22, 1995,
between the Company and Richard E. Rainwater, which was filed
as Exhibit 4(f) to the Company's quarterly report on Form 10-Q
for the quarterly period ended December 31, 1995, and is
incorporated herein by reference. IBR
* 4.7 Amendment No. 1 to Stock and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Rainwater-Magellan
Holdings, L.P.
* 5.1 Opinion of Steve J. Davis as to the legality of the Common Stock
to be registered.
* 23.1 Consent of Steve J. Davis (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP.
* 24.1 Powers of Attorney.
- ------------------------------------
*Previously filed
23
<PAGE>
As filed with the Securities and Exchange Commission on May 10, 1996
Registration No. 333-01217
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
------------------------------------
STEVE J. DAVIS, ESQ.,
EXECUTIVE VICE PRESIDENT, ADMINISTRATIVE SERVICES
AND GENERAL COUNSEL
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
(Name , address, including zip code, and
telephone number, including area
code, of agent for service)
------------------------------------
Copy to:
CRAIG L. MCKNIGHT, EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
------------------------------------
Approximate date of commencement of proposed
sale to public: From time to time after the
effective date of the Registration Statement.
------------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- -------------------------------------------------------------------------------
<PAGE>
PROSPECTUS May 10, 1996
4,000,000 SHARES
MAGELLAN HEALTH SERVICES, INC.
COMMON STOCK
($.25 Par Value)
------------------------------------
The 4,000,000 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 Rainwater-Magellan Holdings, L.P. (the "Selling
Stockholder"). See "Selling Stockholder." The Selling Stockholder acquired the
Shares, along with a warrant to purchase an additional 2,000,000 shares of
Common Stock (the "Warrant") on January 25, 1996 in a private placement
transaction with the Company. Magellan will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholder.
Magellan is registering the Shares as required by a Stock and Warrant
Purchase Agreement dated December 22, 1995, as amended, among Magellan and the
Selling Stockholder (the "Stock and Warrant Purchase Agreement"), to provide the
Selling Stockholder with freely tradeable securities. Magellan has also agreed
to pay all fees and expenses incident to such registration, other than any
underwriting discounts or any selling commissions payable in respect of sales of
the Shares, which will be paid by the Selling Stockholder. It is estimated that
the fees and expenses payable by the Company in connection with the registration
of the Shares will be approximately $55,000. Magellan has agreed to keep the
Registration Statement (as hereinafter defined) current and effective with
certain exceptions for so long as the Selling Stockholder and its affiliates
collectively own at least 25% of the Shares and the shares underlying the
Warrant. See "Plan of Distribution."
The Common Stock is listed on the American Stock Exchange under the
symbol "MGL." On May 9, 1996, the last reported sale price of the Common Stock
on the American Stock Exchange was $22.625 per share.
The Selling Stockholder from time to time may offer and sell the Shares
directly or through agents or broker-dealers on the American Stock Exchange or
otherwise on prices and terms related to the then current market price or in
privately negotiated transactions. 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." The Selling
Stockholder 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.
Certain transfer restrictions have been placed on the Shares offered
hereby pursuant to the Stock and Warrant Purchase Agreement. As a result, no
more than 40,000 Shares may be sold by the Selling Stockholder or its affiliates
prior to January 25, 1997. Further, prior to January 25, 2000, the Selling
Stockholder or its affiliates may not sell or transfer in a privately negotiated
transaction to a single purchaser and its affiliates, or any "group" (as defined
in Rule 13d-5(b)(1) under the Securities Exchange Act of 1934, as amended)
Shares and shares underlying the Warrant 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 Shares or
shares issued upon exercise of the Warrant among the Selling Stockholder and its
affiliates.
The Selling Stockholder and any agents or broker-dealers that
participate with the Selling Stockholder 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 Stockholder.
THERE ARE CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN MAGELLAN
COMMON STOCK. FOR A DISCUSSION OF SUCH RISKS, SEE "RISK FACTORS" BEGINNING ON
PAGE 3.
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 May 10,
1996.
1
<PAGE>
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 (the "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 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 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; and
(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.
2
<PAGE>
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. The Company reported net revenue and
income from continuing operations of approximately $263.9 million and $349,000,
respectively, for the quarter ended December 31, 1994 compared to net revenue
and income from continuing operations of approximately $295.7 million and $9.7
million, respectively, for the quarter ended December 31, 1995. The results of
operations for such interim periods are not necessarily indicative of the actual
results expected for the year. There can be no assurance that the Company's
profitability in the quarter ended December 31, 1995 will continue in future
periods. 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)
3
<PAGE>
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.
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
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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 April 30, 1996, the Company
operated 40 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 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
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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 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
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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.
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.
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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 of
approximately $93.2 million 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 March 31, 1996, 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 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.
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Shares Eligible for Future Sale
Upon completion of this offering, the Shares will be eligible for sale
in the open market without restriction, except that no more than 40,000 shares
may be sold by the Selling Stockholder 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. In
January 1995, the Company acquired National Mentor, Inc. by issuing 1,409,978
shares of Common Stock which have been registered for resale. 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 13.
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 94 acute care
psychiatric hospitals and two residential psychiatric treatment centers with an
aggregate capacity of 8,682 licensed beds as of April 30, 1996. Eighty-nine 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,
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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 12.6 million members as of March 31,
1996. 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 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.
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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 Company believes 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 March 31,
1996, 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 the Selling
Stockholder of the 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 the Selling
Stockholder 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 Shares and the Warrant was $69,732,000. Upon
completion of the acquisition of the Shares (and prior to exercise of the
Warrant), the Selling Stockholder 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 Shares and the Common Stock issuable upon exercise
of the Warrants (the "Warrant Shares"). As a result, no more than 40,000 Shares
may be sold by the Selling Stockholder or its affiliates prior to January 25,
1997. Further, prior to January 25, 2000, the Selling Stockholder 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) 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 Shares among the Selling Stockholder and its affiliates.
In addition, the Stock and Warrant Purchase Agreement contains certain
standstill covenants on the part of the Selling Stockholder which, among other
things, prohibit the Selling Stockholder 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 the Selling Stockholder certain board
representation rights. See "Selling Stockholder".
The Company used $68.0 million of the proceeds from the sale of the
Shares and the Warrant to the Selling Stockholder 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
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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 Stockholder.
DILUTION
No dilution will occur from sales of the Shares under this Registration
Statement. At December 31, 1995, the net tangible book value of the Company's
Common Stock was a deficit of $72.0 million or $2.51 per share. "Net tangible
book value" per share represents stockholders' equity less intangible assets of
the Company, divided by the number of shares of Common Stock outstanding. Giving
effect to the sale by the Company of the Shares and the Warrant to the Selling
Stockholder at the offering price of $17.43 per share, the pro forma net
tangible book value of the Common Stock at December 31, 1995 was a deficit of
$3.4 million or $0.10 per share. This represented an immediate increase in net
tangible book value of $2.41 per share to existing stockholders and an immediate
dilution of $17.53 per share book value to the Selling Stockholder.
MAGELLAN RESULTS OF OPERATIONS
On May 1, 1996, the Company announced its operating results for the
quarter and the six months ended March 31, 1996. A summary of the results are as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended Ended
March 31, March 31,
------------------------- ----------------------
1995 1996 1995 1996
----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue......................... $299,817 $354,953 $563,658 $650,618
Net income (loss)................... (15,100) 20,069 (14,751) 29,817
Earnings (loss) per Common Share:
Primary...................... $ (0.53) $ 0.63 $ (0.53) $ 0.99
Fully diluted................ $ (0.53) $ 0.59 $ (0.53) $ 0.96
</TABLE>
12
<PAGE>
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:
<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 May 10, 1996)..... 23 3/4 21
</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 Shares and the Warrant on January 25, 1996 to the Selling
Stockholder.
13
<PAGE>
<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>
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 Shares to the Selling Stockholder, 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 Form (1)
--------- ------------- ---------- ------------
<S> <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>
(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 the Selling Stockholder
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.
14
<PAGE>
SELLING STOCKHOLDER
The following table sets forth certain information with respect to the
ownership of the Shares as of December 22, 1995, and as adjusted to reflect the
sale of the Shares offered hereby, by the Selling Stockholder. The Selling
Stockholder has sole voting and investment power with respect to the Shares.
<TABLE>
<CAPTION>
Ownership of Number of Ownership of
Common Stock Before Shares Being Common Stock After
the Offering Offered (1) the Offering (2)
----------------------------- ---------------- ------------------------------
Number of Number of
Name Shares Percent Shares Percent
- --------------------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Rainwater-Magellan
Holdings, L.P. (3) 4,000,000 12.25% 4,000,000 (4) None --
</TABLE>
- ------------------------------------
(1) The Shares being offered hereby were acquired by the Selling
Stockholder pursuant to the terms of the Stock and Warrant Purchase
Agreement. Under the terms of the Stock and Warrant Purchase Agreement,
the Selling Stockholder obtained registration rights with respect to
the Shares. Magellan has registered the Shares for sale pursuant to
this Prospectus as required by the Stock and Warrant Purchase
Agreement.
(2) Assumes that all Shares being offered are sold.
(3) Under the rules of the Securities and Exchange Commission, Rainwater,
Inc., the general partner of the Selling Stockholder, and Richard
E. Rainwater, the sole shareholder and a director of Rainwater, Inc.
are also deemed to be beneficial owners of the Shares. Darla Moore,
Vice President and Director of Rainwater, Inc. was appointed to the
Board of Directors of Magellan on February 22, 1996 pursuant to the
Stock and Warrant Purchase Agreement.
(4) No more than 40,000 Shares may be sold by the Selling Stockholder or
its affiliates prior to January 25, 1997. Further, prior to January 25,
2000, the Selling Stockholder or its affiliates may not sell or
transfer in a privately negotiated transaction to a single purchaser
and its affiliates or any "group" (as defined in Rule 13d-5(b)(1) under
the Exchange Act) Shares (including shares underlying the Warrant)
which would equal or exceed five percent (5%) of the Common Stock then
outstanding on a fully-diluted basis.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Stockholder on
the American Stock Exchange or any national securities exchange or automated
interdealer quotation system on which shares of Common Stock are then listed,
through negotiated transactions or otherwise. Certain transfer restrictions have
been placed on the Shares offered hereby pursuant to the Stock and Warrant
Purchase Agreement, which in general restrict the sale of the Shares prior to
January 25, 1997. See "Recent Developments -- Sale of Common Stock and Warrant".
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
Stockholder 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 by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this Prospectus, (d) in "block"
sales, and (e) privately negotiated transactions. 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 Stockholder and any broker
or dealer.
15
<PAGE>
In offering the Shares covered by this Prospectus, the Selling
Stockholder and any brokers, dealers or agents who participate in a sale of the
Shares by the Selling Stockholder may be considered "underwriters" within the
meaning of Section 2(11) of the 1933 Act, and any profits realized by the
Selling Stockholder and the compensation of any broker/dealers may be deemed to
be underwriting discounts and commissions.
As required by the Stock and Warrant Purchase 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 keep the Registration
Statement current and effective, with certain exceptions, for so long as the
Selling Stockholder and its affiliates collectively own at least 25% of the
Shares (including shares underlying the Warrant) issued pursuant to the Stock
and Warrant Purchase Agreement.
Magellan will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholder. Magellan will bear the costs of registering
the Shares under the 1933 Act, including the registration fee under the 1933
Act, its legal and accounting fees and any printing fees. The Selling
Stockholder will bear the cost of underwriting commissions and/or discounts, if
any, and selling commissions.
Pursuant to the terms of the Stock and Warrant Purchase Agreement,
Magellan and the Selling Stockholder have agreed to indemnify each other and
certain other related 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 are passed upon for the Selling Stockholder
by Steve J. Davis, Esq., Executive Vice President, Administrative Services and
General Counsel of the Company, 3414 Peachtree Road, N.E., Atlanta, Georgia
30326.
EXPERTS
The audited, consolidated financial statements and schedule of Magellan
Health Services, Inc. and subsidiaries included in the Magellan Annual Report on
Form 10-K for the year ended September 30, 1995 incorporated by reference in
this Prospectus and elsewhere in this Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports thereto, and are incorporated by reference herein in reliance upon the
authority of said firm, as experts in giving said reports.
Future consolidated financial statements and schedules of Magellan
Health Services, Inc. and subsidiaries and the reports thereon of Arthur
Andersen LLP also will be incorporated by reference in this Registration
Statement of which this Prospectus is a part in reliance upon the authority of
that firm as experts in giving those reports to the extent said firm has audited
those financial statements and consented to the use of their reports thereon.
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 4,000,000 SHARES
information or representation must not
be relied upon as having been authorized
by Magellan, or the Selling Stockholder.
This Prospectus does not constitute an MAGELLAN HEALTH
offer to sell or a solicitation of an SERVICES, INC.
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 sale made COMMON STOCK
hereunder shall, under any
circumstances, create any implication
that the information contained herein is
correct as of any time subsequent to the
date hereof.
--------------------------- -------------------------
PROSEPCTUCS
-------------------------
TABLE OF CONTENTS
Available Information...............2
Incorporation of Certain Documents
by Reference......................2
Risk Factors........................3
The Company.........................9
Recent Developments................11
Use of Proceeds....................12
Dilution ..........................12
Magellan Results of Operations.....12
Price Range of Common Stock
and Dividend Policy..............13
Capitalization.....................13
Selected Financial Information.....14
Selling Stockholder................15
Plan of Distribution...............15
Legal Matters......................16
Experts ..........................16
MAY 10, 1996
- ---------------------------------------- ---------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 31,810.34
Legal Fees and Expenses 10,000.00
Accounting Fees and Expenses 4,000.00
Blue Sky Fees and Expenses (including legal fees and expenses) 1,000.00
Printing 5,000.00
Miscellaneous 3,189.66
-----------
Total $ 55,000.00
==========
</TABLE>
All of the above items, except for registration fee, are estimates.
Although the Selling Stockholder will not bear any of the expenses set forth
above, the Selling Stockholder will bear the cost of underwriting commissions
and/or discounts, if any, and selling commissions.
Item 15. Indemnification of Directors and Officers
The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law (the "DGCL") provides that a Delaware corporation has
the power to indemnify its officers and directors in certain circumstances.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such action or suit provided that such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such director or officer shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such director or officer is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) or (b) or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith; provided that indemnification provided for by Section 145 or granted
pursuant thereto shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled. Section 145 also empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Article VII of the Bylaws of Magellan provide, in substance, that
Magellan shall indemnify directors and officers against all liability and
related expenses incurred in connection with the affairs of Magellan if: (a) in
the case of actions not by or in the right of Magellan, the director or officer
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of Magellan, and (with respect to a criminal
proceeding) had no reasonable cause to believe his conduct was unlawful; and (b)
in the case of actions by or in the right of Magellan, the
18
<PAGE>
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Magellan, provided that no
indemnification shall be made for a claim as to which the director or officer is
adjudged liable to Magellan unless (and only to the extent that) an appropriate
court determines that, in view of all the circumstances, such person is fairly
and reasonably entitled to indemnity.
In addition, Section 102(b)(8) of the DGCL permits Delaware
corporations to include a provision in their certificates of incorporation
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary as a director,
provided that such provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of the law, (iii) for
unlawful payment of dividends or other unlawful distributions, or (iv) for any
transactions from which the director derived an improper personal benefit.
Article Twelve of Magellan's Certificate of Incorporation sets forth such a
provision.
Magellan maintains directors' and officers' liability insurance with
various providers in the aggregate amount of $60 million.
The Selling Stockholder has agreed to indemnify the Company, its
directors and officers (who sign the Registration Statement), and certain
controlling persons against certain liabilities, including liabilities under the
1933 Act subject to such limitations as set forth in the Stock and Warrant
Purchase Agreement.
The foregoing summaries are necessarily subject to the complete text of
the statutes, Certificate of Incorporation, Bylaws, insurance policies and
agreements referred to above and are qualified in their entirety by reference
thereto.
For the undertaking with respect to indemnification, see Item 17.
Item 16. Exhibits
4.1 Restated Certificate of Incorporation of the Company, as filed
in Delaware on October 16, 1992, which was filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1992, and is incorporated herein by
reference.
4.2 Certificate of Ownership and Merger merging Magellan Health
Services, Inc. (a Delaware corporation) into Charter Medical
Corporation (a Delaware corporation), as filed in Delaware on
December 21, 1995, which was filed as Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and is incorporated herein by reference.
4.3 Form of Share Purchase Rights Plan among the Company and First
Union National Bank of North Carolina, N.A., which was filed
as Exhibit 2.5 to the Company's Registration Statement on Form
8-A dated July 8 1992, and is incorporated herein by
reference.
4.4 Stockholders' Agreement, dated December 13, 1995, among Green
Spring Health Services, Inc., Blue Cross and Blue Shield of
New Jersey, Inc., Health Care Service Corporation,
Independence Blue Cross, Pierce County Medical Bureau, Inc.
and the Company, which was filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995, and is incorporated herein by
reference.
4.5 Exchange Agreement, dated December 13, 1995, among Blue Cross
and Blue Shield of New Jersey, Inc., Health Care Service
Corporation, Independence Blue Cross, Pierce County Medical
Bureau, Inc. and the Company, which was filed as Exhibit 4(e)
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1995, and is incorporated
herein by reference.
19
<PAGE>
4.6 Stock and Warrant Purchase Agreement, dated December 22, 1995,
between the Company and Richard E. Rainwater, which was filed
as Exhibit 4(f) to the Company's quarterly report on Form 10-
Q for the quarterly period ended December 31, 1995, and is
incorporated herein by reference.
* 4.7 Amendment No. 1 to Stock and Warrant Purchase Agreement, dated
January 25, 1996, between the
Company and Rainwater-Magellan Holdings, L.P.
* 5.1 Opinion of Steve J. Davis as to the legality of the Common
Stock to be registered.
*23.1 Consent of Steve J. Davis (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP.
*24.1 Powers of Attorney.
- ------------------------------------
*Previously filed
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
securities registered hereby, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section 10(a)3 of the 1933
Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
Provided, however, that the undertakings set forth in paragraphs (i)
and (ii) above not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the 1933 Act, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
that is incorporated by reference in this Registration Statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
20
<PAGE>
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the registrant,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling persons of the registrant in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 10th
day of May, 1996.
MAGELLAN HEALTH SERVICES, INC.
By:/s/ Howard A. McLure
-------------------------------
Howard A. McLure
Vice President and Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons on May 10, 1996 in the capacities and on the date indicated.
* Date: May 10, 1996
- ------------------------------ ------------------------
E. Mac Crawford
President and Chairman of the Board
(Principal Executive Officer)
* Date: May 10, 1996
Craig L. McKnight
- ------------------------------ ------------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Howard A. McLure Date: May 10, 1996
- ------------------------------ ------------------------
Howard A. McLure
Vice President and Controller
(Principal Accounting Officer)
* Date: May 10, 1996
- ------------------------------ ------------------------
Edwin M. Banks
Director
22
<PAGE>
* Date: May 10, 1996
- ------------------------------ ------------------------
G. Fred DiBona, Jr.
Director
* Date: May 10, 1996
- ------------------------------ ------------------------
Andre C. Dimitriadis
Director
* Date: May 10, 1996
- ------------------------------ ------------------------
A. D. Frazier, Jr.
Director
* Date: May 10, 1996
- ------------------------------ ------------------------
Raymond H. Kiefer
Director
* Date: May 10, 1996
- ------------------------------ ------------------------
Gerald L. McManis
Director
* Date: May 10, 1996
- ------------------------------ ------------------------
Darla Moore
Director
*The undersigned Attorney-in-Fact, by signing his name below, does hereby sign
this Amendment No. 1 to the Registration Statement on behalf of the indicated
officers and directors of the Registrant pursuant to a Power of Attorney
executed by such persons and filed with the Securities and Exchange Commission.
By: /s/ Howard A. McLure Date: May 10, 1996
---------------------- ------------------------
Howard A. McLure
23
<PAGE>
INDEX TO EXHIBITS
Exhibit
4.1 Restated Certificate of Incorporation of the Company, as filed
in Delaware on October 16, 1992, which was filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1992, and is incorporated herein by
reference. IBR
4.2 Certificate of Ownership and Merger merging Magellan Health
Services, Inc. (a Delaware corporation) into Charter Medical
Corporation (a Delaware corporation), as filed in Delaware on
December 21, 1995, which was filed as Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and is incorporated herein by reference. IBR
4.3 Form of Share Purchase Rights Plan among the Company and First
Union National Bank of North Carolina, N.A., which was filed
as Exhibit 2.5 to the Company's Registration Statement on Form
8-A dated July 6, 1992, and is incorporated herein by
reference. IBR
4.4 Stockholders' Agreement, dated December 13, 1995, among Green
Spring Health Services, Inc., Blue Cross and Blue Shield of
New Jersey, Inc., Health Care Service Corporation,
Independence Blue Cross, Pierce County Medical Bureau, Inc.
and the Company, which was filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995, and is incorporated herein by
reference. IBR
4.5 Exchange Agreement, dated December 13, 1995, among Blue Cross
and Blue Shield of New Jersey, Inc., Health Care Service
Corporation, Independence Blue Cross, Pierce County Medical
Bureau, Inc. and the Company, which was filed as Exhibit 4(e)
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1995, and is incorporated
herein by reference. IBR
4.6 Stock and Warrant Purchase Agreement, dated December 22, 1995,
between the Company and Richard E. Rainwater, which was filed
as Exhibit 4(f) to the Company's quarterly report on Form 10-Q
for the quarterly period ended December 31, 1995, and is
incorporated herein by reference. IBR
* 4.7 Amendment No. 1 to Stock and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Rainwater-Magellan
Holdings, L.P.
* 5.1 Opinion of Steve J. Davis as to the legality of the Common
Stock to be registered.
*23.1 Consent of Steve J. Davis (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP.
*24.1 Powers of Attorney.
- ------------------------------------
*Previously filed
24
<PAGE>
February 22, 1996
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Re: Form S-3 Registration Statement relating to 4,000,000 shares of Common
Stock, par value $.25 per share, of Magellan Health Services, Inc.
Ladies and Gentlemen:
I have acted as counsel for Magellan Health Services, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the offering from time to time of up to 4,000,000 shares (the
"Shares") of Common Stock, par value $.25 per share, of the Company, by
Rainwater-Magellan Holdings, L.P.
As such counsel, I have examined and relied upon such records,
documents, certificates and other instruments as in my judgment are necessary or
appropriate to form the basis for the opinions hereinafter set forth. In all
such examinations, I have assumed the genuineness of signatures on original
documents and the conformity to such original documents of all copies submitted
to me as certified, conformed or photographic copies, and as to certificates of
public officials, I have assumed the same to have been properly given and to be
accurate.
Based upon the foregoing, I am of the opinion that the Shares have been
duly authorized and validly issued and are fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the Prospectus that forms a part of the Registration Statement.
Very truly yours,
/s/ Steve J. Davis
----------------------------------------
Steve J. Davis
Executive Vice President, Administrative
Services and General Counsel
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our reports dated
November 9, 1995 (except with respect to the matters discussed in Note 13, as to
which the date is December 20, 1995) included in Magellan Health Services,
Inc.'s Annual Report on Form 10-K for the fiscal year ended September 30,1995
and to all references to our firm included in this Registration Statement.
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
May 10, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, E. MAC CRAWFORD, President, Chief
Executive Officer, and Chairman of the Board of Magellan Health Services, Inc.
(the "Company"), do hereby appoint Howard A. McLure, Vice President and
Controller of the Company and Steve J. Davis, Executive Vice President,
Administrative Services and General Counsel of the Company, or any one of them,
my true and lawful attorney-in-fact for me and in my name for the purpose of
executing on my behalf (i) the Company's Registration Statement on Form S-3, or
any amendments or supplements thereto, for the registration of shares of Common
Stock of the Company to be issued in connection with the investment in Common
Stock of the Company by Rainwater-Magellan Holdings, L.P.; (ii) any application
for registration or qualification (or exemption therefrom) of such shares under
the Blue Sky or other federal or state securities laws and regulations; and
(iii) any other document or instrument deemed necessary or appropriate by any of
them in connection with such application for registration or qualification (or
exemption therefrom); and for the purpose of causing any such registration
statement or any subsequent amendment or supplement to such registration
statement to be filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ E. Mac Crawford
-----------------------------------
E. MAC CRAWFORD
President, Chief Executive Officer,
and Chairman of the Board
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, CRAIG L. McKNIGHT, Executive Vice
President and Chief Financial Officer of Magellan Health Services, Inc. (the
"Company"), do hereby appoint Howard A. McLure, Vice President and Controller of
the Company and Steve J. Davis, Executive Vice President, Administrative
Services and General Counsel of the Company, or any one of them, my true and
lawful attorney-in-fact for me and in my name for the purpose of executing on my
behalf (i) the Company's Registration Statement on Form S-3, or any amendments
or supplements thereto, for the registration of shares of Common Stock of the
Company to be issued in connection with the investment in Common Stock of the
Company by Rainwater-Magellan Holdings, L.P.; (ii) any application for
registration or qualification (or exemption therefrom) of such shares under the
Blue Sky or other federal or state securities laws and regulations; and (iii)
any other document or instrument deemed necessary or appropriate by any of them
in connection with such application for registration or qualification (or
exemption therefrom); and for the purpose of causing any such registration
statement or any subsequent amendment or supplement to such registration
statement to be filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ Craig L. McKnight
---------------------
CRAIG L. McKNIGHT
Executive Vice President and Chief
Financial Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, EDWIN M. BANKS, a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ Edwin M. Banks
----------------------------------
EDWIN M. BANKS
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, G. FRED DiBONA, JR., a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ G. Fred DiBona, Jr.
----------------------------------
G. FRED DiBONA, JR.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, ANDRE C. DIMITRIADIS, a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ Andre C. Dimitriadis
----------------------------------
ANDRE C. DIMITRIADIS
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, A. D. FRAZIER, JR., a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ A. D. Frazier, Jr.
----------------------------------
A. D. FRAZIER, JR.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, RAYMOND H. KIEFER, a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ Raymond H. Kiefer
----------------------------------
RAYMOND H. KIEFER
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, GERALD L. McMANIS, a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ Gerald L. McManis
----------------------------------
GERALD L. McMANIS
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, DARLA MOORE, a Director of Magellan
Health Services, Inc. (the "Company"), do hereby appoint Howard A. McLure, Vice
President and Controller of the Company and Steve J. Davis, Executive Vice
President, Administrative Services and General Counsel of the Company, or any
one of them, my true and lawful attorney-in-fact for me and in my name for the
purpose of executing on my behalf (i) the Company's Registration Statement on
Form S-3, or any amendments or supplements thereto, for the registration of
shares of Common Stock of the Company to be issued in connection with the
investment in Common Stock of the Company by Rainwater-Magellan Holdings, L.P.;
(ii) any application for registration or qualification (or exemption therefrom)
of such shares under the Blue Sky or other federal or state securities laws and
regulations; and (iii) any other document or instrument deemed necessary or
appropriate by any of them in connection with such application for registration
or qualification (or exemption therefrom); and for the purpose of causing any
such registration statement or any subsequent amendment or supplement to such
registration statement to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 22nd day of
February, 1996.
/s/ Darla Moore
----------------------------------
DARLA MOORE
Director
<PAGE>
