SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report: April 23, 1997
Date of earliest event
reported: April 23, 1997
MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter).
Delaware 1-6639 58-1076737
_______________________ ______________________ ______________________________
(State of incorporation)(Commission File Number)(IRS Employer Identification No)
3414 Peachtree Road, N.E., Suite 1400, Atlanta, Georgia 30326
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(Address of principal executive offices) (Zip Code)
(404) 841-9200
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(Registrant's telephone number, including area code)
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Item 5. Other Events
On January 30, 1997, the Registrant ("Company" or "Magellan") announced
that it had entered into a definitive agreement to sell substantially all of its
domestic hospital real estate and related personal property (the "Assets") to
Crescent Real Estate Equities Limited Partnership ("Crescent"). In addition, the
Company's domestic portion of its provider business segment will be operated as
a joint venture ("CBHS") that is initially owned equally by Magellan and
Crescent Operating, Inc., an affiliate of Crescent ("COI"). The Company will
receive $400 million in cash (before costs estimated to be $12.5 million)
subject to adjustment, and warrants in COI for the purchase of 2.5% of the COI's
common stock, exercisable over 12 years, as consideration for the Assets. In
addition to the Assets, Crescent and COI will each receive 1,283,311 warrants
(2,566,622 warrants in aggregate) to purchase Magellan Common Stock at $30 per
share, exercisable over 12 years.
In related agreements, (i) Crescent will lease the real estate and
related assets to CBHS for annual rent beginning at $40 million, subject to
adjustment, with a 5% annual escalation clause compounded annually and (ii) CBHS
will pay Magellan approximately $81 million in annual franchise fees, subject to
increase, for the use of assets retained by Magellan and for support in certain
areas. The franchise fees to be paid by CBHS to the Company will be subordinated
to the lease obligations in favor of Crescent. The assets retained by Magellan
include, but are not limited to, the "CHARTER" name, intellectual property,
protocols and procedures, clinical quality management, operating processes and
the "1-800-CHARTER" telephone call center. Magellan will provide CBHS ongoing
support in areas including managed care contracting services, advertising and
marketing assistance, risk management services, outcomes monitoring, and
consultation on matters relating to reimbursement, government relations,
clinical strategies, regulatory matters, strategic planning and business
development.
The Company intends to initially use the proceeds from the sale of the
Assets to reduce its long-term debt, including borrowings under its Revolving
Credit Agreement. Under the terms of its Senior Subordinated Notes (the "Notes")
indenture the Noteholders will have the right to put their Notes to the Company
at 101% of face value. The Company intends to maintain adequate cash reserves
and borrowing capacity to extinguish all the Notes, if necessary. The
Noteholders right to put the Notes will expire up to 70 days subsequent to the
consummation of the Crescent Transactions. The Company intends to use the
remaining proceeds from the sale of the Assets, if any after debt reductions, to
pursue acquisitions in its managed care and public sector business segments,
develop new products and increase managed care and public sector marketing
efforts.
The Company will account for its 50% investment in CBHS under the
equity method of accounting. The Company expects to record a loss before income
taxes of approximately $45 million to $55 million as a result of these proposed
transactions, including, but not limited to, the write-off of certain
hospital-based intangible assets, collection fees associated with accounts
receivable and certain restructuring and exit costs offset by the gain or loss
on the sale of the Assets.
These transactions are subject to approval by Magellan stockholders and
other customary closing conditions, including the negotiation of certain
financing matters.
Item 7. Financial Statements and Exhibits
Exhibits
2(a) Real Estate Purchase and Sale Agreement, dated January 29, 1997,
between the Company and Crescent Real Estate Equities Limited
Partnership.
2(b) Amendment No. 1, dated February 28, 1997, to the Real Estate
Purchase and Sale Agreement, dated January 29, 1997, between the
Company and Crescent Real Estate Equities Limited Partnership.
2(c) Form of Contribution Agreement between the Company and Crescent
Real Estate Equities Limited Partnership.
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4(a) Warrant Purchase Agreement, dated January 29, 1997, between the
Company and Crescent Real Estate Equities Limited Partnership.
99(a)Press Release, dated January 30, 1997.
99(b)Form or Master Lease Agreement between Crescent Real Estate
Equities Limited Partnership, as Landlord, and Charter Behavioral
Health Systems, LLC, as Tenant.
99(c)Form of Master Franchise Agreement between the Company and
Charter Behavioral Health Systems, LLC.
99(d)Form of Franchise Agreement between the Company, as Franchisor,
and Franchise Owners.
99(e)Form of Subordination Agreement between the Company, Charter
Behavioral Health Systems, LLC and Crescent Real Estate Equities
Limited Partnership.
99(f)Form of Operating Agreement of Charter Behavioral Health
Systems, LLC, between the Company and a designee of Crescent Real
Estate Equities Limited Partnership.
99(g)Form of Warrant Purchase Agreement between the Company and
Crescent Operating, Inc.
99(h)Form of Loan and Security Agreement between the Company and
Charter Behavioral Health Systems, LLC.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 23, 1997 Magellan Health Services, Inc.
By: /s/ Craig L. McKnight
----------------------------
Executive Vice President and
Chief Financial Officer
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REAL ESTATE PURCHASE AND SALE AGREEMENT
MAGELLAN HEALTH
SERVICES, INC., a Delaware corporation,
Seller: and its wholly owned subsidiaries listed on
Exhibit A attached hereto
Purchaser: CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership
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TABLE OF CONTENTS
Page
1. Purchase and Sale of the Facilities 2
2. Consideration 2
3. Documents to be Provided by the Seller 3
4. Access to Facilities, Records and Personnel 6
5. Title 7
6. Representations and Warranties 9
7. Covenants 16
8. Conditions 20
9. Damage, Destruction and Condemnation 24
10. Closing 24
11. Indemnifications 28
12. Remedies 29
13. Brokers 30
14. Changes in the Portfolio 31
15. Miscellaneous 33
Exhibits
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A -- List of Subsidiaries Selling Facilities
B -- Facility Descriptions and Names of Subsidiaries Owning Each Facility
C -- Form of Master Lease Agreement
D -- Schedule of Industrial Revenue Bonds and Encumbered Facilities
E -- List of Tenants under Leases at Each Facility
F -- Insurance Information
G -- Form of Subordination Agreement
H -- Form of Assignment of Leases
I -- Form of Blanket Bill of Sale
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Schedules
Schedule 1.1
Schedule 2.1 (to be attached after execution and not later than 30 days prior to
Closing)
Schedule 6.1(b)
Schedule 6.1(d)
Schedule 6.1(f)
Schedule 6.1(g)
Schedule 6.1(j)
Schedule 6.1(p)
Schedule 6.1(r)
Schedule 6.1(w)
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REAL ESTATE PURCHASE AND SALE AGREEMENT
This REAL ESTATE PURCHASE AND SALE AGREEMENT (this
"Agreement") is made and entered into as of January 29, 1997, by and between
MAGELLAN HEALTH SERVICES, INC., a Delaware corporation ("Magellan" or the
"Seller"), and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Purchaser").
R E C I T A L S:
A. In connection with the transactions contemplated by this Agreement,
Magellan and the Purchaser have entered into (i) that certain Contribution
Agreement of even date herewith (the "OpCo Contribution Agreement") and (ii)
that certain Warrant Purchase Agreement of even date herewith (the "Warrant
Purchase Agreement"). Magellan and the Purchaser have also agreed that,
following the execution and pursuant to the terms of the foregoing agreements,
they will cause certain other agreements to be executed, including, without
limitation, that certain Operating Agreement of Charter Behavioral Health
Systems, LLC ("OpCo"), between Magellan and a designee of the Purchaser (the
"Operating Agreement"), that certain Master Franchise Agreement between Magellan
and OpCo (the "Master Franchise Agreement") and certain additional Franchise
Agreements between Magellan and certain subsidiaries of OpCo (the "Subsidiary
Franchise Agreements, and collectively with the Master Franchise Agreement, the
"Franchise Agreement"), that certain Master Lease Agreement between the
Purchaser and OpCo (the "Facilities Lease"), and that certain Subordination
Agreement by and among Magellan, the Purchaser and OpCo (the "Subordination
Agreement") (this Agreement, the OpCo Contribution Agreement, the Warrant
Purchase Agreement, the Operating Agreement, the Franchise Agreement, the
Facilities Lease and the Subordination Agreement are referred to collectively as
the "Transaction Documents," and all of the transactions contemplated thereby
are referred to collectively as the "Transactions").
B. The wholly owned (directly or indirectly) subsidiary corporations or
limited liability companies listed on Exhibit A attached hereto (each,
individually, a "Subco" and, collectively, the "Subcos") are the owners of the
real property and improvements thereon described on Exhibit B attached hereto
(each individually, a "Facility" and collectively, the "Facilities").
C. The Purchaser desires to acquire the Facilities, and Magellan, as
the sole shareholder of the sole shareholder of the Subcos, desires to cause the
Subcos to sell the Facilities to the Purchaser, all upon the terms and
conditions hereinafter set forth.
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D. Immediately after the Purchaser acquires the Facilities, and as one of
the Transactions, the Purchaser intends to lease the Facilities to OpCo pursuant
to the Facilities Lease, the form of which is attached hereto as Exhibit C.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00), the receipt
and sufficiency of which are hereby acknowledged, and in further consideration
of the mutual covenants and conditions set forth herein, the parties hereto
agree as follows:
1. Purchase and Sale of the Facilities.
1.1 Real and Personal Property Included. Upon the terms and conditions
hereinafter set forth, Magellan agrees to cause each Subco to sell and
convey to the Purchaser the Facility listed beside such Subco's name on
Exhibit B, and the Purchaser agrees to purchase or cause to be
purchased by a permitted designee or assignee of the Purchaser from the
Subcos, the Facilities. As used herein, the term "Facilities" shall
mean, collectively, the following: (a) (i) those certain parcels of
real property described in Exhibit B, and any and all improvements
thereon (whether now or hereafter constructed), and all fixtures
attached thereto, (ii) all right, title and interest of Magellan and
the Subcos to any mineral, oil and gas rights, water rights, sewer
rights and other utility rights allocated to said properties, (iii) all
appurtenances, and other property interests belonging or appurtenant to
said properties, and (iv) all right, title and interest of Magellan and
the Subcos in and to any streets and ways, public and private, serving
said properties (collectively, the "Real Property"); together with (b)
all furniture, fixtures and equipment owned by Magellan or the Subcos
and located at or used in connection with the operation of the Real
Property as acute care psychiatric hospitals, site plans, surveys,
plans and specifications, and floor plans which relate to the Real
Property, all right, title and interest of Magellan and the Subcos in
all transferable warranties, guaranties, bonds and development rights
related to any of the foregoing, and, subject to applicable law and
regulations, all transferable licenses, permits, authorizations,
approvals, certificates of occupancy and other consents and regulatory
approvals necessary for the current ownership, occupancy, construction
(if any is on-going) and leasing of the Real Property; and together
with (c) all furniture, fixtures and equipment and certain other assets
generally described on Schedule 1.1 attached hereto and owned by the
entities listed on Schedule 1.1 (collectively, the "Personal
Property").
2. Consideration.
2.1 Purchase Price. The total purchase price to be paid for the Facilities
and the warrants to be issued pursuant to the Warrant Purchase
Agreement (the "Warrants") shall be Three Hundred Ninety-Five Million
and No/100 Dollars ($395,000,000), which shall be payable in accordance
with this Section 2. Notwithstanding the foregoing, if the Purchaser
assumes at Closing any or all of the Industrial Revenue Bonds as
hereinafter described,
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the purchase price set forth in the first sentence of this Section 2.1
shall be reduced by the outstanding principal amount and any accrued
and unpaid interest and other accrued and outstanding costs and fees of
such assumed Industrial Revenue Bonds, excluding assumption fees and
other costs relating to the assumption of such assumed Industrial
Revenue Bonds that the Purchaser is required to pay pursuant to Section
10.4. The term "Purchase Price," as used in this Agreement, shall mean
the purchase price set forth in the first sentence of this Section 2.1,
as adjusted pursuant to the second sentence of this Section 2.1. The
Seller and the Purchaser agree that they shall use commercially
reasonable best efforts to agree, not later than thirty (30) days prior
to Closing, upon an allocation of the total purchase price set forth in
the first sentence of this Section 2.1 among (a) the Warrants and (b)
the Facilities, and the portion allocated to the Facilities shall be
further allocated among (i) the land comprising a part of the Real
Property, (ii) the land improvements (other than buildings) comprising
a part of the Real Property (such as tennis courts, parking lots and
swimming pools), (iii) the buildings comprising a part of the Real
Property, and (iv) the Personal Property. Such agreed upon allocations
shall be attached to this Agreement as Schedule 2.1. The Seller shall
initially propose an allocation to the Purchaser, and the portion of
the total purchase price allocated by the Seller to the Personal
Property shall be supported by an independent appraisal obtained by the
Seller and the Purchaser, the cost of which shall be shared equally.
2.2 Allocation Among Facilities. The portion of the purchase price
allocable to the Facilities set forth in the first sentence of Section
2.1 shall generally be allocated among the Facilities on a pro rata
basis based on the relative net cash flow from operations of each
Facility (excluding capital expenditures and proceeds from borrowings
and taking into account any other factors mutually agreed upon by the
parties) for the 1995 and 1996 full fiscal years, which allocations
shall be agreed upon by the parties not later than thirty (30) days
prior to Closing. The cash portion of such purchase price allocable to
any Facility encumbered by an Industrial Revenue Bond assumed by the
Purchaser shall be reduced by the outstanding principal amount and any
accrued and unpaid interest and other accrued and outstanding costs and
fees of such assumed Industrial Revenue Bond, excluding assumption fees
and other costs relating to the assumption of such assumed Industrial
Revenue Bond that the Purchaser is required to pay pursuant to Section
10.4.
2.3 Payment. At the Closing, the Purchaser shall pay or cause to be paid to
or at the direction of the Subcos, through a closing escrow established
with the Title Company (as defined in Section 8.1(b)), the Purchase
Price, as adjusted to reflect the closing adjustments and prorations
provided for in this Agreement, which adjusted balance shall be payable
by bank wire transfer pursuant to instructions given by the Seller to
the Title Company not later than two (2) business days prior to
Closing.
2.4 Independent Contract Consideration. Within three (3) business days
after the execution of this Agreement by both parties hereto, the
Purchaser will deliver to Magellan the amount of One Hundred and No/100
Dollars ($100.00) (the "Independent Contract
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Consideration") which amount has been bargained for and agreed to as
consideration for Magellan's execution and delivery of this Agreement.
The Independent Contract Consideration is in addition to and
independent of all other consideration provided in this Agreement, and
is nonrefundable in all events.
3. Documents to be Provided by the Seller. As soon as reasonably
practicable but in any event within thirty (30) days after the date
hereof (except as otherwise provided in this Section 3 to the
contrary, including Sections 3.12 and 3.17), Magellan shall deliver
to, cause to be delivered to, or make available for review and
inspection by the Purchaser at Magellan's offices in Atlanta, Georgia,
or Macon, Georgia, originals or true, complete and accurate copies of
all of the following items which affect or relate to any of the
Facilities ("Seller's Deliveries"), to the extent such items currently
exist and are in Magellan's or any of the Subco's possession or are
readily obtainable without material cost from third parties:
3.1 Tax Statements. The most recent real estate and personal property tax
bills for each of the Facilities, together with copies of all tax
assessment notices for the year immediately preceding the date hereof
and evidence of payment of all taxes currently due or past due.
3.2 Insurance Policies. All existing liability, property, rental value and
other insurance policies pertaining to the Facilities, and paid
receipts therefor.
3.3 Warranties. All material unexpired warranties and guaranties covering
the Personal Property and the roofs, elevators, heating and air
conditioning systems and any other components of the Real Property and
a list and description of any material third party bonds, warranties
and guaranties which will be in effect after Closing with respect to
the Facilities.
3.4 Leases. All leases or occupancy agreements of any portion of the
Facilities (collectively, the "Leases," and any such Lease with annual
rent payable thereunder in excess of $100,000 being hereinafter
referred to as a "Material Lease"), together with copies of all
occupancy inspection reports, rental deposit agreements, lease
guaranties, estoppels and subordination, nondisturbance and attornment
agreements relating to the Material Leases, and all amendments and
correspondence with respect to the Material Leases.
3.5 Rent Roll. A current "Rent Roll" (herein so called), certified by
Magellan and containing (i) a complete list and description of the
Material Leases at each Facility, (ii) rental rate and deposits paid by
each tenant under each Material Lease, (iii) the term of each Material
Lease, and (iv) notations indicating whether, to the Seller's
knowledge, the tenant under any such Material Lease is in default.
3.6 Industrial Revenue Bonds. All documents evidencing, securing or
otherwise relating to the Industrial Revenue Bonds.
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3.7 Plans, Specifications and Reports. The most recent plans,
specifications, drawings, surveys, title insurance policies or reports,
and engineering, inspection and structural reports relating to the
Facilities (including any current elevator inspections and any reports
or audits with respect to compliance of the Facilities with the
Americans with Disabilities Act (the "ADA")), and all soil reports and
environmental reports and audits relating to the Facilities prepared
within the last ten (10) years, that were prepared by or for the Seller
or are in the Seller's possession or are reasonably obtainable by the
Seller from third parties who prepared such reports, together with any
plan in existence for compliance with ADA and similar state or local
laws or any Environmental Laws (as defined below).
3.8 Development Conditions. Copies of all unrecorded land use
restrictions, proffers and other conditions limiting development of
any of the Facilities, if any.
3.9 Permits. All licenses, permits, certificates of occupancy,
authorizations, consents, unrecorded easements and unrecorded rights of
way, and other approvals or instruments required in connection with any
current construction, occupancy, ownership or leasing of the Facilities
(the "Permits"), and all currently pending applications or requests
submitted in connection therewith.
3.10 JCAHO Accreditation. The most recent survey reports on each of the
Facilities by the Joint Commission on the Accreditation of Healthcare
Organizations (the "JCAHO").
3.11 Personal Property Inventory. A complete, itemized and detailed
inventory of the Personal Property.
3.12 Operating Reports. Monthly (from October 1996 until the latest
available month end prior to Closing) unaudited statements of operation
relating to the operations of the Facilities prepared in the ordinary
course of business (the "Operating Reports"), which shall be delivered
to the Purchaser as soon as practical after such reports are prepared,
and the Seller's 1997 budgets for each of the Facilities prepared in
the ordinary course of business.
3.13 Capital Expenditures Information. A detailed list of all material
capitalized expenditures made at each of the Facilities since October
1, 1993. For purposes hereof, a material capitalized expenditure shall
mean any single capitalized expenditure in excess of $100,000.
3.14 Financial Statements. Magellan's audited financial statements for the
fiscal year ended September 30, 1996 (the "1996 Financials").
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3.15 Disputes. Summaries of any and all material outstanding litigation and
material outstanding or asserted written claims by any third party
which concern or otherwise affect the Facilities or the business
operated therein received by the Seller during its ownership of the
Facilities, together with copies of any and all written notices of
potential material litigation, written notices from any governmental or
quasi-governmental body alleging a failure to comply with applicable
Laws (as hereinafter defined in Section 6.1(g)), audit response letters
prepared during the last five (5) years, and any internal lists of
claims or anticipated material litigation related to the Facilities
prepared by or on behalf of the Seller. For purposes of this Section,
"material" shall mean those claims and litigations involving amounts or
alleged liabilities in excess of $1,000,000.
3.16 Philadelphia Facility. All construction contracts, architects'
agreements, engineering reports, building permits, plans,
specifications, and other material agreements, information and
materials relating to the construction of the planned improvements
currently underway at the Facility located in Philadelphia,
Pennsylvania (the "Philadelphia Facility").
3.17 Other. Such other documents and materials as are reasonably requested
by the Purchaser (which documents and materials shall be delivered to
the Purchaser as soon as practical following such request), except for
(i) patient medical records, (ii) medical and professional staff
records that are either privileged or protected from discovery by a
state law relating to confidentiality of peer review activities, and
(iii) all other records relating to the provision of health care
services that are made privileged, confidential or protected from
discovery under applicable state law.
4. Access to Facilities, Records, and Personnel. The Purchaser shall have
the right, at its sole option, to undertake, at its cost and expense
except as otherwise provided in Section 10.4(a), a review and
examination of all aspects of the Facilities, including without
limitation: (a) the physical condition and state of repair of the
Facilities; (b) the existence, now or at any time in the past, of any
Hazardous Substances (as defined below) at or in the Facilities, and
the extent of compliance of the Facilities with all applicable
Environmental Laws (as defined below); (c) the terms and conditions of
all Contracts, agreements, warranties, Leases and other materials
relating to the condition, occupancy, operation, management or use of
the Facilities; (d) books and records relating to the operation of the
Facilities, and (e) such other matters relating to the Facilities as
the Purchaser deems appropriate. Upon reasonable advance notice from
the Purchaser, the Seller shall make all of its books and records
pertaining to the Facilities available during normal business hours
for review and/or audit by the Purchaser and its agents and
consultants, including, without limitation, correspondence and
communications with regulatory authorities, and shall promptly furnish
to the Purchaser all information pertaining to the Facilities
reasonably requested by the Purchaser or its representatives. In
addition, the Purchaser and its agents and consultants shall have the
right to enter upon
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the Facilities to conduct such review, inspections and tests as it
deems appropriate (including taking soil samples), provided that the
Purchaser (i) shall exercise reasonable efforts to coordinate such
review, inspections and tests with Magellan and to minimize disruption
to Magellan's operations, (ii) shall repair any damage that may be
caused by such inspections and tests, (iii) shall not interfere with
the delivery of patient care, and (iv) shall not review any documents
described in the exceptions clause of Section 3.17. Notwithstanding
anything in this Agreement to the contrary, (x) the Purchaser will not
do, cause or direct to be done any subsurface testing or boring, or any
testing of subsurface water, or any coring, boring or other intrusive
testing, or any other inspection of or entry upon any of the
Facilities, without giving Magellan at least two (2) business days'
prior notice thereof and an opportunity to have Magellan's
representative be present to accompany and observe all such inspections
and entries; (y) the Purchaser will not enter, or cause or direct any
entry, upon any premises which are leased to a tenant without giving
Magellan at least two (2) business days' prior notice thereof and an
opportunity to have Magellan's representative be present to accompany
and observe all such inspections and entries, and in carrying out any
such entry the Purchaser will use its commercially reasonable best
efforts to minimize interference with the business of any such tenant;
and (z) the Purchaser hereby indemnifies the Seller, and agrees to
defend and hold the Seller harmless, from and against any and all
claims, losses, damages and liabilities that may be asserted against or
incurred by the Seller for or in connection with any injuries or damage
to any persons or property which directly or indirectly are caused by
or result from any entry, inspection, testing or other action done or
caused or directed to be done by the Purchaser or its representatives
or contractors. The Purchaser agrees to cause all parties entering any
Facility at the Purchaser's instance to maintain customary and
appropriate insurance to cover all risks of the types described in
clause (z) above, and, upon the Seller's request, to deliver to the
Seller evidence establishing to the Seller's reasonable satisfaction
that adequate and appropriate insurance to cover risks of the types
described in the preceding clause (z) is being maintained.
Notwithstanding anything in this Agreement to the contrary, the
Purchaser's obligation to repair such damage and the Purchaser's
indemnity of the Seller in this Section 4 shall survive any termination
of this Agreement. The Purchaser also shall have the right to
communicate with governmental officials and other regulatory
authorities having jurisdiction over the Facilities with respect to
issues arising out of the ownership, use, leasing, and condition of the
Facilities, and with all architects and contractors who have provided
services for the benefit of the Facilities, provided, however, that the
Purchaser shall not have the right to communicate with governmental
officials and other regulatory authorities having jurisdiction over the
business operations at the Facilities with regard to regulatory issues
arising out of the operation of the Facilities as acute care
psychiatric hospitals (or such other business operations for which any
of the Facilities is currently used) without the prior written consent
of Magellan, which consent may be granted or withheld in Magellan's
sole and absolute discretion. Magellan agrees to provide the Purchaser
with access to its regulatory legal counsel and shall instruct such
counsel to cooperate with the Purchaser in answering the Purchaser's
questions regarding compliance of the Facilities and business
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operations conducted therein with applicable Laws, subject to
attorney-client privilege. Notwithstanding anything in this Agreement
to the contrary, (A) the Seller's representations and warranties made
in this Agreement shall not be limited or otherwise affected by any
review or investigation of the Facilities made by the Purchaser, and
(B) nothing herein contained shall be deemed to provide the Purchaser
with the right to terminate this Agreement as a result of any such
review, inspections or tests, and the Purchaser's satisfaction with the
results of such review, inspections and tests shall not be a condition
precedent to Closing.
5. Title.
5.1 Condition of Title. Purchaser shall determine that title to the
Facilities is good and marketable of record and in fact. Title shall be
conveyed in fee simple, by the form of Warranty Deed customary in each
of the jurisdictions in which the Facilities are located, as reasonably
determined by the Title Company (as defined in Section 8) or the mutual
agreement of the parties, with limited or special warranty of title
unless such form of warranty is not customary in the relevant
jurisdiction(s) or adversely affects the insurability of title
(collectively, the "Deeds"), with customary covenants, free and clear
of any and all liens, tenancies, restrictions, easements, options,
unrecorded agreements, encroachments, or other encumbrances of any kind
whatsoever, except for the following (the "Permitted Exceptions"): (i)
those matters approved or deemed approved by the Purchaser pursuant to
Section 5.2; (ii) liens securing the Industrial Revenue Bonds that the
Purchaser assumes at Closing, (iii) liens for ad valorem taxes and
general or special assessments not yet due and payable as of the
Closing Date (as defined below), (iv) building and zoning restrictions
applicable to the Facilities, and (v) other exceptions which in the
reasonable judgment of the Purchaser do not impair in any material
respect the use or enjoyment of the Facilities as currently operated or
as proposed to be operated under the Transaction Documents.
5.2 Title Objections. The Purchaser shall promptly after the date hereof
order a title commitment for and survey of each of the Facilities. The
Seller shall be obligated to pay the costs of title examinations, title
insurance and surveys, and, notwithstanding anything to the contrary in
this Agreement, such obligation shall survive any termination of this
Agreement. Within fifteen (15) business days after the Purchaser has
received all of the title commitments and surveys, the Purchaser shall
notify Magellan in writing of any matters listed in the title
commitments or depicted (or not depicted) on the surveys (including,
without limitation, flood plains) of which the Purchaser disapproves
except for the Permitted Exceptions (the "Objections"), provided,
however, that in no event shall the Purchaser have the right to
disapprove or object to any flood plain matter with respect to any
Facility unless (i) an ordinance, law, rule or regulation applicable to
said Facility provides that such Facility may not be rebuilt following
a casualty because such Facility is located in a flood plain, or (ii)
the Purchaser reasonably determines that the uninsured cost to rebuild
would be unduly burdensome or the flood risk cannot be insured
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at reasonable rates. If the Purchaser so notifies Magellan of any
Objections, then, within a reasonable period of time after such notice,
the Seller shall take all action necessary to eliminate or cure such
Objections or to make arrangements, satisfactory to the Purchaser, to
have such Objections eliminated or cured prior to the Closing. If the
Seller is unable or unwilling to eliminate or cure all such Objections,
or to make satisfactory arrangements to have same eliminated or cured
prior to the Closing to the Purchaser's satisfaction, and the Purchaser
does not waive the Seller's failure to eliminate or cure such
Objections as provided in Section 8.1, then the Purchaser shall have
the right, at its sole option, to terminate this Agreement by giving
written notice of such election to Magellan. Upon the giving of any
such termination notice, this Agreement shall terminate, and all
rights, obligations and liabilities of the parties hereunder shall be
released and discharged. If the Purchaser fails to object to any matter
within such fifteen (15) business day period or thereafter waives it
Objections, such matters shall be deemed approved and shall constitute
Permitted Exceptions hereunder. Without limiting the generality of the
foregoing, the Seller shall have the absolute obligation, whether or
not the Purchaser objects, to cure or remove of record or, with the
Purchaser's consent, obtain affirmative coverage over the following
matters at or before the Closing: (a) all mortgages or deeds of trust
affecting the Facilities, except those securing the Industrial Revenue
Bonds that the Purchaser assumes at Closing; (b) all past due ad
valorem taxes and assessments of any kind constituting a lien against
the Facilities; (c) all mechanic's, materialmen's and similar liens;
and (d) all judgments constituting a lien against the Facilities.
Notwithstanding the foregoing to the contrary, the Purchaser shall use
its commercially reasonable bests efforts to deliver Objections to the
Seller on a Facility by Facility basis within fifteen (15) business
days following the Purchaser's receipt of a title commitment and survey
for each Facility.
5.3 Option to Assume IRBs. The parties acknowledge that some of the
Facilities are encumbered by liens securing certain Industrial Revenue
Bonds (the "Industrial Revenue Bonds"). A schedule listing the
outstanding principal and accrued interest amounts of the Industrial
Revenue Bond or Bonds associated with each Facility is attached hereto
as Exhibit D. The Purchaser shall have the option to assume any or all
of such Industrial Revenue Bonds if such assumption is permissible
under the documents governing the terms of any such Industrial Revenue
Bond proposed to be assumed and such assumption can be made without
adversely affecting the tax-exempt status of the Industrial Revenue
Bond to be assumed, provided that the Seller is completely released
from all liability thereunder and any letters of credit posted by the
Seller as additional security for repayment thereof are released and
returned on behalf of Magellan. Any Industrial Revenue Bonds that the
Purchaser does not assume at Closing shall be paid off or defeased by
Magellan at Closing, the Facilities encumbered thereby shall be
conveyed free and clear of all liens securing same, and Magellan shall
be solely responsible for all prepayment penalties and other costs
associated with such repayment or defeasance. The Purchaser shall
notify Magellan in writing by March 5, 1997, as to which Industrial
Revenue Bonds, if any, it wishes to assume. Failure by the Purchaser to
so notify
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Magellan by such date shall be deemed to be an election by the
Purchaser not to assume any of the Industrial Revenue Bonds.
6. Representations and Warranties.
6.1 Seller's Representations and Warranties. In order to induce the
Purchaser to execute this Agreement and the other Transaction Documents
and to proceed to Closing, Magellan hereby makes the following
representations and warranties to the Purchaser, all of which are true
as of the date hereof:
(a) Organization and Enforceability. Magellan is, and each Subco is, a
corporation or limited liability company, duly organized, validly
existing and in good standing under the laws of its state of
incorporation or formation and in any other jurisdiction where the
nature of its business or ownership of its properties would require
such qualification. Magellan and each Subco possess all requisite
power and authority to own and operate their respective properties and
to carry on their respective businesses as now conducted, to enter
into and perform this Agreement and the other Transaction Documents,
and to carry out the Transactions. This Agreement and the other
Transaction Documents, and all instruments (to the extent the same
constitute agreements), documents (to the extent the same constitute
agreements) and agreements to be executed by Magellan and/or any of
the Subcos in connection herewith or therewith, are, or when delivered
shall be, duly and validly executed and delivered by Magellan and/or
such Subco(s) to the Purchaser and are, or when delivered shall be,
legal, valid and binding obligations of Magellan and/or such Subco(s),
enforceable against Magellan and/or such Subco(s) in accordance with
their respective terms, except as such enforcement may be limited by
bankruptcy, conservatorship, receivership, insolvency, moratorium or
similar laws affecting creditors' rights generally or by general
principles of equity. The person or persons who have executed this
Agreement on behalf of Magellan and each Subco have full power and
authority to sign the Transaction Documents.
(b) Consents and Approvals. Except as described on Schedule 6.1(b)
attached hereto, there are no consents, approvals, or authorizations
that are material to the continued operation of the businesses
conducted at the Facilities required from any person, entity,
governmental or quasi-governmental authority, or required by law or
agreement, with respect to the Seller's execution, delivery or
performance of this Agreement and the other Transaction Documents and
the consummation of the Transactions by Seller. Notwithstanding the
foregoing, it is understood and agreed that it shall be the
Purchaser's responsibility to obtain, or to obtain the transfer of,
all Permits required for the Purchaser to own, hold and lease the
Facilities to OpCo, and it shall be Magellan's responsibility to
obtain, or to obtain the transfer of, for and on behalf of OpCo, all
Permits required for the continued operation by OpCo of the businesses
currently conducted at the Facilities.
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(c) Title to Real Property. Except for Real Property that will be conveyed
by the Seller to the Purchaser as part of the Facilities, neither
Magellan nor any of the Subcos or their affiliates owns any parcel of
land which is contiguous with any of the Real Property of the
Facilities.
(d) Title to Personal Property. None of the Personal Property is held by
Magellan or the Subcos under a lease or installment sale contract,
except for installment sales agreements entered into in the ordinary
course of business, and Magellan and/or the Subcos owns title to the
Personal Property reflected on the inventory to be delivered to the
Purchaser pursuant to Section 3 free and clear of any liens or claims,
except for liens and claims arising under or by virtue of the
above-referenced installment sales agreements and except as set forth
on Schedule 6.1(d).
(e) Litigation; Other Proceedings. No portion of the Real Property of any
Facility has been condemned or taken in any condemnation or similar
proceeding. No action, suit, other proceeding or investigation
(including, but not limited to, condemnation actions) is pending in
any court or before any federal, state, county or municipal
department, commission, board, bureau or agency or other governmental
or quasi-governmental instrumentality or accrediting authority or
before any arbitration tribunal or panel, or to the Seller's knowledge
has been threatened, that concerns or involves (i) title, right to
possession, or ownership of the Facilities, or (ii) the Seller's
ability to perform its obligations under this Agreement and the other
Transaction Documents. There are no proceedings pending, or to the
Seller's knowledge threatened, which may result in the revocation,
cancellation or suspension, or any adverse modification, of any
Permit. No bankruptcy, insolvency, reorganization or similar action
involving any Facility or any Subco or Magellan, whether voluntary or
involuntary, is pending or to the Seller's knowledge threatened, and
neither any Subco nor Magellan has any intention of filing any such
action or proceeding.
(f) Violations of Agreements. None of the execution and delivery of this
Agreement and the other Transaction Documents by Magellan or any
Subco, the consummation by Magellan or any Subco of the Transactions
or compliance by Magellan or any Subco with any of the provisions
hereof or thereof will (i) conflict with or result in any breach of
any provisions of the formation documents of Magellan or such Subco;
(ii) except as set forth on Schedule 6.1(f), result in a violation or
breach of, or constitute (with or without due notice or lapse of time
or both) a default (or give rise to any right to termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which
Magellan or any Subco is a party or by which any of them or any of the
Facilities may be bound; or (iii) except as set forth on Schedule
6.1(f), violate any order, writ, injunction, decree, statute, rule or
regulation applicable to any of them or any of the Facilities; except
in the case of clauses (ii) or (iii) above, for violations, breach or
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defaults (A) that would not in the aggregate have a material adverse
effect on the business or financial condition of the Seller and on the
effectiveness of the Transactions or (B) for which waivers or consents
have been or will be obtained on or prior to the Closing Date.
(g) Compliance with Laws. The Facilities and the current ownership, use,
occupancy, leasing and construction (if any) thereof comply in all
material respects with all federal, state, county or municipal laws,
ordinances, rules, orders, regulations and material requirements
("Laws") of all governmental and quasi-governmental authorities having
jurisdiction over the Facilities or affecting all or any part thereof
or bearing on their ownership, use, occupancy, leasing or construction
(including, without limitation, zoning, land use, building code, fire
code, Environmental Laws (as hereinafter defined), the Occupational
Safety and Health Act, and the Americans with Disabilities Act), and
in all material respects with all private covenants and restrictions.
The Seller has no knowledge of material violations of Laws relating to
the ownership, use, occupancy, leasing or construction (if any) of the
Facilities and no written notice of any such violation of any such
law, regulation or ordinance has been received by the Seller, except
for violations or alleged violations set forth on Schedule 6.1(g)
attached hereto, which are being corrected in the ordinary course of
business pursuant to an approved plan of correction. Without limiting
the generality of the foregoing, the Seller has not paid or delivered
or agreed to pay or deliver, directly or indirectly, any fee,
commission or other sum of money or item of property, however
characterized, to any person or entity pursuant to a transaction
believed by the Seller to be illegal under any federal, state or local
law.
(h) Permits. All Permits have been obtained from all governmental and
quasi-governmental authorities having jurisdiction over the Facilities
and the ownership thereof or from private parties for the normal use,
maintenance, and occupancy of the Facilities and to ensure unimpeded
access, ingress and egress to and from the Facilities as required to
permit normal usage thereof (including, without limitation, building
or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, and other governmental authorizations and
approvals). All fees payable in connection with such items have been
paid in full, and all such Permits are in full force and effect.
(i) Accreditation and Certification. The survey reports on each of the
Facilities by the Joint Commission on the Accreditation of Healthcare
Organizations (the "JCAHO") that have been provided to the Purchaser
pursuant to Section 3 are the most recent JCAHO survey reports
received by the Seller with respect to each of the Facilities other
than (i) the medical office buildings comprising a part of some of the
Facilities and (ii) the Facilities operated as corrections facilities.
The Seller has taken all actions required by such survey reports to be
taken on or before the date hereof, including, but not limited to, the
submission of written progress reports. The Seller has received no
notice of any material, adverse change in accreditation status of any
of the Facilities.
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(j) Medicare and Medicaid. Except as set forth on Schedule 6.1(j) attached
hereto, each Facility participates in the Medicare and Medicaid
programs, is eligible to receive payment under Title XVIII of the
Social Security Act, as amended (the "Social Security Act"), and is a
"provider" under a provider agreement with the Medicare program. With
respect to such provider agreements, neither Magellan nor any Subco has
received a notice of termination, is in default in any material
respect, or has any knowledge that any other party to such agreements
is in default thereunder.
(k) Zoning; Subdivision. The current use of each Facility is permitted
under the zoning classification applicable to the Facility. There are
no proceedings pending or to Seller's knowledge threatened to change
the existing zoning classification as to any portion of any Facility.
No portion of any subdivided lot or tax lot comprising the Real
Property of any Facility or any part thereof is owned by any person or
entity other than the Subco that owns such Facility. To the Seller's
knowledge, there are no unrecorded land use restrictions, unrecorded
proffers or other unrecorded conditions limiting development of any of
the Facilities. Except as may be disclosed in the title commitments
and surveys of each of the Facilities, no part of any Facility has
been designated as an historical landmark by any governmental
authority, or is subject to any overlay or similar zoning or other
restriction or limitation, nor, to the best of the Seller's knowledge,
is any of the foregoing under consideration by any governmental
authority.
(l) Structure; Systems. There are no material uncorrected structural,
physical, mechanical or other defects or faults in the design or
construction of the improvements included as part of any Facility,
including without limitation the roofs, parking areas, HVAC, plumbing,
electrical, life safety and other mechanical systems. All such systems
are in good operating condition and repair, normal wear and tear
excepted, and require no special maintenance, repair or replacement
(except due to normal wear and tear and obsolescence) and are in
compliance in all material respects with all applicable Laws.
(m) Material Changes. The Seller has not received written notice from any
governmental or quasi-governmental authority of any pending or
contemplated change in any regulation, code, ordinance or law, or
private restriction applicable to any of the Facilities which would
result in any material adverse effect on the condition of any of the
Facilities, or would in any material respect limit or impede the
operation of any of the Facilities.
(n) Parties in Possession. No portion of any Facility is occupied or used
in any manner by any person or entity other than the Seller, tenants
under the Leases, the patients of the Facilities, the employees of the
Seller, the medical staffs of the Facilities, other health care
professionals, members of the public participating in various programs
and events at the Facilities, volunteers, independent contractors
providing services pursuant to the Contracts, and other business
invitees.
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(o) Status of Leases. Exhibit E attached hereto contains a full and
complete listing of all tenants under all Leases. Magellan has
delivered to the Purchaser true and complete copies of each Material
Lease. With respect to each Material Lease, neither Magellan nor any
Subco has received a notice of termination, is in default, or has any
knowledge that any other party to such Material Lease is in default
thereunder. The Seller is the owner of the entire lessor's interest in
and to the Leases, and neither the lessor's interest in the Leases nor
the rents payable thereunder have been assigned, pledged or encumbered
in any manner other than under collateral assignments that will be
released in connection with the Closing. No tenant has any right or
option to purchase or otherwise acquire any Facility or any portion
thereof. Except as indicated on the Rent Roll delivered to the
Purchaser as a part of the Seller's Deliveries pursuant to Section 3,
(i) no rentals or other amounts due under the Material Leases have
been paid more than one (1) month in advance, (ii) all security and
other deposits of any type required under the Material Leases have
been paid in full and are being held by the Seller, (iii) there exists
no circumstance or state of facts that constitutes a default by the
Seller or to the Seller's knowledge any tenant under the Material
Leases, or that would, with the passage of time or the giving of
notice, or both, constitute a default on the part of the Seller or by
any tenant under any of the Material Leases, or that entitles any
tenant under the Material Leases to defenses against the prompt,
current payment and performance of rent and/or other payments and
obligations thereunder, and (iv) none of the tenants under the
Material Leases has asserted any defenses, set-offs or claims in
connection with any of the Material Leases, except in the case of
clauses (iii) or (iv) above, for violations, breaches or defaults
which do not have a material adverse effect on the Facilities. Seller
has no knowledge of any pending or threatened litigation by any tenant
against the Seller with regard to any Material Lease. There do not
exist any unpaid leasing commissions due with regard to any of the
Material Leases. The Seller has performed in all material respects all
of the duties, liabilities and obligations imposed upon Seller by the
terms, provisions and conditions contained in the Material Leases and
accruing on or prior to the date hereof. The total amount of annual
rent payable under all Leases as of the date hereof is not greater
than $3,000,000.
(p) Other Agreements Affecting Facilities. There are no contracts or other
material obligations (including, without limitation, options and
rights of first refusal under Leases) outstanding for the sale,
exchange or transfer of any of the Facilities or the business operated
therein by the Seller. Except as described on Schedule 6.1(p) and
except for this Agreement, the Material Leases, the management,
maintenance, service, supply, commission, parking, construction,
architectural and other agreements entered into by the Seller or any
Subco with respect to the Facilities, the agreements included among
the Permitted Exceptions, and the other Transaction Documents, the
Seller has no knowledge of any contracts creating or imposing any
liens, encumbrances, material burdens, obligations or material
restrictions on the use or operation of any of the Facilities or the
business conducted therein, other than (i) the matters of title listed
on the title insurance
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commitments for the Facilities and (ii) security interests in the
Personal Property that will be released as of the Closing (or as to
which the Purchaser agrees to take title subject).
(q) Special Assessments. There are no unpaid assessments for public
improvements against any of the Facilities, and Seller has no knowledge
of any pending or proposed assessments against any of the Facilities.
All sewer, water, gas, electric, telephone and drainage lines and
facilities required by law and for the normal operation and use of the
Facilities are fully installed, currently function, and service the
Facilities adequately for their current use, and there are no unpaid
assessments, tap or connection fees or charges for the installation of
such utilities or for making connection thereto.
(r) Taxes. To the Seller's knowledge, except as described on Schedule
6.1(r), (i) the Seller has received no written notice of any public
plans or proposals for changes in road grade, access or other municipal
improvements which would affect any of the Facilities or result in any
assessment and that could have a material adverse effect on the
Facilities or the businesses conducted therein, and (ii) no tax
proceeding is pending for the reduction or increase of the assessed
real estate tax evaluation of any of the Facilities.
(s) FIRPTA. Neither Magellan nor any Subco is a "foreign person," "foreign
trust" or "foreign corporation" within the meaning of the United States
Foreign Investment and Real Property Tax Act of 1980 and the Internal
Revenue Code of 1986, as subsequently amended.
(t) Environmental. As used herein, the term "Environmental Law" means any
law, statute, ordinance, rule, regulation, order or material
determination of any governmental authority or agency affecting any of
the Facilities and pertaining to health or the environment, including,
but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1982 and the Resource Conservation
and Recovery Act of 1986. Except as (i) disclosed in any of the
environmental reports comprising a part of the Seller's Deliveries or
otherwise obtained by the Purchaser, or as otherwise disclosed by
Magellan to the Purchaser in writing, or (ii) would not have a
material adverse effect on the Facilities or the business of the
Seller operated thereon, to the Seller's knowledge (a) neither the
Facilities nor the Seller's operation thereof is in violation of any
Environmental Law or is subject to any pending or threatened
litigation or inquiry by any governmental authority or to any remedial
action or obligations under any Environmental Law; (b) no underground
storage tanks have been or are now located at any Facility; (c) none
of the Facilities is now or ever has been used for industrial purposes
or for the storage, treatment or disposal of hazardous or toxic wastes
or materials, chemical wastes, or other toxic substances, except for
the storage and disposal of such wastes and materials in the ordinary
course of the business of the Facilities in accordance with applicable
Environmental Laws, nor has any Facility ever been listed by any
federal, state or county agency or governmental official as containing
any oil, hazardous or toxic wastes or materials, chemical wastes, or
other toxic substances, and (d) no hazardous substances or
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<PAGE>
toxic wastes have been handled, packaged, generated, manufactured,
released, removed, stored, used, discharged, disposed of , treated,
installed, transported or deposited over, beneath, in or on any
Facility or any portion thereof, from any source whatsoever, or are now
located at any Facility, in violation of applicable Environmental Laws
(including, without limitation, asbestos, radon, oil or other petroleum
products, PCBs and urea formaldehyde). Prior to Closing, Magellan
agrees to notify the Purchaser promptly of any fact of which the Seller
acquires actual knowledge which would cause this representation to
become false and of any written notice that the Seller receives
regarding the matters set forth in this subsection (t).
(u) Soils; Flood Plain. There are no material defects, faults or other
problems in connection with the soils, subsoils, grading or compaction
of the Real Property, other than as set forth in any soil reports to be
delivered to the Purchaser. Except as noted on the surveys of the
Facilities, no portion of the Real Property is located inside a one
hundred (100) year flood plain, as such plain is determined by the
Federal Emergency Management Agency and published in a Flood Insurance
Rate Map for the area including the Real Property.
(v) Ownership of Subcos. Magellan holds, beneficially, directly or
indirectly, all voting and equity ownership of each Subco.
(w) No Other Owned Facilities. Except as described on Schedule 6.1(w), no
Subco owns or operates any facility other than the one(s) being sold
hereunder.
(x) Insurance. There is currently in full force and effect public
liability, property and casualty insurance in the amounts and issued
by the companies specified in Exhibit F (the "Insurance"). Each of
such policies is in full force and effect, and all premiums due and
payable thereunder have been, and on the Closing Date will be, fully
paid when due. No notice of cancellation has been received or
threatened with respect thereto. No insurance company insuring either
the Facilities or the Personal Property, nor the Board of Fire
Underwriters, has delivered to the Seller oral or written notice (i)
that any insurance policy now in effect would not be renewed or (ii)
that the Seller or any tenant under the Leases has failed to comply
with insurance requirements or (iii) that defects or inadequacies
exist in any of the Facilities, or in any part thereof, which could
adversely affect the insurability thereof or the cost of such
insurance.
(y) Philadelphia Facility. To Magellan's knowledge, the total costs and
expenses required for completion of the construction of the
improvements currently underway to the Philadelphia Facility will not
exceed $11,000,000, and upon completion of such improvements, the
Philadelphia Facility will be ready for occupancy and suitably equipped
for the operation of a behavioral healthcare facility similar to the
other Facilities.
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(z) Accuracy of Documents. All documents and records delivered pursuant to
Section 3 will be true, correct and complete copies of the documents
and records required to be delivered.
(aa) No Material Adverse Change. Since the date of the 1996 Financials,
there has been no material adverse change in the business or financial
condition of (i) the Seller and the Subcos taken as a whole or (ii) the
Subcos taken as a whole.
6.2 Purchaser's Representations and Warranties. In order to induce the
Seller to execute this Agreement and the other Transaction Documents
and to proceed to Closing, the Purchaser hereby makes the following
representations and warranties to the Seller, all of which are true as
of the date hereof and all of which shall be true as of the Closing
Date:
(a) Organization and Enforceability. The Purchaser is duly organized,
validly existing and in good standing under the laws of its state of
organization and in any other jurisdiction where the nature of its
business or ownership of its properties would require such
qualification, and is or will be by the Closing Date duly qualified to
transact business in the states in which the Facilities are situated.
The Purchaser possesses all requisite power and authority to own and
operate its properties and to carry on its business as now conducted,
to enter into and perform this Agreement and the other Transaction
Documents, and to carry out the Transactions. This Agreement and the
other Transaction Documents, and all instruments (to the extent the
same constitute agreements), documents (to the extent the same
constitute agreements) and agreements to be executed by the Purchaser
and/or its designees in connection herewith or therewith, are, or when
delivered shall be, duly and validly executed and delivered by the
Purchaser and/or its designees and are, or when delivered shall be,
legal, valid and binding obligations of the Purchaser and/or such
designees, enforceable against the Purchaser and/or such designees in
accordance with their respective terms, except as such enforcement may
be limited by bankruptcy, conservatorship, receivership, insolvency,
moratorium or similar laws affecting creditors' rights generally or by
general principles of equity. The person or persons who have executed
this Agreement on behalf of the Purchaser have full power and
authority to sign the Transaction Documents.
(b) Consents and Approvals. Except for approval by the Board of Directors
of the Purchaser's general partner, there are no consents, approvals,
and authorizations required from any person, entity, governmental or
quasi-governmental authority, or required by law or agreement, with
respect to the Purchaser's execution, delivery or performance of this
Agreement and the other Transaction Documents and the consummation of
the Transactions by the Purchaser, including, without limitation,
shareholder approval. Notwithstanding the foregoing, it is understood
and agreed that it shall be the Purchaser's responsibility to obtain,
or to obtain the transfer of, all Permits required for the Purchaser
to own, hold and lease the Facilities to OpCo, and it shall be
Magellan's responsibility to
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obtain, or to obtain the transfer of, for and on behalf of OpCo, all
Permits required for the continued operation by OpCo of the businesses
currently conducted at the Facilities.
(c) Violations of Agreements. None of the execution and delivery of this
Agreement and the other Transaction Documents by the Purchaser, the
consummation by the Purchaser of the Transactions or compliance by the
Purchaser with any of the provisions hereof or thereof will (i)
conflict with or result in any breach of any provisions of the
formation documents of the Purchaser; (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time
or both) a default (or give rise to any right to termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the
Purchaser is a party or by which it may be bound; or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation
applicable to it; except in the case of clauses (ii) or (iii) above,
for violations, breach or defaults (A) that would not in the aggregate
have a material adverse effect on the business or financial condition
of the Purchaser and on the effectiveness of the Transactions or (B)
for which waivers or consents have been or will be obtained prior to
the Closing Date.
6.3 Best Knowledge. For purposes of this Agreement, the phrase "to the
Seller's knowledge" or "to Magellan's knowledge" means the actual
knowledge of any executive officer (as defined in Rule 3b-7 of the
Securities Exchange Act of 1934) of a Subco, or actual knowledge of any
officer of Magellan, based upon the Seller's reasonable inquiry and
investigation.
6.4 Survival. The representations and warranties set forth in this Section
6 will survive the Closing for the period of the statute of limitations
applicable to breaches of contracts in Delaware, except for the
representations and warranties relating to claims against the Seller by
Medicare and Medicaid, which shall survive until the expiration of the
applicable statutes of limitations on the "Cost Reports" filed by the
Seller prior to the Closing Date.
7. Covenants.
7.1 Seller's Covenants. Magellan hereby covenants and agrees as follows:
(a) Operation. From the date hereof until the Closing Date, the Seller
will (i) continue to operate the Facilities in the ordinary course,
consistent with past practice, (ii) continue to offer services at the
Facilities in accordance with past practices, except for changes in
services deemed reasonably appropriate by management based upon
changes in the market, (iii) permit no material change in presently
existing policies (excluding on-going enhancements), except as
required by applicable law and except for changes in policies deemed
reasonably appropriate by management based upon changes in the market,
without, in each instance, the prior written approval of the
Purchaser, and (iv) use
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commercially reasonable best efforts to maintain the Facilities in as
good a condition and substantially the same state of repair as that
existing on the date hereof.
(b) Leases. The Seller will not, without the prior written consent of the
Purchaser, (i) enter into any contract that will or could be binding
upon the Purchaser or other entity taking title to any of the
Facilities and that is not terminable upon at most thirty (30) days'
notice, unless such contract will be fully performed by the Seller on
or before the Closing Date, (ii) amend, modify or supplement any
existing Permit in any material respect, (iii) enter into any new
lease for any of the Facilities or any portion thereof, other than in
the ordinary course of business, and in any event, enter into any new
lease that would constitute a Material Lease, or (iv) amend, modify,
supplement or terminate any of the Leases, other than in the ordinary
course of business, and in any event, amend, modify, supplement or
terminate any of the Leases in any manner that would convert any Lease
into a Material Lease. Any consent requested by Seller pursuant to
this Section 7.1(b) will be deemed approved if the Purchaser does not
respond by written notice to Magellan within ten (10) business days
after Magellan's written notice to the Purchaser requesting such
consent.
(c) Litigation. Magellan shall advise the Purchaser promptly of any
litigation, arbitration, investigation or other proceeding or
administrative hearing (including condemnation) before any governmental
or quasi-governmental agency, licensing or accrediting authority, or
other authority which concerns or affects any of the Facilities or the
operation thereof in any manner and which is instituted after the date
hereof and which involves a claim or alleged liability in excess of
$1,000,000.
(d) Compliance with Laws. The Seller shall comply in all material respects
with all Laws, including without limitation all Environmental Laws,
applicable to the Facilities, and the Seller shall not install in or
remove from the Facilities any storage tanks except in compliance with
all applicable Laws. Magellan shall advise the Purchaser promptly in
writing of any notice or other communication, written or oral (and as
to oral notices or communications, only those of which the officers
described in Section 6.3 have knowledge), to the Seller from any
federal, state or local governmental authority with respect to (i) any
alleged material violation of any Law, including without limitation
any Environmental Law, at or affecting any Facility, or (ii) the
handling, packaging, generating, transportation, release, use,
discharge, treatment, removal, storage, or disposal of Hazardous
Substances or storage tanks which is or may be in violation of
applicable Laws.
(e) Notification of Subsequent Events. Prior to Closing, Magellan shall
notify the Purchaser of any notice received by the Seller of any
material adverse change in or to the Facilities, as well as of any
material adverse changes in the business operated therein, operations
and assets related thereto, or financial condition of the Seller.
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(f) Alterations; Encumbrances; Commitments. From the date hereof until the
Closing Date, the Seller shall not take any of the following actions
without the prior written consent of the Purchaser, which may be
granted or withheld in the Purchaser's sole discretion: (i) except as
hereinafter expressly provided with respect to the Philadelphia
Facility, make or permit to be made any material alterations to or
upon the Facilities; (ii) encumber or permit encumbrance of any of the
Facilities in any manner; or (iii) make any commitments or
representations to any applicable governmental authorities, any
adjoining or surrounding property owners, any utility, or any other
person or entity that would in any manner be binding upon the
Purchaser or other entity taking title to the Facilities, or upon the
Facilities, other than in the ordinary course of business.
(g) Sale of Personal Property. The Seller will not transfer or dispose of,
or permit to be sold, transferred or otherwise disposed of, any item or
group of items constituting Personal Property, except for the use and
consumption of inventory and other supplies and spare parts, and the
replacement of worn out, obsolete and defective tools, equipment and
appliances, in the ordinary course of business.
(h) Insurance; Permits. Magellan will maintain in full force and effect
(i) the Seller's existing insurance coverage with respect to the
Facilities and the business operated therein and (ii) all Permits
relating to the Facilities or any part thereof.
(i) Taxes. Magellan shall (a) subject to Magellan's right under applicable
Laws to contest such taxes and other public charges, pay or cause to be
paid, in a timely fashion, all taxes and other public charges against
the Facilities for the period through Closing, and (b) provide the
Purchaser, within ten (10) days of receipt, with copies of any notices
the Seller receives with respect to any special assessments or proposed
increases in the valuation of the Facilities.
(j) Performance Under Leases. The Seller will perform all material
obligations of landlord or lessor under the Leases, including any
condition for a tenant's or lessee's occupancy of any Facility.
(k) Cooperation. Magellan will assist and cooperate with the Purchaser (i)
prior to Closing in obtaining all Permits which are required by
applicable Laws to be obtained or transferred, or which by custom are
obtained or transferred, prior to closing, (ii) after Closing, in
obtaining all Permits which by custom are obtained or transferred after
closing (which covenant shall survive Closing), and (iii) prior to
Closing with any evaluation, inspection, audit or study of the
Facilities and the books and records relating to the operation thereof
conducted or prepared by, for, or at the request of the Purchaser.
(l) Consents. Except for the consents and approvals which the Purchaser is
required to obtain pursuant to Section 6.2(b), Magellan will use its
commercially reasonable best
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efforts to file or submit in a timely manner and diligently prosecute
any and all applications or notices with federal, state and local
authorities and all other requests with any private persons or entities
for consents, approvals, authorizations and permissions which are
reasonably considered necessary or appropriate (i) for consummation by
the Seller of the Transactions and (ii) to effect the transfer of, or
prevent the termination of, any Permit, Lease, or contract with respect
to the Facilities, including, without limitation, obtaining, or
obtaining the transfer of, for and on behalf of OpCo, all permits
required for the continued operation by OpCo of the business currently
conducted at the Facilities.
(m) Financial Statements. Magellan will provide, upon request by the
Purchaser, (i) to the extent required by applicable federal securities
laws, audited financial statements in such form and for the periods
necessary to permit the Purchaser to satisfy applicable federal
securities law requirements, and (ii) such other unaudited financial
statements relating to the Facilities as may be prepared by Magellan
through the date of Closing. The Purchaser shall bear the costs of
preparation of such audited financial statements to the extent that
(i) the costs of preparation of such financial statements exceed the
costs of preparation of the financial statements that Magellan is
required to prepare in order to satisfy its obligations under
applicable federal securities laws or (ii) Magellan incurs additional
costs, at the Purchaser's request, attributable to the preparation of
such financial statements prior to the date on which such financial
statements are required to be filed with the Securities and Exchange
Commission.
(n) Hart-Scott-Rodino. Magellan will file, and will cooperate with the
Purchaser in the filing (if required by applicable Laws) of, any
documents required under the Hart-Scott-Rodino Antitrust Improvements
Act.
(o) Magellan Stockholder Approval. On or prior to May 31, 1997, Magellan
shall use commercially reasonable best efforts to obtain the approval
of its stockholders relating to the Transactions and to any changes in
its Certificate of Incorporation required in connection therewith,
including without limitation, (a) scheduling and holding a meeting of
stockholders at which such matters will be on the agenda, (b)
recommending the approval of such matters in any proxy or related
materials for such meeting, subject, however, to the fiduciary
obligations of Magellan's Board of Directors to the stockholders under
Delaware Corporation Law, and (c) recommending the approval of such
matters at such meeting, subject, however, to the fiduciary
obligations of Magellan's Board of Directors to the stockholders under
Delaware Corporation Law.
(p) Satisfaction of Conditions. Magellan shall exercise its commercially
reasonable best efforts to satisfy all conditions precedent to Closing,
as set forth in Section 8, that are the Seller's responsibility to
satisfy.
(q) Completion of Philadelphia Facility. Magellan shall continue the
construction of the planned improvements currently underway at the
Philadelphia Facility and shall complete
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such construction in a timely manner at Magellan's sole cost and
expense, lien free, provided, however, that Magellan's total liability
for such costs and expenses shall not exceed $11,000,000.
Notwithstanding anything set forth in this Agreement to the contrary,
this covenant shall survive Closing for the period of the statute of
limitations applicable to breaches of contracts in Delaware.
(r) New Senior Credit Facility. Magellan shall use commercially reasonable
best efforts to close, prior to or simultaneously with Closing
hereunder, any new credit facility required to satisfy Magellan's
obligations under its existing financing arrangements and arising out
of the Transactions, or to obtain a loan commitment reasonably
satisfactory to the Purchaser for such new credit facility.
7.2 Purchaser's Covenants. The Purchaser hereby covenants and agrees as
follows:
(a) Satisfaction of Conditions. The Purchaser shall exercise its
commercially reasonable best efforts to satisfy all conditions
precedent to Closing, as set forth in Section 8, that are the
Purchaser's responsibility to satisfy.
(b) Hart-Scott-Rodino. The Purchaser will file (if required by applicable
Laws), and will cooperate with Magellan in the filing of, any documents
required under the Hart-Scott-Rodino Antitrust Improvements Act.
(c) The Purchaser will assist and cooperate with Magellan (i) prior to
Closing in obtaining all Permits which are required by applicable Laws
to be obtained or transferred, or which by custom are obtained or
transferred, prior to Closing, (ii) after Closing, in obtaining all
Permits which by custom are obtained or transferred after closing
(which covenant shall survive Closing).
8. Conditions.
8.1 Purchaser's Conditions Precedent to Closing. The obligations of the
Purchaser under this Agreement are subject to the satisfaction on or
before the Closing Date of all conditions contained in this Agreement,
including each of the following (any of which may be waived by the
Purchaser, in the Purchaser's sole and absolute discretion, but only in
writing):
(a) The Seller shall have performed in all material respects all of its
covenants and other obligations contained in this Agreement, and all of
the Seller's representations and warranties contained in this Agreement
shall be true in all material respects on and as of the Closing Date.
(b) The title insurance company(ies) conducting the title examination,
which shall be selected by the Purchaser and shall be reasonably
acceptable to Magellan (collectively, the "Title
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Company"), shall be prepared to issue to the Purchaser or the
Purchaser's designee(s), at standard rates, a Title Policy (as defined
in Section 10.2) with respect to each Facility or a marked title
commitment unconditionally committing to issue a Title Policy with
respect to each Facility within a reasonable time thereafter.
(c) From the date hereof until the Closing Date, there shall not have
occurred any material adverse change to, or deterioration of, the
physical condition of the Facilities taken as a whole, ordinary wear
and tear excepted.
(d) From the date hereof until the Closing Date, there shall not have
occurred any material adverse change in the business or financial
condition of the Seller from that disclosed in the Operating Reports
and 1996 Financials furnished by Magellan to the Purchaser as a part of
the Seller's Deliveries.
(e) The Purchaser or Magellan, as appropriate, shall have obtained, or
obtained the transfer of, all permits, licenses and approvals
necessary to allow the ownership of the Facilities by the Purchaser
and the continued lawful operation by OpCo of the business conducted
therein, except for those permits, licenses and approvals which by
custom are not transferred or obtained until after a conveyance of
property, and except for such consents, regulatory and other
approvals, licenses, permits and other required documentation the
failure to obtain which would not, individually or in the aggregate,
have a material adverse effect on the operation of such business.
(f) The Facilities Lease in the form of Exhibit C attached hereto shall
have been executed by the Purchaser, as lessor, and OpCo, as tenant.
(g) The Subordination Agreement in the form of Exhibit G attached hereto
shall have been executed by the Purchaser, Magellan and OpCo.
(h) There shall exist no material regulatory or contractual impediment to,
nor any litigation, governmental proceeding or investigation seeking to
enjoin, challenging or seeking damages in connection with, the
operation of the Facilities or the Transactions that, in Magellan's or
the Purchaser's reasonable judgment, would make it inadvisable to
proceed with the consummation of the Transactions.
(i) The Purchaser shall have received all necessary shareholder approvals
(if any) required by its governing documents.
(j) The waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act after any necessary filing by the Purchaser shall have expired.
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(k) The Purchaser shall have received opinions of counsel to Magellan
regarding Magellan's authority to enter into the transactions, due
authorization, good standing, no conflicts with or defaults under other
material agreements, and other customary opinions.
(l) The allocations referenced in Sections 2.1 and 2.2 hereof shall have
been agreed upon by the parties and Schedule 2.1 shall have been
attached hereto.
(m) Receipt of all consents, regulatory and other approvals, licenses,
permits and other documentation required by state and federal laws and
regulations or any agreements to which the Purchaser is subject
necessary to consummate the Transactions and permit the Purchaser to
own the Facilities and OpCo to conduct the businesses operated at the
Facilities, except for such consents, regulatory and other approvals,
licenses, permits and other required documentation the failure to
obtain which would not, individually or in the aggregate, have a
material adverse effect on the operation of such businesses.
(n) The "fairness" opinion obtained by the Purchaser from Merrill Lynch &
Co. shall not have been withdrawn or revoked.
(o) All of the conditions of the other Transaction Documents shall have
been satisfied or waived by the party(ies) entitled to insist upon
satisfaction of same, and the closing of all of the Transactions shall
have occurred or shall occur simultaneously with the Closing hereunder.
8.2 Seller's Conditions Precedent to Closing. The obligations of the Seller
under this Agreement are subject to the satisfaction on or before the
Closing Date of the following conditions (any of which may be waived by
Magellan, in Magellan's sole and absolute discretion, but only in
writing):
(a) Magellan shall have consummated a new credit facility in the amount
contemplated by Section 7.1 (r).
(b) Receipt of all consents, regulatory and other approvals, licenses,
permits and other documentation required by state and federal laws and
regulations or any agreements to which the Seller is subject necessary
to consummate the Transactions and permit the Purchaser to own the
Facilities and OpCo to conduct the businesses operated at the
Facilities, except for such consents, regulatory and other approvals,
licenses, permits and other required documentation the failure to
obtain which would not, individually or in the aggregate, have a
material adverse effect on the operation of such businesses.
(c) Magellan shall have received stockholder approval relating to the
Transactions pursuant to the proxy materials for Magellan's 1997 annual
meeting.
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(d) The waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act after any necessary filing by the Seller shall have expired.
(e) Magellan shall have complied with all federal and state laws, rules and
regulations applicable to the execution and delivery of the Franchise
Agreement.
(f) Magellan shall have received opinions of counsel to the Purchaser
regarding the Purchaser's authority to enter into the transactions, due
authorization, good standing, no conflicts with or defaults under other
material agreements, and other customary opinions.
(g) The Master Facilities Lease in the form of Exhibit C attached hereto
shall have been executed by the Purchaser, as lessor, and OpCo, as
tenant.
(h) The Subordination Agreement in the form of Exhibit G attached hereto
shall have been executed by the Purchaser, Magellan and OpCo.
(i) The Purchaser shall have performed in all material respects all of its
covenants and other material obligations contained in this Agreement,
and all of the Purchaser's representations and warranties contained in
this Agreement shall be true in all material respects on and as of the
Closing Date.
(j) The allocations referenced in Sections 2.1 and 2.2 hereof shall have
been agreed upon by the parties.
(k) There shall exist no material regulatory or contractual impediment to,
nor any litigation, governmental proceeding or investigation seeking to
enjoin, challenging or seeking damages in connection with, the
operation of the Facilities or the Transactions that, in Magellan's or
the Purchaser's reasonable judgment, would make it inadvisable to
proceed with the consummation of the Transactions.
(l) The "fairness" opinion obtained by Magellan from Dean Witter Reynolds
Inc. shall not have been withdrawn or revoked.
(m) All of the conditions of the other Transaction Documents shall have
been satisfied or waived by the party(ies) entitled to insist upon
satisfaction of same, and the closing of all of the Transactions shall
have occurred or shall occur simultaneously with the Closing hereunder.
8.3 Failure of Conditions. If any condition described in Section 8.1 is not
satisfied by the Closing Date, as such date may be extended pursuant to
Section 10.1, the Purchaser shall have the right to terminate this
Agreement by giving written notice of such action to Magellan. If any
condition referenced in Section 8.2 is not satisfied by the Closing
Date,
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<PAGE>
as such date may be extended pursuant to Section 10.1, the Seller shall
have the right to terminate this Agreement by giving written notice of
such action to the Purchaser. Upon delivery of any such termination
notice, this Agreement shall terminate, and all rights and obligations
of the parties hereunder shall be released and discharged, except that
Magellan and the Purchaser shall each remain liable to the other for
all damages suffered by the other if the unsatisfied condition was due
to a breach by one party of any of the covenants, obligations,
representations or warranties of such party in this Agreement or any
other failure by such party to use commercially reasonable best efforts
to satisfy conditions precedent to Closing that are within the control
of such party to satisfy.
9. Damage, Destruction and Condemnation.
9.1 Damage; Destruction. In the event of any loss, damage or destruction to
any Facility prior to Closing, Magellan shall immediately notify the
Purchaser thereof and shall promptly commence and diligently prosecute
to completion the repair and restoration thereof to substantially its
condition prior to such casualty. If the damaged Facility is not fully
restored prior to Closing such that the Seller's representations and
warranties in Section 7 with respect thereto are not true at Closing,
then the parties shall nevertheless proceed to Closing hereunder
without reduction of the Purchase Price, the Seller shall assign all of
its right, title and interest in and to any remaining claims the Seller
may have under the insurance policies covering the damaged
Facility(ies), as well as any remaining unused and unpaid insurance
proceeds, to OpCo at Closing, and the parties shall cause OpCo to
complete such restoration and repair work after Closing at Seller's
sole cost and expense. The Seller covenants to pay all such costs and
expenses of completion to OpCo, or to reimburse OpCo therefor, within
five (5) business days after OpCo's written request therefor, which
covenant shall survive Closing. In addition, the Seller shall pay OpCo
after Closing any lost income from the damaged Facility(ies) during the
period from Closing through the date that business interruption
insurance proceeds under policies of insurance required to be carried
by OpCo pursuant to the Facilities Lease would have been payable had
such insurance been in effect at the time of the casualty. The Seller
shall not agree to or accept any settlement of its insurance claim(s)
without obtaining the Purchaser's prior written approval thereof..
9.2 Condemnation. If any condemnation proceedings are instituted, or notice
of intent to condemn is given, with respect to all or any material
portion of the Facilities, Magellan shall promptly notify the Purchaser
thereof, in which event the Purchaser shall have the option either (i)
to terminate this Agreement with respect to the Facility(ies) affected
by written notice to Magellan, in which event the Purchase Price shall
be reduced by the amount allocated to such Facility(ies) pursuant to
Section 2.2, or (ii) to consummate the purchase of the Facilities
without reduction of the Purchase Price, and the right to collect any
condemnation award or compensation for such condemnation shall be
assigned by the Seller to the Purchaser or the Purchaser's designee at
Closing. The Seller shall not agree to or accept any compromise or
condemnation award without obtaining the
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Purchaser's prior written approval thereof. For purposes of this
Agreement, (i) a condemnation shall be deemed to include any
governmental action which could limit or render inconvenient the
current access to any Facility, and (ii) a "material portion" of a
Facility shall be any portion the taking of which would have a material
adverse effect on the operation of the business conducted at such
Facility.
10. Closing.
10.1 Closing Date. The consummation of the transactions contemplated hereby
(the "Closing") shall occur at the offices of King & Spalding, 191
Peachtree Street, Atlanta, Georgia 30303-1763, or at such other
location upon which Magellan and the Purchaser agree, at 10:00 a.m. on
May 31, 1997, or such earlier or later date upon which Magellan and
the Purchaser agree (the "Closing Date"); provided, however, that in
the event that the Closing has not occurred by June 30, 1997, either
party shall have the right to terminate this Agreement by written
notice to the other. Upon delivery of such notice, this Agreement
shall terminate, and all rights and obligations of the parties
hereunder shall be released and discharged, except that Magellan and
the Purchaser shall each remain liable to the other for all damages
suffered by the other if the failure to close was due to a breach by
one party of any of the covenants, obligations, representations or
warranties of such party in this Agreement or any other failure by
such party to use commercially reasonable best efforts to satisfy
conditions precedent to Closing that are within the control of such
party to satisfy.
10.2 Seller's Obligations at Closing. At the Closing, the Seller will do,
or cause to be done, the following:
(a) Documents. The Seller will, and will cause the Subcos (as appropriate)
to, execute, acknowledge (if necessary), and deliver the following
documents:
(i) the Deeds, subject only to the Permitted Exceptions;
(ii) an Assignment of Leases in the form and substance of Exhibit H;
(iii) a Bill of Sale in the form and substance of Exhibit I;
(iv) an updated certificate executed by the Seller remaking and reaffirming
all representations and warranties made by the Seller to the Purchaser
in accordance with the provisions of Section 6; and
(v) an opinion of the Seller's attorney to be dated as of the Closing Date
stating (i) that Magellan and each Subco are authorized to convey its
respective Facility(ies) in accordance with this Agreement, and (ii)
that the Deeds and other documents,
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instruments, and agreements executed by the Seller in connection with
Closing have been duly authorized and executed.
(b) Title Policies. For purposes of this Section 10.2(b), a "Typical
Owner's Policy" shall mean a standard Extended Coverage A.L.T.A. Form
B Policy of Owner's Title Insurance (10-17-70 revision with '84
amendments), or other form of owner's title insurance policy
reasonably acceptable to the Purchaser available in a state where such
A.L.T.A. Form B is not available and most closely resembling such
A.L.T.A. Form B. Magellan will cause the Title Company to issue to the
Purchaser a Typical Owner's Policy with respect to each Facility, in
the amount of the Purchase Price allocated to each such Facility in
accordance with Section 2.2, and insuring that the Purchaser has fee
simple title to each Facility, subject only to the Permitted
Exceptions (a "Title Policy"). In addition, each Title Policy shall
contain affirmative coverage with respect to mechanics' liens (or any
reference to such liens in the general provisions or elsewhere shall
be deleted), and each Title Policy shall include the following
endorsements to coverage to the extent available and commonly used for
title insurance covering real property in the state where the
applicable Facility is located: access, survey, contiguity, zoning
(ALTA 3.1), subdivision, an endorsement deleting creditor's rights
exceptions to coverage, and such other endorsements as may be
reasonably requested by Purchaser (the "Endorsements"). The Seller
shall execute and deliver to the Title Company a customary form of
affidavit and other documents and agreements (to the extent required
by the Title Company in order for the Title Company to issue the Title
Policies) certifying (a) the absence of claims which would give rise
to mechanic's and materialmen's liens, (b) that the Seller and the
tenants under the Leases are the only parties in possession of the
Facilities, and (c) that there are no pending or outstanding suits or
judgments against either the Seller or the Facilities, except as
disclosed to the Title Company and for which the Title Company has not
taken exception. The Seller shall also deliver to the Title Company
such evidence as may be required with respect to the authority of the
person executing the deeds of conveyance and other items necessary to
issue title insurance to the Purchaser or the Purchaser's designee(s).
In addition, Magellan and each Subco shall furnish to the Purchaser
and the Title Company a certificate to the effect that none of them is
a foreign person, corporation, partnership, trust or estate under
Section 1445 of the Internal Revenue Code. If Magellan or any Subco
fails or refuses to provide such certificate, the Title Company or
Escrow Agent shall have the right to make such deductions from the
Seller's proceeds at Closing and to remit such amounts to the Internal
Revenue Service as are required by the Federal Foreign Investment in
Real Property Tax Act and the regulations promulgated thereunder.
(c) Original Documents. Seller will deliver at the corporate headquarters
of OpCo or the Facilities, as appropriate, to Purchaser or OpCo, as
appropriate, originals within Seller's possession of all items
enumerated in Section 3 of this Agreement.
(d) Possession. Seller will deliver possession of the Facilities, subject
to the Leases.
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(e) Keys. Seller shall furnish to OpCo duplicate keys and master keys to
all locks located on the Facilities, properly tagged for
identification, as well as combinations, card keys and cards for the
security systems, if any.
(f) Costs. The Seller will pay all costs allocated to the Seller pursuant
to Section 10.4.
10.3 Purchaser's Obligations at Closing. At the Closing, the Purchaser will
do, or cause to be done, the following:
(a) Payment of Consideration. The Purchaser will pay to Magellan the
Purchase Price, as adjusted in accordance with the provisions of this
Agreement.
(b) Documents. The Purchaser will execute, acknowledge (if necessary), and
deliver an Assignment of Leases in the form and substance of Exhibit H
and an updated certificate executed by the Purchaser remaking and
reaffirming all representations and warranties made by the Purchaser to
the Seller in accordance with the provisions of Section 6.
(c) Additional Documents. The Purchaser will execute and deliver or obtain
for delivery to the Title Company any instruments reasonably necessary
to consummate this Agreement, including by way of example, evidence of
the authority of the party executing instruments on behalf of the
Purchaser.
(d) Costs. The Purchaser will pay all costs allocated to the Purchaser
pursuant to Section 10.4.
10.4 Costs and Adjustments at Closing. If the prorations and adjustments
provided for in this Section 10.4 impose post-Closing obligations or
liabilities on OpCo, Magellan covenants to use commercially reasonable
best efforts to cause OpCo to perform such obligations and satisfy such
liabilities in a timely manner, which covenant shall survive Closing.
(a) Expenses. The Purchaser shall pay or cause to be paid all fees of
consultants, appraisers, and engineers rendering reports or opinions
to the Purchaser, and all other costs incurred by the Purchaser, in
connection with the Purchaser's due diligence investigation of the
Facilities, except that the Seller shall pay the costs and fees of
environmental consultants and engineers retained to perform Phase I
environmental audits and, if necessary or advisable in the reasonable
opinion of the Purchaser, Phase II environmental audits and prepare
environmental reports on the Facilities. The Purchaser shall also pay
all costs and fees associated with the assumption of any Industrial
Revenue Bonds that Purchaser assumes at Closing, including, without
limitation, assumption fees, mortgage fees, mortgage recordation fees,
and mortgagees' title insurance costs. The Seller shall pay the cost
of preparing the Deeds and other conveyancing documents, the costs
associated with releasing any encumbrances of record, all grantor's
taxes, transfer taxes, county taxes,
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clerks' fees, documentary stamps, release fees, recordation taxes
associated with the Deeds and other conveyancing documents, escrow fees
charged by the Escrow Agent or Title Company, and the costs and fees
for the title examinations, title insurance (including any affirmative
coverages and endorsements required by the Purchaser), and surveys.
Each party shall pay its own attorneys' fees, including local counsel
fees.
(b) Real Estate Taxes. Real estate taxes on the Real Property for the
calendar year of the Closing will be prorated between Magellan and
OpCo as of the Closing Date. If the amount of such taxes is not known
at Closing, the proration of such real estate taxes will be based on
the amount of such taxes for the previous real estate tax fiscal
period. As soon as the actual amount of real estate taxes on the
Facilities for the year of Closing is known, the Seller and OpCo will
readjust the amount of such taxes to be paid by each party with the
result that the Seller will pay for those taxes applicable to the Real
Property up to and including the date of Closing and OpCo will pay for
those taxes and assessments applicable to the Real Property after the
date of Closing. The provisions of this Section 10.4(b) will survive
the Closing.
(c) Rents. All rents, additional rents and other sums actually paid under
the Leases for the month of Closing will be prorated between Magellan
and OpCo as of the Closing Date, provided that delinquent amounts will
not be considered in such calculation. All rents, percentage rents,
real estate taxes and other costs or charges paid by tenants under the
Leases after the Closing will first be applied to such charges as are
then due and then applied in their reverse order of accrual until
applied in full. Any amounts that are to be applied to periods prior
to Closing will be delivered by OpCo to the Seller within thirty (30)
days after receipt, net of any costs incurred by OpCo in collecting
such amounts (including, without limitation, attorneys' fees). OpCo
will have no obligation to incur any cost or expense or institute any
litigation to collect delinquent rents, percentage rents, or other
costs or charges owed to the Seller, and the Seller will not exercise
any right to collect such amounts unless OpCo fails to use reasonable
efforts to collect same. In any event, the Seller will not institute
suit against any tenant under the Leases. The provisions of this
Section 10.4(c) will survive the Closing.
(d) Security Deposits. The Seller will pay to OpCo, in cash at Closing or
as a credit against the Purchase Price, the amount of any security
deposits paid pursuant to the Leases.
(e) Other Expenses. All other ordinary operating expenses for or
pertaining to the Facilities, including, but not limited to, public
utility charges, maintenance, service charges, and lease commissions,
will be prorated as of the Closing Date between the Seller and OpCo,
it being understood and agreed that revenues resulting from operation
of the Facilities prior to Closing will belong to Magellan and
revenues resulting from operation of the Facilities from and after
Closing will belong to the Purchaser; provided, however, that the
Seller shall pay in full any and all special assessments which have
either been levied or are pending against the Facilities or any part
thereof as of the Closing Date, except if such
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assessments are due in installments, in which event the Seller shall
only be responsible for paying such installments due prior to the
Closing. OpCo shall be responsible for the installments due after
Closing. The Seller shall pay in full any and all leasing commissions
or other compensation with respect to all Leases and other tenancies in
effect as of the Closing Date, including commissions which are or may
become due on account of options, renewals or extensions.
(f) Adjustment. To the extent that errors are discovered in, or additional
information becomes available with respect to, the prorations and
allocations made at Closing, the Seller and OpCo shall make such
post-Closing adjustments as may be necessary to correct any
inaccuracy; however, all prorations (except for ad valorem taxes) will
be final within ninety (90) days after Closing. Magellan agrees to
deliver to OpCo all invoices and payments related to the Facilities
received by the Seller after Closing and relating to periods after the
Closing. In addition, Magellan shall give the Purchaser written notice
of any payments received by the Seller (other than from OpCo) after
Closing relating to periods prior to the Closing in order to
facilitate OpCo's collection of and accounting for Magellan's
receivables after Closing in accordance with the OpCo Contribution
Agreement.
10.5 Settlement Statement. At the Closing, the Purchaser and the Seller
shall execute and deliver duplicate originals of a settlement statement
(the "Settlement Statement") showing all of the payments, adjustments
and prorations provided herein and otherwise agreed upon by them.
11. Indemnifications.
11.1 Purchaser's Indemnity. The Purchaser hereby agrees to indemnify the
Seller against, and to hold the Seller harmless from, all claims,
demands, causes of action, losses, damages, obligations, debts,
liabilities, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements actually incurred)
(collectively, "Claims") asserted against or incurred by the Seller in
connection with or arising out of (a) the ownership, maintenance or
operation of the Facilities and attributable to events occurring on or
after the Closing, during the Purchaser's ownership of the Facilities,
and at any time after the Purchaser or any of its affiliates (other
than OpCo) takes over the operation of the Facilities following an
Event of Default under the Facilities Lease, or (b) a breach of any
representation, warranty or covenant of the Purchaser contained in this
Agreement not disclosed to or actually known by the Seller at or before
Closing. The Purchaser's obligations under this Section 11.1 shall
survive the Closing until the expiration of any applicable statute of
limitations for making or bringing such claims, demands, or causes of
action. Notwithstanding anything to the contrary contained herein, the
Purchaser's indemnity obligations hereunder (i) will not extend to
Claims arising out of the negligence, willful misconduct or fraud of
the Seller, and (ii) with respect to indemnification claims under
clause (b) of this Section 11.1, (x) for a period of two (2)
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years following the Closing Date, shall not arise until the aggregate
Claims arising during such period and resulting from the breach exceed
$1,000,000, at which time such indemnity obligations shall cover all
Claims, and (y) after two (2) years following the Closing Date, shall
not arise until the aggregate Claims arising during such period and
resulting from the breach exceed $10,000,000, at which time such
indemnity obligations shall cover all Claims.
11.2 Seller's Indemnity. The Seller hereby agrees to indemnify the Purchaser
against, and to hold the Purchaser harmless from all Claims asserted
against or incurred by the Purchaser in connection with or arising out
of (a) the ownership, maintenance or operation of the Facilities and
attributable to events occurring prior to the Closing and during the
Seller's ownership of the Facilities, or (b) a breach of any
representation, warranty or covenant of the Seller contained in this
Agreement not disclosed to or actually known by the Purchaser at or
before Closing. Notwithstanding the foregoing, the Seller shall not
indemnify the Purchaser for any debts, liabilities or obligations of
the Seller expressly assumed by the Purchaser at Closing pursuant to
this Agreement or any of the other Transaction Documents. The Seller's
obligations under this Section 11.2 shall survive the Closing until the
expiration of any applicable statute of limitations for making or
bringing such claims, demands, or causes of action. Notwithstanding
anything to the contrary contained herein, the Seller's indemnity
obligations hereunder (i) will not extend to Claims arising out of the
negligence, willful misconduct or fraud of the Purchaser, and (ii) with
respect to indemnification claims under clause (b) of this Section
11.2, (x) for a period of two (2) years following the Closing Date,
shall not arise until the aggregate Claims arising during such period
and resulting from the breach exceed $1,000,000, at which time such
indemnity obligations shall cover all Claims, and (y) after two (2)
years following the Closing Date, shall not arise until the aggregate
Claims arising during such period and resulting from the breach exceed
$10,000,000, at which time such indemnity obligations shall cover all
Claims.
12. Remedies.
12.1 Default by Seller. If the Closing fails to occur as a result of the
Seller's material breach of this Agreement, then the Purchaser may (i)
enforce specific performance of the Seller's duties and obligations
under this Agreement, or (ii) terminate this Agreement by giving
written notice thereof to the Seller prior to or at the Closing, in
which event the Purchaser shall also be entitled to seek its direct,
actual damages against the Seller for such default as well as such
other relief as may be available at law or in equity. If prior to
Closing the Seller defaults in any of its obligations, representations
or warranties hereunder, whether or not such obligation, representation
or warranty survives Closing, and such default is not disclosed to or
actually known by the Purchaser at or prior to Closing, then the
Purchaser may seek recovery of all of its direct, actual damages
incurred as a result of the Seller's default (subject to any applicable
limitations set forth in Section 11.2) as well as such other relief as
may be available at law or in equity, and the Purchaser will not be
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deemed to have waived its right to sue for damages by having closed
this transaction even though the accuracy of representations and
warranties was a condition precedent to the Purchaser's obligation to
close.
12.2 Default by Purchaser. If the Closing fails to occur as a result of the
Purchaser's material breach of this Agreement, then the Seller may (i)
enforce specific performance of the Purchaser's obligation to close
under this Agreement, or (ii) terminate this Agreement by giving
written notice thereof to the Purchaser prior to or at the Closing, in
which event the Seller shall also be entitled to seek its direct,
actual damages against the Purchaser for such default as well as such
other relief as may be available at law or in equity. If prior to
Closing the Purchaser defaults in any of its obligations,
representations or warranties hereunder, whether or not such
obligation, representation or warranty survives Closing, and such
default is not disclosed to or actually known by the Seller at or prior
to Closing, then the Seller may seek recovery of all of its direct,
actual damages incurred as a result of the Purchaser's default (subject
to any applicable limitations set forth in Section 11.2) as well as
such other relief as may be available at law or in equity, and the
Seller will not be deemed to have waived its right to sue for damages
by having closed this transaction even though the accuracy of
representations and warranties was a condition precedent to the
Seller's obligation to close.
12.3 Arbitration. Notwithstanding anything set forth herein to the contrary,
all claims and disputes between the parties arising after the Closing
hereunder shall be subject to resolution by binding arbitration in
Delaware before the American Arbitration Association and governed by
the Commercial Arbitration Rules then in effect.
12.4 Legal Fees. In the event either party to this Agreement commences legal
action of any kind or any arbitration proceeding to enforce the terms
and conditions of this Agreement, the prevailing party in such
litigation or arbitration will be entitled to collect from the other
party all costs, expenses and attorneys' fees incurred in connection
with such action or proceeding.
13. Brokers. Each party hereby represents and warrants to the other that it
has not engaged, dealt with or otherwise discussed this transaction
with any broker, agent or finder. Each party agrees to indemnify and
hold the other harmless from and against any claim arising out of a
breach of the foregoing agreement and representation and warranty.
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14. Changes in the Portfolio.
14.1 Pre-Closing.
(a) Addition of New Facilities. Except as set forth below, in the event
Magellan, any Subco, or any other subsidiary of Magellan at any time
after December 26, 1996, and prior to Closing desires to acquire any
additional behavioral healthcare in-patient facilities (the "New
Facilities"), which Magellan or such subsidiary intends to own and/or
operate in a manner substantially similar to the Facilities, the
Purchaser shall have the right to require Magellan or such subsidiary
to add such New Facility to the Facilities being acquired hereunder,
in which event the Purchase Price shall be increased by the amount
actually paid or required to be paid by Magellan or such subsidiary
for such New Facility. The foregoing sentence shall not apply to (i)
the purchase by Magellan or any subsidiary of Magellan of Parkwood
Hospital in Olive Branch, Mississippi, (ii) acquisitions by Green
Spring Health Services, Inc., or (iii) acquisitions by Magellan or any
subsidiary of Magellan of facilities the primary purpose of which is
to provide services pursuant to contracts with federal, state and
local governments and governmental agencies, providing health and
human services, including behavioral healthcare services, to the
mentally retarded, the developmentally disabled, the elderly, persons
under the control or supervision of criminal/juvenile justice systems
and other designated populations. If the Purchaser does not want to
add the New Facility to the Facilities being acquired hereunder, then,
subject to compliance with the provisions of other Transaction
Documents, Magellan shall be entitled to acquire such New Facility. If
Magellan acquires such New Facility, then simultaneously with Closing
Magellan shall enter into a management agreement with OpCo covering
such New Facility, pursuant to which OpCo shall manage and operate
such New Facility in exchange for payment by Magellan to OpCo of
OpCo's costs plus a fair market value management fee. Magellan shall
negotiate such management fee with OpCo in good faith. If Magellan and
OpCo are unable to agree upon a fair market value management fee, then
such dispute shall be resolved by appraisal in the manner provided for
determining the Fair Market Value of the Franchise (as such terms are
defined in the Franchise Agreement), as set forth in Section 4.4 of
the Franchise Agreement, except that the term "Qualified Appraiser"
used therein, for purposes of determining a fair market value
management fee pursuant to this Section 14.1(a), shall mean an
appraiser who is not in control of, controlled by or under common
control with either the Seller or OpCo and has not been an employee of
the Seller or OpCo or any Affiliate (as defined in the Franchise
Agreement) of the Seller or OpCo at any time, who is qualified to
appraise the fair market value of the management fee and has been
actively engaged in the appraisal of assets, rights and businesses,
and, to the extent it is reasonably practicable to locate such an
appraiser, an appraiser who has been actively engaged in the appraisal
of management fee arrangements for healthcare operations, in the state
in which the New Facility is located and who has held his or her
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five (5) years immediately preceding his or her appointment hereunder.
(b) Substitution of Facilities. Magellan shall have the right at any time
not later than thirty (30) days prior to Closing to substitute a
Comparable Facility (as hereinafter defined) for any Facility it
designates (a "Designated Facility"), provided that such substitution
will satisfy the Purchaser's requirements related to taxation as a
real estate investment trust. The Purchaser may demand, at Magellan's
expense, a reasonably acceptable opinion of counsel or private letter
ruling from the Internal Revenue Service indicating that the
substitution will have no material adverse tax consequences to the
Purchaser. As used herein, the term "Comparable Facility" shall mean a
facility reasonably acceptable to the Purchaser, operated as the same
type of business as the Facilities, with an expected future
profitability substantially equivalent to or greater than that of the
Designated Facility both immediately prior to such substitution and as
reasonably projected over the term of the Facilities Lease, taking
into account any relevant factors. Magellan shall pay all costs and
expenses incurred in connection with any substitution of facilities,
including reasonable attorneys' fees and expenses. After the
substitution, a Comparable Facility shall be treated as if it were a
Facility under this Agreement.
(c) Closed Facilities. If the Seller elects to close and cease its business
operations in one or more Facilities prior to Closing, such closed
Facility(ies) shall nevertheless be included in the Facilities to be
acquired hereunder, without adjustment in the Purchase Price, and at
Closing shall be included among the Collective Leased Properties (as
defined in the Facilities Lease) covered by the Facilities Lease,
without adjustment to the Rent (as defined in the Facilities Lease)
payable thereunder.
14.2 Post-Closing. In the event Magellan, any Subco, or any other subsidiary
of Magellan other than Green Spring at any time or from time to time
from and after Closing desires to acquire any New Facilities, which
Magellan or such subsidiary intends to own and/or operate in a manner
substantially similar to the Facilities, the Purchaser shall have a
right of first refusal to acquire such New Facility upon the terms and
conditions hereinafter set forth. The Purchaser shall have thirty (30)
days after receipt from Magellan of a copy of an executed letter of
intent with a seller of any such New Facility to notify Magellan of its
election to exercise such right of first refusal. The Purchaser's
failure so to notify Magellan shall be deemed to be a waiver of the
Purchaser's right to exercise its right of first refusal with respect
to the New Facility that was the subject of Magellan's notice; however,
the Purchaser's failure so to notify Magellan shall not be deemed to be
a waiver of any of the Purchaser's rights or remedies under the
noncompetition or other provisions of the Transaction Documents or a
waiver of its rights with respect to any future New Facility. If the
Purchaser elects not to exercise such right of first refusal, Magellan
may close and consummate such transaction on substantially the terms as
set forth in the letter of intent, subject to compliance with the
applicable provisions of the other Transaction Documents. If Magellan
acquires any such New Facility, then simultaneously with
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closing of such acquisition Magellan shall enter into a management
agreement with OpCo covering such New Facility, pursuant to which OpCo
shall manage and operate such New Facility in exchange for payment by
Magellan to OpCo of OpCo's costs plus a fair market value management
fee. Magellan shall negotiate such management fee with OpCo in good
faith. If Magellan and OpCo are unable to agree upon a fair market
value management fee, then such dispute shall be resolved by appraisal
in the manner provided for determining the Fair Market Value of the
Franchise (as such terms are defined in the Franchise Agreement), as
set forth in Section 4.4 of the Franchise Agreement, except that the
term "Qualified Appraiser" used therein, for purposes of determining a
fair market value management fee pursuant to this Section 14.2, shall
have the meaning given such term in Section 14.1(a) hereof. If the
Purchaser exercises its right of first refusal, the Purchaser shall be
obligated to acquire the New Facility on the terms set forth in the
letter of intent; provided, however, that the Purchaser's exercise of
such right shall be conditioned upon (1) the Purchaser's and OpCo's
execution at or as of the closing of the acquisition of such New
Facility of an amendment to the Master Facilities Lease adding such New
Facility to the leased premises thereunder and adjusting the rent
payable thereunder appropriately (with the rent payable for such New
Facility to be determined on the same basis as the rent payable for the
Facilities during the initial Lease Year, as defined in the Facilities
Lease, escalating on the same basis as the rent payable for the
Facilities), and (2) Magellan's and OpCo's execution at or as of the
closing of the acquisition of such New Facility of (A) an amendment to
the Master Franchise Agreement adding such New Facility to the
facilities covered thereby and adjusting the franchise fee payable
thereunder appropriately (with the franchise fee payable for such New
Facility to be determined on the same basis as the franchise fee
payable for the Facilities during the first and second Contract Years
(as defined in the Franchise Agreement), escalating on the same basis
as the franchise fee payable for the Facilities), and (B) a Subsidiary
Franchise Agreement covering such New Facility, upon substantially the
same terms and conditions as the Subsidiary Franchise Agreement
covering each of the other Facilities. Notwithstanding anything set
forth in this Agreement to the contrary, the provisions of this Section
14.2 shall survive Closing for a period equal to the term of the
Facilities Lease, including all extensions and renewals thereof.
15. Miscellaneous.
15.1 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors by operation of law and
permitted assigns; provided that neither party may assign, delegate or
otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party hereto,
which consent may be granted or withheld in such party's sole and
absolute discretion. Notwithstanding the foregoing, the Purchaser may
assign its rights and obligations hereunder to a wholly owned
subsidiary of the
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Purchaser or the Purchaser's general partner, provided that in no event
shall the Purchaser be released from liability for performance of all
of its obligations hereunder.
15.2 Notices. Whenever any notice is required or permitted hereunder, such
notice shall be in writing and (a) sent by certified mail, postage
prepaid, return receipt requested, (b) given by established overnight
commercial courier for delivery on the next business day with delivery
charges prepaid or duly charged, (c) personally hand-delivered or (d)
sent by facsimile transmission with confirmation of receipt received,
to the applicable address or facsimile number set forth below:
As to the Purchaser: Gerald W. Haddock
President and Chief Executive Officer
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
with copies to: David M. Dean, Esq.
Senior Vice President, Law
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
As to Magellan: Steve J. Davis, Esq.
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
with copies to: Robert W. Miller, Esq.
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Facsimile: (404) 572-5100
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Notices which are mailed shall be deemed effective upon receipt. Notices which
are hand-delivered shall be deemed effective upon tender to a natural person at
the address shown. Notices which are delivered by overnight courier shall be
deemed given on the next business day after delivery to such courier. Notices
which are delivered by facsimile transmission shall be deemed received upon
electronic confirmation of delivery.
15.3 Further Assurances. The Seller and the Purchaser agree to execute,
acknowledge and deliver any further agreements, documents, certificates
or instruments that are reasonably necessary or desirable to carry out
the transactions contemplated by this Agreement.
15.4 Amendments; Waiver. No amendment or waiver of any provision of this
Agreement shall be effective unless in writing and signed by the party
or parties against whom enforcement is sought. No failure or delay by
any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
15.5 Governing Law; No Rule of Construction. This Agreement and all
transactions hereunder shall be governed by the laws of the State of
Delaware, without regard to the application of choice of law
principles. The rule that an Agreement should be construed against the
party drafting it shall not apply to this Agreement because all parties
have played a significant role in negotiating and drafting this
Agreement.
15.6 Captions. The captions used in connection with the Articles, Sections
and Subsections of this Agreement are for convenience only and will not
be deemed to expand or limit the meaning of the language of this
Agreement.
15.7 Exhibits. All exhibits, attachments, annexed instruments and addenda
referred to herein will be considered a part hereof for all purposes
with the same force and effect as if copied verbatim herein.
15.8 Entire Agreement. This Agreement, including all Exhibits and Schedules
hereto, together with all of the other Transaction Documents and their
respective exhibits and schedules, supersedes all prior agreements and
understandings, both oral and written, between the parties with respect
to the subject matter hereof, all of which are null, void and of no
further force or effect.
15.9 Time of Essence. Time is of the essence of each and every provision of
this Agreement. However, if the final date of any period which is set
out in any provision of this Agreement falls on a Saturday, Sunday or
legal holiday under the laws of the United States, the State of Texas
or the State of Georgia then, and in such event, such period shall be
extended to the next day that is not a Saturday, Sunday or legal
holiday.
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15.10 Severability. If any term, covenant or condition of this Agreement is
held to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid or unenforceable
provision had never been contained herein.
15.11 Risk of Loss. All risk of loss to the Facilities occurring prior to
the Closing will be on the Seller.
15.12 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original document, and all of which together
shall constitute one and the same instrument. Signatures may be
transmitted by facsimile and will be accepted and considered effective
as long as such signatures are followed up with signature pages with
original signature within two (2) business days thereafter.
15.13 WAIVER OF JURY TRIAL; SERVICE OF PROCESS. EACH PARTY HEREBY
WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT BY EITHER PARTY IN CONNECTION WITH ANY
MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT OR THE RELATIONSHIP OF THE PARTIES HEREUNDER. EACH
PARTY HEREBY CONSENTS TO SERVICE OF PROCESS AND ANY PLEADING
RELATING TO ANY SUCH ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM AT THE ADDRESS SET FORTH FOR SUCH PARTY IN
SECTION 15.2 HEREOF; PROVIDED, HOWEVER, THAT NOTHING HEREIN
SHALL BE CONSTRUED AS REQUIRING SUCH SERVICE AT SUCH ADDRESS.
15.14 Non-Solicitation. During the Exclusive Period (as hereinafter defined),
Magellan shall not, and shall not permit any of its representatives, to
offer, negotiate, consummate or solicit (including furnishing any
information concerning Magellan's business, properties or other assets)
any offer or proposal for a sale and lease-back of any or all of the
Facilities, a sale and/or lease of any or all of the Contributed
Assets, Purchased Assets, Working Capital Assets or Excluded Assets (to
the extent such Excluded Assets are necessary to provide the services
to be provided under the Franchise Agreement) except, in the case of
the Contributed Assets, Purchased Assets, Working Capital Assets or
Excluded Assets (to the extent such Excluded Assets are necessary to
provide the services to be provided under the Franchise Agreement), in
the ordinary course of business or as otherwise permitted under the
OpCo Contribution Agreement, or any other transaction covering any or
all of the Facilities, Magellan's acute care psychiatric hospitals,
Contributed Assets, Purchased Assets, Working Capital Assets or
Excluded Assets (to the extent such Excluded Assets are necessary to
provide the services to be provided under the Franchise Agreement) that
is proposed to be accomplished in a manner similar to that for the
Transactions, unless Magellan shall have received an unsolicited
written offer relating to such transaction, from a reputable buyer,
which offer, in the written opinion of
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Dean Witter Reynolds Inc., Magellan's financial advisors, appears to be
on terms financially superior to those offered by the Transactions and
which, in the written opinion of legal counsel to Magellan reasonably
acceptable to the Purchaser (which would include King & Spalding,
current legal counsel to Magellan), Magellan's Board of Directors is
legally obligated to consider by principles of fiduciary duty to
stockholders under Delaware Corporation Law. Magellan shall promptly
notify the Purchaser in the event it receives any unsolicited offers or
proposals. In addition, Magellan agrees to notify all other parties who
have expressed an interest in acquiring all of any of the Facilities
and/or Operational Assets that Magellan has entered into exclusive
negotiations with one party (without identifying the Purchaser) and
that such other parties' offers have therefore been rejected, except
for any proposals or other expressions of interest which the Board of
Directors of Magellan is required to consider by principles of
fiduciary duty to stockholders under Delaware Corporation Law. For
purposes of this Agreement, the "Exclusive Period" began on December
26, 1996, and shall continue in effect until the earlier of Closing or
termination of this Agreement and the other Transaction Documents.
15.15 Confidentiality; Public Announcement. The parties shall maintain in
strict confidence all discussions regarding the Transactions, as well
as the fact that such discussions have taken and are taking place;
provided, however, that each party may disclose such information to its
attorneys, consultants, affiliates, directors, officers, employees and
representatives, governmental authorities, lenders and any other
parties assisting a party to the Transaction Documents in conducting
its due diligence investigations. The provisions of this Section will
not be applicable to disclosures of information required by applicable
law, rule or regulation and will not survive the Closing. Neither of
the parties hereto shall issue any press release or make any public
announcement of or relating to the Transactions without the prior
consent of the other party, except where a public announcement is
required by law. Where such announcement is required by law, in the
reasonable opinion of counsel to Magellan or the Purchaser, the other
party shall be given opportunity to review and comment upon the
proposed announcement. It is the intent of the parties to publicly
announce the Transactions upon execution of this Agreement and the
other Transaction Documents.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the dates set forth beneath their respective signatures below.
PURCHASER:
ATTEST: CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.
a Delaware corporation
By: _____________________________ By: /s/ Gerald Haddock
-----------------------------------
Name: ____________________________ Gerald Haddock, President and
Chief Executive Officer
Title: ___________________________
SELLER:
MAGELLAN HEALTH SERVICES, INC.
By: ____________________________ By: /s/ E. M. Crawford
-----------------------------------
Name: __________________________ Name: E. Mac Crawford
Title: ___________________________ Title: Chairman and Chief Executive
Officer
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FIRST AMENDMENT TO
REAL ESTATE PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO REAL ESTATE PURCHASE AND SALE AGREEMENT (this
"Amendment") is made as of the 28th day of February, 1997, by and between
MAGELLAN HEALTH SERVICES, INC., a Delaware corporation ("Magellan" or the
"Seller"), and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Purchaser").
R E C I T A L S:
A. The parties entered into that certain Real Estate Purchase and Sale
Agreement dated as of January 29, 1997 (the "Agreement") and that
certain Contribution Agreement dated as of January 29, 1997 (the
"Contribution Agreement"). Capitalized terms used but not defined
herein have the meanings ascribed to them in the Agreement.
B. The parties desire to enter into this Amendment to evidence their
agreement to certain changes to the Agreement, as hereinafter set
forth, and to declare the Contribution Agreement null and void ab
initio and of no force and effect.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereby agree as follows:
1. Contribution Agreement. The parties hereby declare the Contribution
Agreement to be null and void ab initio and of no force and effect, as
though it had never been entered into by them.
2. Recitals in Agreement. Recital A of the Agreement is amended and
restated in its entirety as follows:
In connection with the transactions contemplated by this
Agreement, Magellan and the Purchaser have entered into
that certain Warrant Purchase Agreement of even date
herewith (the "Warrant Purchase Agreement"). Magellan and
the Purchaser have also agreed that, follow ing the
execution of the Warrant Purchase Agreement and this
Agree ment and pursuant to the terms hereof, they will
cause certain other agreements to be executed, including,
without limitation, (i) that certain Operating Agreement
of Charter Behavioral Health Systems, LLC ("OpCo"),
between Magellan and a designee of the Purchaser to be
formed as a Delaware limited partnership or corporation
("New Cres cent") (the "Operating Agreement"), (ii) that
certain Contribution
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Agreement among Magellan, OpCo and New Crescent (the
"OpCo Con tribution Agreement"), (iii) that certain
Master Franchise Agreement between Magellan and OpCo (the
"Master Franchise Agreement") and certain additional
Franchise Agreements between Magellan and certain
subsidiaries of OpCo (the "Subsidiary Franchise
Agreements, and col lectively with the Master Franchise
Agreement, the "Franchise Agree ment"), (iv) that certain
Master Lease Agreement between the Purchaser and OpCo
(the "Facilities Lease"), (v) that certain Subordination
Agree ment by and among Magellan, the Purchaser and OpCo
(the "Subordi nation Agreement"), (vi) that certain
Warrant Purchase Agreement (the "Warrant Agreement")
between Magellan and New Crescent or Cres cent Corp. (as
such term is defined in the OpCo Contribution Agree ment)
and (vii) subject to certain conditions set forth in the
OpCo Con tribution Agreement, that certain Bridge Loan
and Security Agreement and Promissory Note between
Magellan and OpCo (the "Bridge Loan Agreement") (the
Agreement, this Amendment, the Warrant Purchase
Agreement, the Operating Agreement, the OpCo Contribution
Agree ment, the Franchise Agreement, the Facilities
Lease, the Subordination Agreement, the Warrant Agreement
and the Bridge Loan Agreement are referred to
collectively as the "Transaction Documents," and all of
the transactions contemplated hereby and thereby are
referred to collec tively as the "Transactions").
3. Seller's Representations and Warranties.
(a) Section 6.1(b) of the Agreement is amended to add the
following new first sentence:
The execution and delivery of this Agreement and the
other Transaction Documents by Magellan and the Magellan
Subsidiaries (as defined in the OpCo Contribution
Agreement) and the performance by Magellan and the
Magellan Subsidiaries of all obligations under this
Agreement and the other Transaction Documents, including,
without limitation, the sale and delivery of the
Contributed Assets, the Purchased Assets and the Working
Capital Assets (as each such term is defined in the OpCo
Con tribution Agreement) as contemplated under the OpCo
Contribution Agreement, have been duly authorized by all
necessary corporate action on the part of Magellan and
the Magellan Subsidiaries.
(b) The following new Section 6.1(bb) is added to the
Agreement:
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<PAGE>
(bb) Magellan hereby makes the following representations
and warran ties to the Purchaser with respect to the
operation of the businesses con ducted at the Hospitals
(as defined in the OpCo Contribution Agree ment), all of
which are true as of the date hereof:
(i) Insurance. A complete and accurate schedule
of all insurance policies (including a statement
of policy limits and deductibles) held by
Magellan and the Magellan Subsidiaries relating
to the Hospitals or the businesses conducted
therein now in force, including, without
limitation, malpractice, public liability,
property damage and workers compensation or other
coverage, has been made available to the
Purchaser. All insurance policies remain in full
force and effect except where such failure to
remain in full force and effect will not have a
material adverse effect on a Hospital or on the
business of the Hospitals taken as a whole.
(ii) Litigation. Except asset forth in Schedule
5.1(f) to the OpCo Contribution Agreement, there are no
lawsuits, proceedings, actions, arbitrations, claims or
governmental investigations, inquiries or proceedings
pending or, to the knowledge of Magellan, threatened,
against Magellan or any Magellan Subsidiary seeking
damages for an amount in excess of $1 million, and there
is no action, suit or proceeding by any person or agency
pending or, to the knowledge of Magellan, threatened which
questions the legality or validity of the transactions
contemplated by the OpCo Contribution Agreement.
(iii) Licenses, Accreditation and Third-Party
Payors. Magellan and the Magellan Subsidiaries hold all
licenses, permits, registrations, approvals, certificates,
contracts, consents, accreditations, approvals and
franchises ("Operating Licenses") necessary to own or
lease the Contributed Assets and to conduct and operate
the Hospitals in the manner presently operated and for
participation in the Medicare and Medicaid reimbursement
programs, including, without limitation, all licenses,
certificates of need and permits required by the state in
which they operate and by all other appropriate health
care facility licensing agencies, federal, state, county
or local governmental authorities and regulatory agencies,
except where the failure to hold such Operating Licenses
would not have a material adverse effect on a Hospital or
on the business of the Hospitals taken as a whole.
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<PAGE>
(iv) The Business. Upon transfer to OpCo of the
Contributed Assets, the Purchased Assets and the Working
Capital Assets as contemplated in the OpCo Contribution
Agreement, and consummation of the transactions
contemplated by the other Transactional Documents, (i)
OpCo will have or, through the Franchise Agreement, will
have access to all tangible and intangible assets and all
personnel reasonably necessary to conduct a business that
is substantially the same as and that operates in
accordance with the same standards of operation as the
business of the Hospitals prior to the Closing, and (ii)
OpCo will have the means to provide the services specified
in Section 7.9 of the OpCo Contribution Agreement.
(v) Contracts. Schedule 5.1(i) to the OpCo
Contribution Agreement contains a listing of all contracts
or series of related contracts which are material to the
business of the Hospitals, taken as a whole ("Material
Contracts"), including all amendments, modifications and
side letters thereto, currently in existence. With respect
to each Material Contract, neither Magellan nor any
Magellan Subsidiary has received a notice of termination,
has sent a notice of termination, is in default, or has
any knowledge that any other party to such Material
Contracts is in default thereunder.
(vi) No Other Owned Hospitals. Except as
described on Schedule 5.1(j), no Magellan Subsidiary owns
or operates any Hospital other than the Hospitals operated
using the assets which are being contributed or sold
pursuant to this Agreement and the OpCo Contribution
Agreement.
(vii) Financial Statements. All books and records
relating to operating income and expenses of the Hospitals
made available to the Purchaser by Magellan were and shall
be those maintained by Magellan in regard to the Hospitals
in the normal course of business. The audited Financial
Statements as of and for the year ended September 30, 1996
(the "1996 Financial Statements") furnished by Magellan to
the Purchaser as a part of the Seller's Deliveries have
been prepared from the books and records of Magellan in
the ordinary course of business and present fairly in all
material respects the results of operations of Magellan
for the periods then ended and the financial condition of
Magellan as of the date of the 1996 Financial Statements.
(viii) No Material Adverse Change. Since the date
of Magellan's 1996 Financial Statements, there has been no
material adverse change in the business or results of
operations of Magellan and the Magellan Subsidiaries taken
as a whole or the business of the Hospitals taken as a
whole.
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<PAGE>
(ix) SEC Reports. The periodic reports filed by
Magellan with the Securities and Exchange Commission with
respect to Magellan's immediately preceding fiscal year
and any interim periods in its current fiscal year did not
as of their respective dates contain any untrue statements
of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein, in the light of the circumstances
under which they were made, not misleading.
(x) Compliance With Laws. Magellan has delivered
to the Purchaser a draft dated January 24, 1997 ("Proxy
Statement") of its proxy statement to shareholders for its
Annual Meeting of Shareholders at which, among other
matters, shareholders of Magellan will consider and vote
on the transactions which are the subject of the
Transaction Documents. Except as described in the Proxy
Statement, or in documents filed with the Securities and
Exchange Commission pursuant to applicable law, Magellan
is not aware of any material risk that Magellan is, in the
conduct of the Business (as defined in the OpCo
Contribution Agreement) prior to the Closing, or that OpCo
will be, in the conduct of the Business after the Closing,
in violation of any applicable federal law specifically
designed to regulate the healthcare industry, which
violation will have a material adverse effect on Magellan
or OpCo.
4. Representations and Warranties of the Purchaser.
(a) Section 6.2(b) of the Agreement is amended to add the following new
first sentence:
The execution and delivery of this Agreement and the
other Transaction Documents by the Purchaser and the
consummation of the transactions con templated hereby and
thereby have been duly authorized by all necessary action
on the part of the Purchaser, including its general
partner.
(b) The following new Section 6.2(d) is added to the Agreement:
(d) SEC Reports. The periodic reports filed by Crescent
Real Estate Equities Company ("CEI") with the Securities
and Exchange Commission with re spect to CEI's
immediately preceding fiscal year and any interim periods
in its current fiscal year did not as of their respective
dates contain any untrue statements of a material fact or
omit to state any material fact required to be stated
therein or necessary to make the statements therein, in
the light of the circumstances under which they were
made, not misleading.
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<PAGE>
5. Survival. Section 8.4 of the Agreement is amended to
add, as the new last sentence thereof, the following:
Notwithstanding the foregoing, the representations and
warranties set forth in (i) the first sentence of Section
6.1(b), (ii) Section 6.1(bb), (iii) the first sen tence
of Section 6.2(b), and (iv) Section 6.2(d) (all as set
forth in this Amend ment) shall not survive the Closing
except to the extent set forth in the same or similar
form in the OpCo Contribution Agreement.
6. Seller's Covenants.
(a) Section 7.1(k) of the Agreement is amended to add the
following as the new last two sentences:
Magellan and the Purchaser shall cooperate in all
reasonable respects in OpCo's application to obtain
necessary licenses, permits and governmental approvals.
In connection with each such application on the part of
OpCo, Magellan will promptly furnish OpCo with such
information and data as is reasonably necessary to obtain
such license, permit or approval.
(b) The following new Sections 7.1(s) through 7.1(aa) are
added to the Agree ment:
(s) Magellan's Pre-Closing Covenants.
(i) Preservation of Business. Magellan covenants
and agrees, and will cause each Magellan
Subsidiary to covenant and agree, that from the
date of this Agreement to the Closing Date,
except as otherwise specif ically agreed to in
writing by the Purchaser, Magellan will (i)
preserve the business organization of the
Hospitals intact, and (ii) preserve for OpCo the
goodwill of suppliers, customers and others with
whom business relationships exist.
(ii) Access to Information and Personnel.
Magellan agrees that the Purchaser shall have the
right to speak to any Magellan personnel and make
such further review as it deems necessary or
advisable, provided that the Purchaser shall
exercise reasonable efforts to coordinate such
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<PAGE>
review with Magellan and to minimize disruption
to Magellan's opera tions. Notwithstanding the
foregoing, nothing herein contained shall be
deemed to provide the Purchaser with the right to
terminate this Agreement or any Transaction
Document as a result of any such re view, and the
results of such review shall not be a condition
to the Closing of the Transaction Documents.
(iii) Consents. Magellan shall use its
commercially reasonable best efforts to obtain
consent to the assignment of all of the contracts
as signed under Section 2.1 of the OpCo
Contribution Agreement.
(iv) No Change in Assets. Except in the ordinary
course of business consistent with past practice,
Magellan will not and will cause the Magellan
Subsidiaries not to, in any manner which would
result in a material adverse change in the
Contributed Assets, Purchased Assets or Working
Capital Assets (i) sell or transfer, (ii) create,
incur or as sume any indebtedness secured by,
(iii) grant, create, incur or suffer to exist any
liens, charges or encumbrances, which did not
exist on the date of this Agreement, on, (iv)
incur any liability or obligation (abso lute,
accrued or contingent), with respect to, or (v)
write-down the value on the books and records of
Magellan or a Magellan Subsidiary.
(v) No Change in Constitutive Documents. No
change shall be made in the Certificate or
Articles of Incorporation or bylaws of Magellan
or any of the Magellan Subsidiaries which would
result in any representa tion of Magellan
becoming untrue or in preventing Magellan from
full performance of this Agreement and the other
Transaction Documents.
(vi) Payment and Performance of Obligations.
Unless being disputed in good faith, Magellan
will not fail to pay and perform in its ordinary
course and consistent with past practice any and
all liabilities and obligations in respect of any
of the Contributed Assets as the same mature and
become owing, or cause or permit any default or
penalty to exist or occur under any of its
contracts or commitments.
(vii) No Amendment. Magellan will not amend,
alter or terminate any agreement to which it is a
party and which is to be assumed by OpCo pursuant
to this Agreement other than renewals or
amendments in the ordinary and regular course of
the Hospitals' business.
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<PAGE>
(viii) Changes in Material Contracts. Magellan
will not, and Magellan will not permit a Magellan
Subsidiary to, without the prior written consent
of the Purchaser, (i) other than Material
Contracts entered into in the ordinary course of
business, enter into any Material Contract that
will or could be binding upon OpCo or other
entity operating the Hospitals and that is not
terminable upon at most 30 days' notice, unless
such contract will be fully performed by Magellan
or a Magel lan Subsidiary on or before the
Closing, or (ii) amend, modify, supple ment or
terminate any Material Contract other than in the
ordinary course of business. Any consent
requested by Magellan pursuant to this
subparagraph (viii) will be deemed approved if
the Purchaser does not respond by written notice
to Magellan within ten Business Days after
written notice from Magellan.
(t) Bridge Financing. On the Closing Date, either (i)
Magellan shall provide OpCo with bridge financing for a
one-year term in the amount of up to $55 million as
requested by OpCo to fund its working capital needs,
including funding OpCo's acquisition of existing
supplies, inventory, prepaid expenses, and other Working
Capital Assets (the form of the Bridge Loan Agreement is
attached as Exhibit D and D-1 to the OpCo Contribution
Agreement) or (ii) OpCo shall have obtained working
capital financing of at least $55 million pursuant to a
loan facility with a syndicate of financial institutions.
(u) Financial Statements. Magellan shall provide to the
Purchaser unaudited financial statements relating to
Magellan and the business of the Hospitals as may be
prepared by Magellan through the Closing Date.
(v) Insurance Reserves. Magellan will cause Plymouth
Insurance Company Ltd. ("Plymouth") to maintain
reserves in amounts that are reasonably actuarially
adequate to cover risks insured by Plymouth associated
with the operation of the business of the Hospitals.
(w) Trade Accounts. Except for amounts disputed in good
faith, Magellan will cause to be paid all trade accounts
and costs and expenses of operation and maintenance of
the Facilities incurred or attributable to the period
prior to the Closing, and Magellan agrees to indemnify
and hold the Purchaser harm less from such costs and
expenses.
(x) Services Agreements. Prior to closing, Magellan, in
its capacity as a joint venturer, will or will cause any
Magellan Subsidiary which is a joint
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venturer in any Joint Venture that owns or operates a
domestic Hospital, which Joint Ventures are set forth on
Schedule 7.9 to the OpCo Contribution Agreement and
defined in the Franchise Agreement as "Existing Joint Ven
tures" (a "Joint Venture"), to enter into a services
agreement with OpCo for each such Hospital owned or
operated by a Joint Venture, pursuant to which OpCo will
perform, to the extent agreed by joint venture partners,
all of Magellan's obligations under the Joint Venture
agreement in exchange for the payment to OpCo by Magellan
of all distributions and fees paid to Magellan by or on
behalf of the Joint Venture. Magellan will use its
commercially reasonable best efforts to obtain the
consent of Magellan's joint venture partners to the
performance, by OpCo, of Magellan's obligations under the
Joint Venture Agreements. Each service agreement, as
referred to in this Section 7.1(x), shall be approved by
the Purchaser, which approval shall not be unreasonably
withheld. The services agreement(s) shall continue in
effect until termination of the Facilities Lease.
(y) Third Party Consents; Further Assurances. Each of
Magellan and the Purchaser shall give (or shall cause
their respective subsidiaries to give) any notices to
third parties, and use, and cause their respective
subsidiaries to use, all commercially reasonable best
efforts to obtain any third party consents necessary,
proper or advisable for it to effect the consummation of
the trans actions contemplated by the OpCo Contribution
Agreement.
(z) Employee Solicitation. Magellan will not directly or
indirectly induce or attempt to influence any key
employee of the Purchaser to leave such em ployee's
position except as mutually agreed by the Purchaser and
Magellan. Prior to Closing, Magellan and the Purchaser
will mutually agree as to which employees will be
employed by OpCo, based on the contemplated functions of
OpCo, and which will be employed by Magellan, based on
the contem plated services to be supplied by Magellan
under the Franchise Agreement.
(aa) Assets. Magellan agrees and covenants that, between
the date hereof and the Closing Date, there will be no
material change in the type of Working Capital Assets or
type or amount of Contributed Assets or Purchased Assets.
7. Limitation on Survival of Covenants. Notwithstanding
anything to the con trary contained herein, Section
7.1(v) shall not survive the Closing except to the
extent set forth in the same or similar form in the
OpCo Contribution Agreement.
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<PAGE>
8. Purchaser's Conditions Precedent to Closing. Section
8.1 of the Agreement is amended to add the following
new subsections:
(p) Purchaser shall have caused the formation of New
Crescent as an entity substantially conforming to the
description in Schedule 8.1(p) to the Agree ment and the
distribution to the public of shares of New Crescent
(unless New Crescent is the operating partnership, in
which case the distribution of shares will be from
Crescent Corp.).
(q) The OpCo Contribution Agreement in the form attached
hereto as Exhibit A, updated to reflect any change in the
name or form of organization of New Crescent (and/or
Crescent Corp.), shall have been executed by New
Crescent, Magellan and OpCo.
(r) The Operating Agreement in the form attached to the
OpCo Contribution Agreement as Exhibit C, updated to
reflect any change in the name or form of organization of
New Crescent, the names of the Directors and the source
of the initial bank financing referred to therein, and
with all missing information completed prior to execution
thereof, shall have been executed by New Cres cent and
Magellan.
(s) Unless working capital financing has been obtained
from a financial institution as provided in Section
7.1(t) of the Agreement, the Bridge Loan Agreement in the
form of Exhibit D and D-1 to the OpCo Contribution
Agreement shall have been executed by Magellan and OpCo.
9. Seller's Conditions Precedent to Closing. Section 8.2
of the Agreement is amended to add the following new
subsections:
(n) Purchaser shall have caused the formation of New
Crescent as an entity substantially conforming to the
description in Schedule 8.1(p) to the Agree ment and the
distribution to the public of shares of New Crescent
(unless New Crescent is the operating partnership, in
which case the distribution of shares will be from
Crescent Corp.).
(o) The OpCo Contribution Agreement in the form attached
hereto as Exhibit A, updated to reflect any change in the
name or form of organization of New Crescent (and/or
Crescent Corp.), shall have been executed by New
Crescent, Magellan and OpCo.
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<PAGE>
(p) The Operating Agreement in the form attached to the
OpCo Contribution Agreement as Exhibit C, updated to
reflect any change in the name or form of organization of
New Crescent, the names of the Directors and the source
of the initial bank financing referred to therein, and
with all missing information completed prior to execution
thereof, shall have been executed by New Cres cent and
Magellan.
(q) The Franchise Agreement in the form of Exhibit B and
B-1 to the OpCo Contribution Agreement (except that (i)
the "Territory" for each Franchise Owner, as such term is
defined in the Franchise Agreement, shall be specified
prior to execution thereof in accordance with the
criteria set forth on Schedule 6.1(b) to the OpCo
Contribution Agreement and as reasonably determined by
Magellan with input from the individuals who have been
designated to be the President and the Chairman of the
Governing Board of OpCo, (ii) the identi ties and fees
payable by each Franchise Owner shall be specified prior
to execution thereof and (iii) all other missing
information shall be completed prior to execution thereof
and reflecting any change in the amount of the Franchise
Fee thereunder as mutually agreed by the parties) shall
have been executed by Magellan and, as applicable, OpCo
or the appropriate subsidiary of OpCo.
(r) The Warrant Agreement in the form of Exhibit E to the
OpCo Contribu tion Agreement (updated to reflect any
change in the name or form of organi zation of Crescent
Corp. and with the number of shares issuable under the
Warrant completed and the exercise price completed,
reflecting the same premium as used to calculate the
exercise price for the warrants under the Warrant
Purchase Agreement, and based upon a valuation of
Crescent Corp. conducted by a mutually agreed upon
independent appraiser) shall have been executed by
Magellan and Crescent Corp.
10. The following new Section is added to Article 8 of the
Agreement:
8.4 Ownership Limitation on Purchaser. Both parties
recognize that if the principal partner of the Purchaser,
CEI, which is a real estate investment trust under
sections 856 to 859 of the Internal Revenue Code of 1986,
as amended (the "Code") (a "REIT"), were considered to
own, directly or by operation of certain attribution
rules, a specified interest in OpCo and/or entities owned
by OpCo which are the Tenant under the Facilities Lease,
the rents to be re ceived by the Purchaser would not
constitute "rents from real property" under section
856(d) of the Code for purposes of determining CEI's
compliance
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<PAGE>
with certain requirements of being a REIT. Both parties
agree that, notwith standing anything to the contrary in
this Agreement or any of the other Trans action
Documents, neither the Purchaser, nor any other entity
the assets of which would be attributed to CEI for
federal income tax purposes in any period during which
such entity owned such assets, has the right, option, or
obligation, directly or indirectly, (i) to enter into the
OpCo Contribution Agreement or (ii) otherwise to own any
entities constituting such Tenant, and any attempt to do
so will be null and void ab initio. Both parties agree
that the failure of the Purchaser to cause the formation
and distribution of an entity substantially conforming to
the description in Schedule 8.1(p) of the Agreement shall
not be considered (i) a breach entitling Seller to
enforce specific performance under Section 12.2(i) of the
Agreement or (ii) a breach or a failure to use
commercially reasonable best efforts entitling Seller to
recover damages under the last sentence of Section 8.3 or
under Section 12.2(ii) of the Agreement, but only if such
failure by the Purchaser occurs in reliance upon an
opinion of Shaw, Pittman, Potts & Trowbridge to the Pur
chaser that, if the Purchaser were to form and distribute
an entity substantially conforming to the description in
Schedule 8.1(p) of the Agreement, the rents to be
received by the Purchaser would likely not constitute
"rents from real property" or if such formation and
distribution would likely expose the Pur chaser to a tax
exceeding $10 million under section 857(b)(5) of the
Internal Revenue Code of 1986, as amended.
11. Continuation of Agreement. The Agreement shall continue
in full force and effect as modified hereby. In the
event of any conflicts or inconsistencies between this
Amendment (including all exhibits and Schedules
attached hereto) and the Agreement, the provisions of
this Amendment shall control.
12. Counterparts. This Amendment may be signed in any number
of counter parts, each of which shall be an original,
with the same effect as if the signa tories thereto and
hereto were upon the same instrument. Signatures may be
transmitted by facsimile and will be accepted and
considered effective as long as such signatures are
followed up with signature pages with original signa
tures within two (2) business days thereafter.
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<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by the
parties hereto effective as of the date first above written.
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation,
its sole general partner
By: /s/ Dallas E. Lucas
------------------------------
Name: Dallas E. Lucas
Title: Chief Financial Officer
MAGELLAN HEALTH SERVICES, INC.,
a Delaware corporation
By: /s/ Craig McKnight
------------------------------
Name: Craig McKnight
Title: Executive Vice President CFO
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CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT, dated as of _________, 1997 (the
"Agreement"), is entered into by and among Magellan Health Services, Inc., a
Delaware corporation ("Magellan"), Crescent [Opportunity Limited Partnership], a
[Delaware] limited partnership or [Crescent Corp.] ("Crescent"), and Charter
Behavioral Health Systems, LLC, formed under the laws of the State of Delaware
("OpCo").
WHEREAS, Magellan and Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership ("CREELP"), have entered into a Real
Estate Purchase and Sale Agreement dated January 29, 1997, as amended by the
First Amendment to Real Estate Purchase and Sale Agreement dated as of February
28, 1997 ("Real Estate Purchase and Sale Agreement"), pursuant to which Magellan
has agreed to cause certain of its subsidiaries listed on Exhibit A to the Real
Estate Purchase and Sale Agreement to sell to CREELP, and CREELP has agreed to
purchase from those subsidiaries, certain of the real property, related
improvements, furniture, equipment and fixtures owned by those subsidiaries (the
"Facilities") and used in the operation of Magellan's acute care psychiatric
hospitals;
WHEREAS, Magellan and Crescent desire to operate and maintain OpCo to
(i) operate the Facilities and certain leased facilities (together, the
"Hospitals"); and (ii) engage in the business of hospital-based behavioral
healthcare using OpCo as the operating entity;
WHEREAS, it is a condition to the consummation of the Real Estate
Purchase and Sale Agreement and the other Transaction Documents (as defined in
the Real Estate Purchase and Sale Agreement) that Magellan cause its
subsidiaries listed on Exhibit A to this Agreement (each a "Magellan Subsidiary"
and together the "Magellan Subsidiaries") to contribute certain assets to OpCo,
and that Crescent contribute certain assets to OpCo, in exchange for all of the
interests in OpCo (the "Contribution");
WHEREAS, upon closing of the transactions contemplated by this
Agreement and the Real Estate Purchase and Sale Agreement, (i) OpCo and Magellan
will enter into that certain Franchise Agreement, attached as Exhibit B to this
Agreement (the "Franchise Agreement") and will cause each OpCo Subsidiary (as
hereafter defined) to enter into that certain Franchise Agreement attached as
Exhibit B-1 (the "Subsidiary Franchise Agreement" and, collectively with the
Master Franchise Agreement, the "Franchise Agreement"), (ii) Magellan and
Crescent will enter into that certain Operating Agreement of OpCo attached as
Exhibit C to this Agreement (the "OpCo LLC Agreement"), and (iii) unless
financing is provided by a financial
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<PAGE>
institution, OpCo and Magellan will enter into that certain Bridge Loan and
Security Agreement and Promissory Note attached as Exhibits D and D-1 to this
Agreement (the "Bridge Loan Agreement");
WHEREAS, in connection therewith, Crescent [Opportunity Corp.,] a
[Delaware] corporation ("Crescent Corp.") and Magellan also will enter into that
certain Warrant Purchase Agreement, attached as Exhibit E to this Agreement (the
"Warrant Agreement");
A G R E E M E N T:
In consideration of the mutual covenants contained in this Agreement
the parties agree as follows:
SECTION 1.
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings unless the context otherwise requires:
"Business" shall mean the business of the operation of an acute care
psychiatric hospital, part of an acute care general hospital operating an acute
care psychiatric unit, a behavioral healthcare residential treatment center, a
part of a facility operating a behavioral healthcare residential treatment
center, or other similar facility providing 24-hour behavioral healthcare, and
the delivery of behavioral healthcare from such facility and other affiliated
facilities; such behavioral healthcare to include inpatient hospitalization,
partial hospitalization programs, outpatient therapy, intensive outpatient
therapy, ambulatory detoxification, behavioral modification programs and related
services.
"Contribution Date" shall mean the moment in time immediately prior to
the Closing Date.
1.2 Other Defined Terms. Capitalized terms not otherwise defined in this
Agreement shall have the meanings given them in the Real Estate
Purchase and Sale Agreement.
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<PAGE>
SECTION 2.
CONTRIBUTION
2.1 Contribution of Assets Relating to the Hospitals by Magellan. On the
Contribution Date, on the terms and subject to the conditions set
forth in this Agreement, and in consideration for a 50% interest in
OpCo, Magellan will cause the relevant Magellan Subsidiary to (either
directly or through Magellan) contribute or assign to OpCo or a
relevant, wholly owned subsidiary of OpCo (an "OpCo Subsidiary") all
of such Magellan Subsidiary's right, title and interest in the
following assets (the "Contributed Assets") related to the Hospitals:
(a) All patient medical records;
(b) All licenses and permits used in the operation of the Hospitals,
to the extent that such licenses and permits are transferable;
(c) All of the leasehold interests held by any Magellan Subsidiary as
lessee, in real or personal property including, but not limited
to:
(i) the leasehold interests in those Hospitals set forth on
Schedule 2.1(c)(i) and
(ii) the leasehold interests in the medical office buildings set
forth on Schedule 2.1(c)(ii);
(d) All of the furniture, fixtures equipment and leasehold
improvements owned by Magellan or a Magellan Subsidiary and
located at a Hospital set forth on Schedule 2.1(c)(i) or a
medical office building set forth on Schedule 2.1(c)(ii);
(e) All contracts with physicians and other healthcare professionals;
(f) All operating, service, maintenance and loaned employee
contracts;
(g) All payor contracts including but not limited to contracts with
employers, health maintenance organizations, preferred provider
organizations, managed care companies, and insurance companies
but excluding all national and regional contracts with vendors
and payors, the benefits of which will be provided to OpCo by
Magellan pursuant to the Franchise Agreement;
(h) The employment contract between Magellan and John M. DeStefanis;
(i) The stock of Charter Medical Executive Corporation ("CMEC"); and
(j) Employment files and records.
2.2 Excluded Assets. Magellan and Crescent expressly understand and agree
that neither Magellan nor any Magellan Subsidiary is conveying or
contributing to OpCo or any OpCo Subsidiary pursuant to Section 2.1
any of the following assets, rights or properties or any assets which
are not used in the conduct of the business of the Hospitals (the
"Excluded Assets"):
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(a) Supplies and inventory relating to the Hospitals;
(b) Notes receivable relating to the Hospitals;
(c) Prepaid assets relating to the Hospitals;
(d) Prepaid expenses relating to the Hospitals;
(e) Lease deposits paid by either Magellan or any Magellan Subsidiary
as tenant in any lease relating to the Hospitals;
(f) Utility deposits relating to the Hospitals;
(g) Cash held in escrow accounts relating to the Hospitals;
(h) The capital stock of any subsidiary of Magellan (other than CMEC)
or Magellan's interest in any joint venture including but not
limited to the joint ventures set forth on Schedule 2.2(h);
(i) Corporate seals, minute books, stock ledgers or other books and
records pertaining to the organization, issuance of stock and
capitalization of the Magellan Subsidiaries;
(j) All rights, properties, and assets used by Magellan primarily in
a business other than the Business and not reasonably necessary
for the operation of the Business;
(k) All rights, properties, and assets that shall have been
transferred or disposed of by Magellan or any of its subsidiaries
prior to the date of this Agreement or prior to Closing in the
ordinary course of business;
(l) Trademarks, trade names (including the "Charter" name), corporate
names and logos owned by Magellan and any of its subsidiaries;
(m) All real estate, furniture, fixtures and equipment to be
transferred to Crescent under the Real Estate Purchase and Sale
Agreement;
(n) Any deferred tax asset of a Magellan Subsidiary at the Closing
Date;
(o) The Cocoon System (as defined in the Franchise Agreement)
including but not limited to all treatment protocols, written or
unwritten, and future improvements and modifications, whether
made by Magellan, a Magellan Subsidiary, OpCo or an OpCo
Franchisee as defined in the Franchise Agreement;
(p) Policy and procedure manuals, written or unwritten, and future
improvements and modifications to such manuals, whether made by
Magellan, a Magellan Subsidiary, OpCo or an OpCo Subsidiary;
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(q) All cash, cash equivalents, short-term investments, marketable
securities, and accounts receivable of Magellan and each Magellan
Subsidiary;
(r) Patient related software systems;
(s) TRIMS system;
(t) Purchasing/ordering systems;
(u) Accounting systems;
(v) Call center system;
(w) Intellectual property rights;
(x) Tax refunds, cost report adjustments and settlements relating to
periods prior to the Closing Date and liabilities or assets
related to depreciation recapture relating to periods prior to
the Closing Date;
(y) Disproportionate Share Payments; and
(z) Assets (including business records) required in order to provide
the services to be provided by Magellan pursuant to the Franchise
Agreement.
2.3 Assumed Obligations. Magellan and Crescent expressly understand and
agree that all of the debts, obligations, duties and liabilities,
liquidated or unliquidated, contingent or fixed, relating to or
arising out of the operation of the Hospitals and the business of OpCo
after the Closing (as well as those in subsections (c) and (d) below)
but excluding each and every liability and obligation for which
Magellan has agreed to indemnify OpCo pursuant to Section 8 of this
Agreement (the "Assumed Obligations") shall be assumed by OpCo as of
the Contribution Date regardless of whether such liabilities are
accrued on the books of Magellan or a Magellan Subsidiary, (or OpCo
shall otherwise be responsible for such debts, liabilities, duties and
liabilities), including, without limitation, the following:
(a) All such liabilities and obligations relating to the Contributed
Assets;
(b) All such liabilities and obligations relating to the Purchased
Assets (as hereafter defined);
(c) All liabilities and obligations relating to paid days off and
accrued vacation arising prior to the Contribution Date;
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(d) All liabilities and obligations relating to sick days arising
prior to the Contribution Date;
(e) All such liabilities and obligations (excluding any payment
obligations) arising from the Consent Decrees and Settlements
listed on Schedule 6.1(p) to the Real Estate Purchase and Sale
Agreement;
(f) All such liabilities and obligations arising from OpCo's
participation in the contracts excluded from Section 2.1(f); and
(g) All such liabilities and obligations related to software
sublicensed to OpCo pursuant to the Franchise Agreement which are
licensed from third parties.
2.4 Excluded Liabilities. Any and all liabilities of Magellan or a
Magellan Subsidiary arising prior to the Closing, except as set forth
in Section 2.3(c) and (d) (the "Excluded Liabilities"), shall not be
assumed by OpCo and shall remain the liabilities and obligations of
Magellan or the relevant Magellan Subsidiary except to the extent
covered by insurance, subject to Section 8.1. Without limiting the
effect of the foregoing, the term "Excluded Liabilities" includes the
following liabilities which arose or were incurred prior to the
Closing:
(a) Any liability or obligation in respect of any federal, state,
local, foreign or other tax, levy, assessment or other
governmental charge, including, without limitation, income,
business, occupation, franchise, property, payroll, personal
property, sales, transfer, employment, occupancy, franchise or
withholding taxes, and any premium, including, without
limitation, interest, penalties and additions in connection
therewith;
(b) Any liability (to the extent not covered by insurance) arising
from any injury to or death of any person or damage to or
destruction of any property, whether based on negligence, breach
of warranty, strict liability, enterprise liability or any other
legal or equitable theory, arising from the ownership or
operation of the Hospitals or the services performed by Magellan
or any of its subsidiaries prior to the Closing;
(c) The charges and taxes which Magellan has agreed to pay pursuant
to Section 9.1 of this Agreement;
(d) Adjustments or refunds of payments required by Medicare, Medicaid
or any other payor as a result of payments prior to the
Contribution Date; and
(e) Fines or penalties assessed and arising out of activities
occurring prior to the Contribution Date.
2.5 Contribution of Cash by Crescent. On the Contribution Date, on the
terms and subject to the conditions set forth in this Agreement and in
consideration for a 50% interest in
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OpCo, Crescent shall contribute to OpCo cash in the amount of $5.0
million (the "Crescent Contribution"), which is equal to the purchase
price of the Purchased Assets (as defined below).
SECTION 3.
PURCHASE OF CERTAIN ASSETS BY OPCO
3.1 Asset Purchase. On the Closing Date, OpCo shall purchase from Charter
Medical Information Systems ("CMIS") the assets of CMIS listed on the
computer printout (the "Purchased Assets") delivered by Magellan to
Crescent on the date hereof, which computer printout is separately
bound.
3.2 Purchase of Working Capital. On the Closing Date, OpCo shall purchase
(with payment to be made within two business days of purchase) from
the Magellan Subsidiaries the following assets (the "Working Capital
Assets") relating to or used in the Hospitals and as the same exist on
the Closing Date:
(a) Supplies and inventory relating to the Hospitals;
(b) Notes receivable relating to the Hospitals;
(c) Prepaid assets relating to the Hospitals;
(d) Prepaid expenses relating to the Hospitals;
(e) Lease deposits paid by either Magellan or any Magellan Subsidiary
as tenant in any lease relating to the Hospitals; and
(f) Utility deposits relating to the Hospitals.
3.3 Purchase Price. The aggregate purchase price for the Purchased Assets
is $5.0 million, and for the Working Capital Assets is $8.0 million
(in the aggregate, the "Purchase Price"). On the Closing Date, OpCo
shall pay to Magellan or its designated subsidiary cash equal to $5.0
million, with payment for the Working Capital Assets to be made within
two business days of the Closing Date from the proceeds of the
financing contemplated by Section 7.4.
3.4 Post-Closing Adjustment. Within sixty (60) days after the Closing
Date, Magellan shall deliver to OpCo a statement (the "Statement")
setting forth the net book value of the Working Capital Assets as of
the Closing Date, together with appropriate supporting information.
The net book value of the Working Capital Assets shall be calculated
from the books and records of Magellan, in accordance with past
practice. OpCo shall have thirty (30) days to deliver to Magellan any
objections ("Objections") it has to the Statement. If OpCo does
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not submit any such Objections, the Statement shall become final. If
OpCo does deliver any Objections, Magellan and OpCo shall negotiate in
good faith to resolve the Objections as promptly as practical. In the
event Magellan and OpCo are unable to resolve the Objections within
thirty (30) days after such Objections are delivered to Magellan, the
matter shall be referred to Arthur Andersen LLP for final resolution
of the Objections, which resolution shall be binding upon the parties.
Arthur Andersen LLP shall resolve the Objections as promptly as
practical, but in any event within forty-five (45) days. If at any
time the Objections to the Statement are resolved in any manner set
forth above, the Statement shall become final (the "Final Statement").
If the Final Statement shows that the amount of Working Capital Assets
as of the Closing Date are less than $8.0 million (the difference, the
"Shortfall"), Magellan shall promptly pay OpCo the amount of the
Shortfall. If the Final Statement shows that the Working Capital
Assets as of the Closing Date are greater than $8.0 million (the
"Surplus"), OpCo shall promptly pay Magellan the amount of the
Surplus.
SECTION 4.
CONSIDERATION AND CLOSING
4.1 Amount and Form of Consideration. On the Closing Date (i) in
consideration of Magellan's transfer and contribution of the
Contributed Assets to OpCo, OpCo shall deliver to Magellan fifty
percent (50%) of the issued and outstanding capital equity interests
in OpCo (the "Magellan Interest"), and (ii) in consideration of
Crescent's transfer and contribution of the Crescent Contribution to
OpCo, OpCo shall deliver to Crescent fifty percent (50%) of the issued
and outstanding capital equity interests in OpCo (the "Crescent
Interest").
4.2 The Closing.
(a) The Contribution shall occur on the date, at the time and place,
and subject to the conditions set forth in the Real Estate
Purchase and Sale Agreement and herein.
(b) On the Closing Date, Magellan, Crescent, OpCo and each OpCo
Subsidiary (as applicable) shall execute and deliver the
following documents:
(i) the OpCo LLC Agreement;
(ii) the Franchise Agreement;
(iii)subject to Section 7.1(t) of the Real Estate Purchase and
Sale Agreement, the Bridge Loan Agreement;
(iv) the Warrant Agreement;
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(v) subject to obtaining any required consent, assignments of
the contracts and leases included in the Contributed Assets,
the Purchased Assets and the Working Capital Assets; and
(vi) such other instruments and documents, in form and substance
reasonably acceptable to Magellan and Crescent, as may be
necessary to effect the closing of the transactions
contemplated by this Agreement or to evidence the
Contribution.
(c) On the Closing Date, Magellan shall execute and deliver to OpCo
the following:
(i) Assignments, bills of sale or other documents or instruments
of transfer to transfer to OpCo all tangible and intangible
personal property included in the Contributed Assets, the
Purchased Assets and the Working Capital Assets (which
documents shall include a general warranty to title of such
assets except for those assets which are leased, purchased
on an installment basis or encumbered by an Assumed
Obligation);
(ii) Such instruments of assumption and other instruments or
documents as may be necessary to effect OpCo's assumption of
the Assumed Obligations; and
(iii)Such other instruments or documents as may be necessary to
effect the closing of the transactions contemplated by this
Agreement.
(d) At the closing, Crescent shall deliver by wire transfer, to an
account number designated by OpCo, the Crescent Contribution in
immediately available funds.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Magellan. Magellan represents and
warrants to OpCo, as of the date hereof as follows:
(a) Organization and Power. Magellan and the Magellan Subsidiaries
are corporations or limited liability companies duly organized,
validly existing and in good standing under the laws of their
respective states of incorporation or formation, with power and
authority to conduct the businesses in which they are engaged, to
lease and own the properties leased or owned by them and to enter
into and perform their obligations under this Agreement. Each of
Magellan and the Magellan Subsidiaries is qualified to do
business and is in good standing as a foreign corporation or
limited liability company in each jurisdiction where each of them
is required to be so qualified, except where the failure to so
qualify would not have a material adverse effect on a Hospital or
on the business of the Hospitals taken as whole.
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(b) Authorization. The execution and delivery of this Agreement by
Magellan and the Magellan Subsidiaries, the performance by
Magellan and the Magellan Subsidiaries of all obligations under
this Agreement and the sale and delivery of the Contributed
Assets, the Purchased Assets and the Working Capital Assets have
been duly authorized by all necessary corporate action on the
part of Magellan and the Magellan Subsidiaries. This Agreement
has been duly executed and delivered by Magellan and the Magellan
Subsidiaries and constitutes the legal, valid and binding
obligation of each of them, enforceable against each of Magellan
and the Magellan Subsidiaries in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditor's
rights generally.
(c) No Violation. The execution and delivery of this Agreement by
Magellan and the Magellan Subsidiaries, and the consummation by
Magellan and the Magellan Subsidiaries of the transactions
contemplated in this Agreement will not conflict with or result
in the breach or violation of any of the terms or conditions of,
or constitute (or with notice or lapse of time or both would
constitute) a default under, (i) the Certificate or Articles of
Incorporation or Bylaws of Magellan or any Magellan Subsidiary,
(ii) except as set forth on Schedule 5.1(c), any material
instrument, contract or other agreement to which Magellan or any
Magellan Subsidiary is a party or by which Magellan or any
Magellan Subsidiary is bound, (iii) any material provision of
law, statute, rule or regulation of any court or governmental
authority to which Magellan or any Magellan Subsidiary is subject
(assuming applicable approvals and consents in Schedule 5.1(d)
are obtained), or (iv) except as set forth on Schedule 5.1(c),
any judgment, decree, franchise, order, license or permit
applicable to Magellan or any Magellan Subsidiary, except where
such conflict, breach, violation or default would not have a
material adverse effect on a Hospital or on the business of the
Hospitals taken as a whole.
(d) Consents. Except as set forth in Schedule 5.1(d), no material
consent, approval, license or authorization of any third party,
governmental agency, commission, board or public authority is
required in connection with the execution, delivery and
performance of this Agreement by Magellan or any Magellan
subsidiary.
(e) Insurance. A complete and accurate schedule of all insurance
policies (including a statement of policy limits and deductibles)
held by Magellan and the Magellan Subsidiaries relating to the
Hospitals or the Business now in force, including, without
limitation, malpractice, public liability, property damage and
workers compensation or other coverage, has been made available
to Crescent. All insurance policies remain in full force and
effect except where such failure to remain in full force and
effect will not have a material adverse effect on a Hospital or
on the business of the Hospitals taken as a whole.
(f) Litigation. Except as set forth in Schedule 5.1(f), there are no
lawsuits, proceedings, actions, arbitrations, claims or
governmental investigations, inquiries or proceedings pending or,
to the knowledge of Magellan, threatened, against Magellan or any
Magellan Subsidiary seeking damages for an amount in excess of $1
million, and there is no action, suit or proceeding by any person
or agency pending or, to the knowledge of Magellan, threatened
which questions the legality or validity of the transactions
contemplated hereby.
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(g) Licenses, Accreditation and Third-Party Payors. Magellan and the
Magellan Subsidiaries hold all licenses, permits, registrations,
approvals, certificates, contracts, consents, accreditations,
approvals and franchises ("Licenses and Permits") necessary to
own or lease the Contributed Assets and to conduct and operate
the Hospitals in the manner presently operated and for
participation in the Medicare and Medicaid reimbursement
programs, including, without limitation, all licenses,
certificates of need and permits required by the state in which
they operate and by all other appropriate health care facility
licensing agencies, federal, state, county or local governmental
authorities and regulatory agencies, except where the failure to
hold such Licenses and Permits would not have a material adverse
effect on a Hospital or on the business of the Hospitals taken as
a whole.
(h) The Business. Upon transfer to OpCo of the Contributed Assets,
the Purchased Assets and the Working Capital Assets, and
consummation of the transactions contemplated by the other
Transactional Documents, (i) OpCo will have or, through the
Franchise Agreement, will have access to all tangible and
intangible assets and all personnel reasonably necessary to
conduct a business that is substantially the same as and that
operates in accordance with the same standards of operation as
the business of the Hospitals prior to the Closing, and (ii) OpCo
will have the means to provide the services specified in Section
7.9.
(i) Contracts. Schedule 5.1(i) contains a listing of all contracts or
series of related contracts which are material to the business of
the Hospitals, taken as a whole ("Material Contracts"), including
all amendments, modifications and side letters thereto, currently
in existence. With respect to each Material Contract, neither
Magellan nor any Magellan Subsidiary has received a notice of
termination, has sent a notice of termination, is in default, or
has any knowledge that any other party to such Material Contracts
is in default thereunder.
(j) No Other Owned Hospitals. Except as described on Schedule 5.1(j),
no Magellan Subsidiary owns or operates any Hospital other than
the Hospitals operated using the assets which are being
contributed or sold pursuant to this Agreement.
(k) Financial Statements. All books and records relating to operating
income and expenses of the Hospitals made available to CREELP or
Crescent by Magellan were and shall be those maintained by
Magellan in regard to the Hospitals in the normal course of
business. The audited Financial Statements as of and for the year
ended September 30, 1996 (the "1996 Financial Statements")
furnished by Magellan to CREELP as a part of Magellan's
Deliveries (as defined in the Real Estate Purchase and Sale
Agreement) have been prepared from the books and records of
Magellan in the ordinary course of business and present fairly in
all material respects the results of operations of Magellan for
the periods then ended and the financial condition of Magellan as
of the date of the 1996 Financial Statements.
(l) No Material Adverse Change. Since the date of Magellan's 1996
Financial Statements, there has been no material adverse change
in the business or results of operations of
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Magellan and the Magellan Subsidiaries taken as a whole or the
business of the Hospitals taken as a whole.
(m) SEC Reports. The periodic reports filed by Magellan with the
Securities and Exchange Commission with respect to Magellan's
immediately preceding fiscal year and any interim periods in its
current fiscal year did not as of their respective dates contain
any untrue statements of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading.
(n) Compliance With Laws. Magellan has delivered to Crescent or
CREELP a draft dated __________, 1997 ("Proxy Statement") of its
proxy statement to shareholders for its Annual Meeting of
Shareholders at which, among other matters, shareholders of
Magellan will consider and vote on the transactions which are the
subject of the Transaction Documents. Except as described in the
Proxy Statement, or in documents filed with the Securities and
Exchange Commission pursuant to applicable law, Magellan is not
aware of any material risk that Magellan is, in the conduct of
the Business prior to the closing of the transactions
contemplated by the Transaction Documents or that OpCo will be,
in the conduct of the Business after the closing of the
transactions contemplated by the Transaction Documents, in
violation of any applicable federal law specifically designed to
regulate the healthcare industry, which violation will have a
material adverse effect on Magellan or OpCo.
5.2 Representations and Warranties of Crescent. Crescent hereby represents
and warrants to OpCo as follows:
(a) Authorizations, etc. The execution and delivery of this Agreement
by Crescent and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the
part of Crescent, including its General Partner. This Agreement
has been duly executed and delivered by Crescent and constitutes
the valid and binding obligation of Crescent, enforceable against
Crescent in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or
similar laws of affecting creditor's rights generally.
(b) No Violation. Neither the execution and delivery of this
Agreement, nor the consummation by Crescent of the transactions
contemplated hereby will conflict with or result in the breach or
violation of any of the terms or conditions of, or constitute (or
with notice or lapse of time or both would constitute) a default
under, (i) organizational documents, including the Partnership
Agreement of Crescent, (ii) any material instrument, contract or
other agreement to which Crescent is a party or by which Crescent
is bound, (iii) any material provision of law, statute, rule or
regulation of any court or governmental authority to which
Crescent is subject, including any provision relating to the
status of Crescent Real Estate Equities Company ("CEI") as a real
estate investment trust, or (iv) any judgment, decree, franchise,
order, license or permit applicable to Crescent, except where
such conflict, breach, violation or default would not have a
material adverse effect on Crescent.
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(c) Consents. Except as set forth in Schedule 5.2(c), no material
consent, approval, license or authorization of any third party,
governmental agency, commission, board or public authority is
required in connection with the execution, delivery and
performance of this Agreement by Crescent.
(d) SEC Reports. The periodic reports filed by CEI with the
Securities and Exchange Commission with respect to CEI's
immediately preceding fiscal year and any interim periods in its
current fiscal year did not as of their respective dates contain
any untrue statements of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading.
SECTION 6.
CONDITIONS TO CLOSING
6.1 Pre-Closing Conditions. The consummation of the transactions
contemplated by this Agreement by each party is subject to
satisfaction of the following conditions, as applicable:
(a) Satisfaction of all of the conditions to closing set forth in the
Real Estate Purchase and Sale Agreement;
(b) Execution of the Franchise Agreement in the form of Exhibit B and
B-1 hereto (except that (i) the "Territory" for each Franchise
Owner (as defined in the Franchise Agreement) shall be specified
prior to execution thereof in accordance with the criteria set
forth on Schedule 6.1(b) and as reasonably determined by Magellan
with input from the individuals who have been designated to be
the President and the Chairman of the Governing Board of OpCo,
(ii) the identities and fees payable by each Franchise Owner
shall be specified prior to execution thereof and (iii) all other
missing information shall be completed prior to execution thereof
and reflecting any change in the amount of the Franchise Fee
thereunder as mutually agreed by the parties);
(c) Execution of the OpCo L.L.C. Agreement in the form of Exhibit C
hereto, updated to reflect any change in the name or form of
organization of Crescent, the names of the Directors and the
source of the initial bank financing referred to therein and with
all missing information completed prior to execution thereof;
(d) Unless working capital financing has been obtained from a
financial institution as provided in Section 7.1(t) of the Real
Estate Purchase and Sale Agreement, execution of the Bridge Loan
Agreement in the form of Exhibit D and D-1;
(e) Execution of the Warrant Agreement in the form of Exhibit E
hereto (updated to reflect any change in the name or form of
organization of Crescent Corp. and with the number of
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shares issuable under the Warrant completed and the exercise
price completed, reflecting the same premium as used to calculate
the exercise price for the warrants under the Magellan Warrant
Agreement, and based upon a valuation of Crescent Corp. conducted
by a mutually agreed upon independent appraiser); and
(f) The truth and accuracy in all material respects of the
representations and warranties made herein and compliance in all
material respects with all covenants and the delivery by each
party of an officer's certificate so stating.
6.2 Failure of Conditions. If any condition described in subsections (a) -
(f) of Section 6.1 is not satisfied by the Closing Date, Crescent
shall have the right to terminate this Agreement by giving written
notice of such action to Magellan and Magellan shall have the right to
terminate by giving written notice to Crescent. Upon delivery of any
such termination notice, this Agreement shall terminate, and all
rights and obligations of the parties hereunder shall be released and
discharged, except that Magellan, on the one hand, and Crescent, on
the other hand, shall each remain liable to the other for all damages
suffered by the other if the unsatisfied condition was due to a breach
by one party of any of the covenants, obligations, representations or
warranties of such party in this Agreement or any other failure by
such party to use its commercially reasonable best efforts to satisfy
conditions precedent to Closing that are within the control of such
party to satisfy.
SECTION 7.
COVENANTS AND AGREEMENTS
Magellan covenants and agrees, and will cause each Magellan Subsidiary
to covenant and agree, and, as applicable, Crescent and OpCo covenant and agree
as follows:
7.1 Unlisted Assets. To the extent that, subsequent to Closing, an asset
or right that is used in the conduct of the business of the Hospitals
prior to Closing and that was not listed as a Contributed Asset,
Purchased Asset, Working Capital Asset or an Excluded Asset is
discovered to exist, either such asset or right shall be conveyed to
OpCo without charge or OpCo shall receive the benefits of ownership of
such asset through the Franchise Agreement at no additional charge
(except to the extent that the asset results in an increase in
franchise fees due to the gross revenue component of the franchise
fees);
7.2 Assignment or Transfer of Contributed Assets. To the extent that any
of the Contributed Assets cannot be assigned or otherwise transferred
to OpCo, Magellan will use its commercially reasonable best efforts to
create an alternative structure that will provide OpCo with
substantially the same rights, and produce substantially the same
economic effect, as that which would have been provided or produced if
the Contributed Assets had been transferred or assigned.
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7.3 Parties' Commercially Reasonable Best Efforts. Magellan and Crescent
agree to use their commercially reasonable best efforts to cause all
their covenants and agreements and all conditions precedent to the
consummation of the Transactions contemplated by this Agreement to be
performed, satisfied and fulfilled.
7.4 Insurance Reserves. Magellan will cause Plymouth Insurance Company
Ltd. ("Plymouth") to maintain reserves in amounts that are reasonably
actuarially adequate to cover risks insured by Plymouth associated
with the operation of the business of the Hospitals.
7.5 Accounts Receivable. OpCo shall pay to Magellan all amounts actually
received by OpCo in payment of receivables relating to the business of
the Hospitals, which receivables were existing as of (or accrued prior
to) the Closing Date, in exchange for a fee payable to OpCo by
Magellan equal to 5% of receivables collected by OpCo and received by
OpCo or Magellan. The receivables will be collected in accordance with
the procedures (including the level of effort to be expended)
established by Charter Behavioral Health Systems, Inc. prior to the
Closing Date and disclosed to OpCo in writing on or before the Closing
Date. Any receivables remaining uncollected 120 days or more after the
Closing Date will be turned over to Magellan at its request and OpCo
shall have no further obligations as to such receivables but will
continue collection efforts for all receivables not so delivered to
Magellan.
7.6 Brokers. Each party represents and warrants to the other that it has
not engaged, dealt with or otherwise discussed this Agreement or the
Transactions with any broker, agent or finder.
7.7 Specific Performance. The parties acknowledge and agree that their
respective rights and obligations that will arise out of this
Agreement are unique and irreplaceable, and that the failure of either
party to perform its obligations under this Agreement or any of the
Transaction Documents would result in damage to the other party that
could not be adequately compensated by a monetary award. Subject to
Section 8.4 of the Real Estate Purchase and Sale Agreement but
notwithstanding anything else to the contrary, the parties therefore
agree that if either party fails to perform its obligations hereunder
or with respect to any of the Transaction Documents, the other party
may, in addition to all other remedies, seek an order of specific
performance from a court of appropriate jurisdiction.
7.8 Third Party Consents; Further Assurances.
(a) If any party shall fail to obtain any third party consent
necessary, proper or advisable to effect the consummation of the
Contribution, the purchase of the Purchased Assets or the
purchase of the Working Capital Assets, such party shall use all
commercially reasonable best efforts, and shall take any such
actions reasonably requested by the other parties hereto, to
minimize any adverse effect upon OpCo's business resulting, or
that could reasonably be expected to result after the date
hereof, from the failure to obtain such consent.
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(b) In addition to the actions, contracts and other agreements and
documents and other papers specifically required to be taken or
delivered pursuant to this Agreement, each of the parties hereto
shall execute such contracts and other agreements and documents
and take such further actions as may be reasonably required or
desirable to carry out the provisions of this Agreement.
7.9 Services Agreements. Prior to closing, Magellan, in its capacity as a
joint venturer, will or will cause any Magellan Subsidiary which is a
joint venturer in any Joint Venture that owns or operates a domestic
Hospital, which Joint Ventures are set forth on Schedule 7.9 and
defined in the Franchise Agreement as "Existing Joint Ventures" (a
"Joint Venture"), to enter into a services agreement with OpCo for
each such Hospital owned or operated by a Joint Venture, pursuant to
which OpCo will perform, to the extent agreed by joint venture
partners, all of Magellan's obligations under the Joint Venture
agreement in exchange for the payment to OpCo by Magellan of all
distributions and fees paid to Magellan by or on behalf of the Joint
Venture. Magellan will use its commercially reasonable best efforts to
obtain the consent of Magellan's joint venture partners to the
performance, by OpCo, of Magellan's obligations under the Joint
Venture Agreements. Each service agreement, as referred to in this
Section 7.9, shall be approved by Crescent, which approval shall not
be unreasonably withheld. The services agreement(s) shall continue in
effect until termination of the Facilities Lease.
7.10 Employee Benefits. The parties agree to establish employee benefit
plans for the employees of OpCo providing for overall benefits in an
amount similar to the benefits provided by the employee benefit plans
in effect on the date hereof at Magellan and the Magellan
Subsidiaries.
7.11 Title to Property. Magellan and the Magellan Subsidiaries shall convey
at the Closing pursuant to the form of bill of sale attached as
Exhibit I to the Real Estate Purchase and Sale Agreement, (i) good and
marketable title to the Contributed Assets, the Purchased Assets and
the Working Capital Assets (to OpCo or such OpCo Subsidiary as OpCo
directs) owned by Magellan or a Magellan Subsidiary, subject to no
liens, encumbrances or material claims whatsoever, except for the
Assumed Obligations and except for any liens, encumbrances and claims
related to the purchase of property on an installment basis in the
ordinary course of business, and (ii) all of their rights and interest
in the Contributed Assets, the Purchased Assets, and the Working
Capital Assets leased by Magellan or a Magellan Subsidiary.
7.12 Right to Inspect. Magellan shall grant OpCo the right to inspect any
and all business records retained by Magellan pursuant to Section
2.2(z) during reasonable business hours and upon reasonable prior
notice. OpCo shall grant Magellan access to any business records
transferred to OpCo during reasonable business hours and upon
reasonable prior notice.
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SECTION 8.
INDEMNIFICATION
8.1 Indemnification Obligations of Magellan. Magellan shall indemnify and
hold harmless OpCo and its subsidiaries and affiliates, each of their
respective officers, directors, partners, employees, agents and
representatives and each of the permitted successors and assigns of
any of the foregoing (collectively, the "OpCo Indemnified Parties")
from, against and in respect of any and all claims, liabilities,
obligations, losses, costs, expenses, penalties, fines and other
judgments (at equity or at law) and damages (including, without
limitation, amounts paid in settlement, costs of investigation and
reasonable attorneys' fees and expenses) (collectively, "Claims and
Damages") arising out of or relating to (i) any breach of any
representation, warranty, covenant, agreement or undertaking made by
Magellan in this Agreement or in any certificate, agreement, exhibit
or schedule delivered pursuant to this Agreement, or (ii) the
ownership, lease or operation of the Hospitals and attributable to
events arising prior to the Closing (including claims made after
Closing related to events occurring prior to Closing) other than
Assumed Liabilities or liabilities to the extent they are covered by
existing insurance, provided, however, that if the insurer does not
pay insured amounts under the terms of the policies, Magellan shall
indemnify the OpCo Indemnified Parties for such debts, liabilities and
obligations. The Claims and Damages of the OpCo Indemnified Parties
described in this Section 8.1 as to which the OpCo Indemnified Parties
are entitled to indemnification are hereinafter collectively referred
to as "OpCo Losses." Notwithstanding anything to the contrary
contained herein, Magellan's indemnity obligations hereunder will not
extend to claims arising out of willful misconduct or fraud of OpCo.
8.2 Indemnification Obligations of OpCo. OpCo shall indemnify and hold
harmless Magellan and its subsidiaries and affiliates and each of
their respective officers, directors, partners, employees, agents and
representatives and each of the permitted successors and assigns of
any of the foregoing (collectively, the "Magellan Indemnified
Parties") from, against and in respect of any and all Claims and
Damages arising out of or relating to any debts, liabilities and
obligations relating to (i) the ownership, lease or operation of the
Hospitals and attributable to events which arise after the Closing or
(ii) the Assumed Obligations. The Claims and Damages of the Magellan
Indemnified Parties described in this Section 8.2 as to which the
Magellan Indemnified Parties are entitled to indemnification are
hereinafter collectively referred to as "Magellan Losses."
Notwithstanding anything to the contrary contained herein, OpCo's
indemnity obligations hereunder will not extend to claims arising out
of willful misconduct or fraud of Magellan.
8.3 Indemnification Procedure.
(a) Promptly after receipt by an OpCo Indemnified Party or a Magellan
Indemnified Party (each an "Indemnified Party") of notice by a
third party of any complaint or the commencement of any action or
proceeding with respect to which indemnification is being sought
hereunder, such Indemnified Party shall notify OpCo, if the
Indemnified Party is a
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Magellan Indemnified Party, or Magellan, if the Indemnified Party
is a OpCo Indemnified Party (the "Indemnifying Party"), of such
complaint or of the commencement of such action or proceeding;
provided, however, that the failure to so notify the Indemnifying
Party shall not relieve the Indemnifying Party from liability for
such claim arising otherwise than under this Agreement and such
failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party from liability which the Indemnifying Party
may have under this Agreement with respect to such claim if, but
only if, and only to the extent that, such failure to notify the
Indemnifying Party results in the forfeiture by the Indemnifying
Party of rights and defenses otherwise available to the
Indemnifying Party with respect to such claim. The Indemnifying
Party shall have the right, upon written notice to the
Indemnified Party, to assume the defense of such action or
proceeding, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of the
reasonable fees and disbursements of such counsel. In the event,
however, that the Indemnifying Party declines or fails to assume
the defense of the action or proceeding or to employ counsel
reasonably satisfactory to the Indemnified Party, in either case
in a timely manner, then such Indemnified Party may employ
counsel to represent or defend it in any such action or
proceeding and the Indemnifying Party shall pay the reasonable
fees and disbursements of such counsel as incurred; provided,
however, that the Indemnifying Party shall not be required to pay
the fees and disbursements of more than one counsel for all
Indemnified Parties in any jurisdiction in any single action or
proceeding. In any action or proceeding with respect to which
indemnification is being sought hereunder, the Indemnified Party
or the Indemnifying Party, whichever is not assuming the defense
of such action, shall have the right to participate in such
litigation and to retain its own counsel at such party's own
expense. The Indemnifying Party or the Indemnified Party, as the
case may be, shall at all times use reasonable efforts to keep
the Indemnifying Party or the Indemnified Party, as the case may
be, reasonably apprised of the status of the defense of any
action, the defense of which it is maintaining and to cooperate
in good faith with the Indemnifying Party or the Indemnified
Party, as the case may be, with respect to the defense of any
such action.
(b) No Indemnified Party may settle or compromise any claim or
consent to the entry of any judgment with respect to which
indemnification is being sought hereunder without the prior
written consent of the Indemnifying Party, unless such
settlement, compromise or consent includes an unconditional
release of the Indemnifying Party from all liability arising out
of such claim. An Indemnifying Party may not, without the prior
written consent of the Indemnified Party, settle or compromise
any claim or consent to the entry of any judgment with respect to
which indemnification is being sought hereunder unless such
settlement, compromise or consent includes an unconditional
release of the Indemnified Party from all liability arising out
of such claim and does not contain any equitable order, judgment
or term which in any manner affects, restrains or interferes with
the business of the Indemnified Party or any of the Indemnified
Party's respective affiliates.
(c) In the event an Indemnified Party shall claim a right to payment
pursuant to this Agreement, such Indemnified Party shall send
written notice of such claim to the appropriate Indemnifying
Party. Such notice shall specify the basis for such claim. As
promptly as possible after the Indemnified Party has given such
notice, such Indemnified Party and the appropriate
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Indemnifying Party shall establish the merits and amount of such
claim (by mutual agreement, litigation, arbitration or otherwise)
and, within five business days of the final determination of the
merits and amount of such claim, the Indemnifying Party shall
deliver to the Indemnified Party immediately available funds in
an amount equal to such claim as determined hereunder.
(d) Liability Limits. To the extent any claim for OpCo Losses against
Magellan is based upon the alleged inaccuracy of any
representation or warranty contained in Article 5 of this
Agreement, then, for a period beginning on the Closing Date and
ending two years later, Magellan shall only be liable for such
OpCo Losses solely to the extent that any such OpCo Losses exceed
in the aggregate in any one year, one million dollars
($1,000,000.00). Beginning two years after the Closing Date,
Magellan shall be liable for such OpCo Losses solely to the
extent that any such OpCo Losses exceed in the aggregate during
such period, ten million dollars ($10,000,000.00); provided,
however, that to the extent a claim for OpCo Losses is not based
on the inaccuracy of a representation or warranty contained in
Article 4 of this Agreement, then such claim shall not be subject
to the limitations above, nor shall the amount of any such OpCo
Losses be included with other OpCo Losses in determining whether
such basket amounts have been reached.
(e) Claim Periods. Indemnification obligations under this Article 7
for pre-closing and post-closing debts, liabilities or
obligations and for a breach of representations, warranties or
covenants shall survive until expiration of the applicable
statute of limitations.
SECTION 9.
MISCELLANEOUS
9.1 Fees and Expenses; Transfer Costs. Fees and expenses incident to the
negotiation, preparation and execution of this Agreement and the
performance of the Contribution (including attorneys', accountants',
financial advisors' and other advisors' fees and disbursements) shall
be borne by the party incurring the expense. Magellan shall pay all
sales, transfer and other recording charges and conveyance taxes in
connection with the transfer of the Contributed Assets, the Purchased
Assets and the Working Capital Assets to OpCo and in connection with
the transfer of any licenses or permits to OpCo.
9.2 Notices. Whenever any notice is required or permitted hereunder, such
notice shall be in writing and (a) sent by certified mail, postage
prepaid, return receipt requested, (b) given by established overnight
commercial courier for delivery on the next business day with delivery
charges prepaid or duly charged, (c) personally hand-delivered or (d)
sent by facsimile
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transmission with confirmation of receipt received, to the applicable
address or facsimile number set forth below:
(i) if to Crescent:
Gerald W. Haddock, Esq.
President and Chief Operating Officer
Crescent
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
with a copy to:
David M. Dean, Esq.
Senior Vice President, Law
Crescent
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
Wendelin A. White, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Facsimile: (202) 663-8007
(ii) if to Magellan:
Steve J. Davis, Esq.
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
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<PAGE>
with a copy to:
Robert W. Miller, Esq.
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Facsimile:(404) 572-5100
Notices which are mailed shall be deemed effective upon receipt. Notices which
are hand- delivered shall be deemed effective upon tender to a natural person at
the address shown. Notices which are delivered by overnight courier shall be
deemed given on the next business day after delivery to such courier. Notices
which are delivered by facsimile transmission shall be deemed received upon
electronic confirmation of delivery.
9.3 Entire Agreement. This Agreement and the Transaction Documents
(together with the exhibits and schedules hereto and thereto)
supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter
hereof, all of which are null, void and of no force or effect.
9.4 Waivers and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and
conditions of this Agreement may be waived, only by a written
instrument signed by the parties hereto or, in the case of a waiver,
by the party waiving compliance.
9.5 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without regard to the application of choice of law
principles. The rule that an Agreement should be construed against the
party drafting it shall not apply to this Agreement because all
parties have played a significant role in negotiating and drafting
this Agreement.
9.6 Severability. If any term, covenant or condition of this Agreement is
held to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision, and this
Agreement shall be construed as if such invalid or unenforceable
provision had never been contained in this Agreement.
9.7 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors
and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or
their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.8 No Assignment. This Agreement may not be assigned without the prior
written consent of the other party, except that Crescent shall assign
all of its rights and obligations hereunder to New Crescent.
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9.9 Arbitration.
(a) Following Closing, any controversy, claim or question of
interpretation arising out of or relating to this Agreement or
the breach thereof shall be finally settled by arbitration in
Delaware, under the then-effective Commercial Arbitration Rules
of the American Arbitration Association as modified by this
Agreement, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. The award
rendered by the arbitrators shall be final and binding on the
parties and not subject to further appeal. Such arbitration can
be initiated by written notice by either party (the "Claimant")
to the other party, which notice shall identify the Claimant's
selected arbitrator. The party receiving such notice (the
"Respondent") shall identify its arbitrator within ten (10)
business days following its receipt of such notice. The
arbitrator selected by the Claimant and the arbitrator selected
by the Respondent shall, within ten (10) business days of their
appointment, select a third neutral arbitrator. In the event that
they are unable to do so, either party may request the American
Arbitration Association to appoint the third neutral arbitrator.
The arbitrators shall have the authority to award any remedy or
relief that a court in Delaware could order or grant, including,
without limitation, specific performance of any obligation
created under this Agreement, the issuance of injunctive or other
provisional relief, or the imposition of sanctions for abuse or
frustration of the arbitration process. The arbitration award
will be in writing and specify the factual and legal basis for
the award.
(b) The arbitrators shall instruct the non-prevailing party to pay
all costs of the proceedings, including the fees and expenses of
the arbitrators and the reasonable attorneys' fees and expenses
of the prevailing party. If the arbitrators determine that there
is not a prevailing party, each party shall be instructed to bear
its own costs and to pay one-half of the fees and expenses of the
arbitrators.
9.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument.
9.11 Exhibits and Schedules. The exhibits and schedules delivered or to be
delivered pursuant to this Agreement are a part of this Agreement as
if set forth in full within the Agreement.
9.12 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of
this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CRESCENT
By: _____________________________________
Name:
Title:
MAGELLAN HEALTH SERVICES, INC.
By: _____________________________________
Name:
Title:
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WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of January 29,
1997, between Magellan Health Services, Inc., a Delaware corporation (the
"Company"), and Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the "Buyer").
WHEREAS, the Company desires to sell to Buyer, and Buyer desires to
purchase from the Company, warrants to purchase shares of common stock of the
Company, par value $.25 per share ("Common Stock"); and
WHEREAS, the Company and Buyer are entering into contemporaneously herewith
that certain Real Estate Purchase and Sale Agreement dated January 29, 1997
("REIT Purchase Agreement"), pursuant to which the Buyer has agreed to purchase
certain real estate and related assets from the Company; and
WHEREAS, the Company and the Buyer have also agreed to certain other
transactions pursuant to the Transaction Documents (as defined in the REIT
Purchase Agreement).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and Buyer hereby agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
1.1 Agreement to Sell and to Purchase Warrants. At the Closing (as defined
in the REIT Purchase Agreement), and on the terms and subject to the conditions
set forth in this Agreement, the Company shall sell to Buyer, and Buyer shall
purchase from the Company, warrants (collectively, the "Warrants") to purchase
shares of Common Stock. The Warrants shall be exercisable during the periods set
forth on Annex 1 and shall constitute the right to purchase that number of
shares of Common Stock as set forth on Annex 1 (subject to adjustment from time
to time as provided in the Warrants). The Warrants shall be in substantially the
form set forth as Exhibit A hereto (except for the number of shares and the
exercise periods which shall be in accordance with Annex I).
1.2 Purchase Price and Payment. The parties hereto acknowledge that the
Purchase Price for the Warrants was made by them in arm's length negotiation.
The aggregate purchase price for the Warrants is the amount to be allocated as
contemplated pursuant to Section 2.1 of the REIT Purchase Agreement (the
"Purchase Price"). The Purchase Price payable by Buyer for the Warrants shall be
paid by Buyer on or before the Closing Date (as hereinafter defined) in
immediately available funds by confirmed wire transfer to a bank account to be
designated by the Company (such designation to occur no later than the third
Business Day prior to the Closing Date).
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<PAGE>
1.3 Defined Terms. A list of terms used in this Agreement is set forth in
Article XI.
ARTICLE II
CLOSING AND CLOSING DATE
The Closing of the transactions contemplated hereby shall occur at the time
of the Closing of the REIT Purchase Agreement and upon satisfaction of the
conditions to Closing set forth herein and therein. The date on which the
Closing is required to take place is herein referred to as the "Closing Date."
All Closing transactions shall be deemed to have occurred simultaneously.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer, as of the date hereof, that:
3.1 Corporate Organization. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority in all material respects to
own, lease, and operate its properties and to carry on its business as now being
conducted. No actions or proceedings to dissolve the Company are pending or, to
the best knowledge of the Company, are threatened.
3.2 Capitalization of the Company.
(a) The authorized capital stock of the Company consists of (i) 80,000,000
shares of Common Stock, of which, as of the date hereof 28,686,091 shares are
outstanding and 4,423,740 shares are held in the Company's treasury, and (ii)
10,000,000 shares of Preferred Stock, without par value, of which, as of the
date hereof, no shares are outstanding. All outstanding shares of capital stock
of the Company have been validly issued and are fully paid and nonassessable,
and no shares of capital stock of the Company are subject to, nor have any been
issued in violation of, preemptive or similar rights. As of the date hereof, (i)
an aggregate of 4,369,752 shares of Common Stock are reserved for issuance
pursuant to stock options granted to certain directors, officers, and employees;
(ii) an aggregate of 2,168,661 shares of Common Stock are reserved for issuance
and issuable upon the exercise of outstanding warrants; (iii) certain shares of
Common Stock are reserved for issuance upon the exercise of certain purchase
rights which become exercisable pursuant to the terms of the Rights Agreement;
and (iv) an aggregate of 2,831,739 shares of Common stock are reserved for
issuance and issuable under the Exchange Agreement.
(b) Except as set forth above in subparagraph (a) of this Section 3.2 and
as contemplated by this Agreement, there are outstanding (i) no shares of
capital stock or other voting securities of
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the Company; (ii) no securities of the Company convertible into or exchangeable
for shares of capital stock or other voting securities of the Company; (iii) no
options or other rights to acquire from the Company, and no obligation of the
Company to issue or sell, any shares of capital stock or other voting securities
of the Company or any securities of the Company convertible into or exchangeable
for such capital stock or voting securities; and (iv) other than employee
compensation plans based on the Company's earnings and executive officer
employment agreements, no equity equivalents, interests in the ownership or
earnings, or other similar rights of or with respect to the Company. There are
no outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of Common Stock or any other securities of the type
described in clauses (i)-(iv) of the preceding sentence.
3.3 Authority Relative to This Agreement. The Company has full corporate
power and authority to execute, deliver, and perform this Agreement to which it
is a party and to consummate the transactions contemplated hereby. The
execution, delivery, and performance by the Company of this Agreement, and the
consummation by it of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes, and the
Warrant, when executed by the Company will be, a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting
creditors' rights generally or by general principles of equity.
3.4 Noncontravention. The execution, delivery, and performance by the
Company of this Agreement and the Warrants and the consummation by it of the
transactions contemplated hereby do not and will not (i) conflict with or result
in a violation of any provision of the Company's Restated Certificate of
Incorporation or the Company's Bylaws, as amended, or the charter, bylaws or
other governing instruments of any Subsidiary, (ii) conflict with or result in a
violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, agreement, or other instrument or obligation to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties may be bound, (iii) result in
the creation or imposition of any Encumbrance upon the properties of the Company
or any Subsidiary, or (iv) assuming compliance with the matters referred to in
Section 3.5, violate any Applicable Law binding upon the Company or any
Subsidiary, except, in the case of clauses (ii), (iii), and (iv) above, for any
such conflicts, violations, defaults, terminations, cancellations,
accelerations, or Encumbrances which would not, individually or in the
aggregate, have a material adverse effect on the business, assets, results of
operations, or financial condition of the Company and the Subsidiaries taken as
a whole or the ability of the Company to consummate the transactions
contemplated hereby.
3.5 Governmental Approvals. No consent, approval, order, or authorization
of, or declaration, filing, or registration with, any Governmental Entity is
required to be obtained or made
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<PAGE>
by the Company or any Subsidiary in connection with the execution, delivery, or
performance by the Company of this Agreement or the consummation by it of the
transactions contemplated hereby, other than (i) compliance with any applicable
requirements of the HSR Act; (ii) compliance with any applicable requirements of
the Securities Act; (iii) compliance with any applicable requirements of the
Exchange Act; (iv) compliance with any applicable state securities laws; and (v)
such consents, approvals, orders, or authorizations which, if not obtained, and
such declarations, filings, or registrations which, if not made, would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, results of operations, or financial condition of the Company
or on the ability of the Company to consummate the transactions contemplated
hereby. The representations and warranties of the Company contained in this
Section 3.5, insofar as such representations and warranties pertain to
compliance by the Company with the requirements of the Securities Act and
applicable state securities laws, are based on the representations and
warranties of Buyers contained in Section 4.5.
3.6 Authorization of Issuance: Reservation of Shares. When issued and
delivered pursuant to this Agreement against payment therefor, the Warrants will
have been duly authorized, issued and delivered and will constitute valid and
legally binding obligations of the Company entitled to the benefits provided
therein. During the period within which the Warrants may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
upon exercise of the Warrants, a sufficient number of shares of Common Stock to
provide for the exercise of the Warrants. All shares of Common Stock which are
issuable upon exercise of the Warrants (the "Warrant Shares") will, when issued,
be validly issued, fully paid and nonassessable. Upon exercise of the Warrants
the issuance of the Warrant Shares will not be subject to any preemptive or
similar rights.
3.7 SEC Filings. The Company has filed with the Commission all forms,
reports, schedules, statements, and other documents (excluding exhibits)
required to be filed by it since September 30, 1995 under the Securities Act,
the Exchange Act, and all other federal securities laws. All forms, reports,
schedules, statements, and other documents (including all amendments thereto)
filed by the Company with the Commission since such date are herein collectively
referred to as the "SEC Filings." The SEC Filings, at the time filed, complied
in all material respects with all applicable requirements of federal securities
laws. None of the SEC Filings, including, without limitation, any financial
statements or schedules included therein, at the time filed, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading except as the same was corrected or superseded in a subsequent
document duly filed with the Commission. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the SEC Filings present fairly in all material respects, in
conformity with generally accepted accounting principles applied on a consistent
basis (except as may be indicated in the notes thereto and, in the case of the
unaudited consolidated interim financial statements, except to the extent that
preparation of such financial statements in accordance with generally accepted
accounting principles is not required by applicable rules of the Commission),
the consolidated financial position of the Company
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as of the dates thereof and its consolidated results of operations and cash
flows for the periods then ended (subject to normal year-end adjustments in the
case of any interim financial statements).
3.8 Rights Plan. Based upon the representation of Buyer in Section 4.6
hereof and relying upon the information in the most recent Schedule 13D filed by
Rainwater-Magellan Holdings, L.P. related to stock ownership in the Company, the
execution of this Agreement and the issuance of the Warrant Shares (assuming the
continued validity of the representation of Buyer in Section 4.6 hereof) shall
not cause an issuance of certificates within the meaning of Section 3 of the
Rights Agreement dated as of July 21, 1992, between the Company and First Union
National Bank of North Carolina (the "Rights Agreement") or a Triggering Event
as defined in the Rights Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company that:
4.1 Organization. Buyer is duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its formation.
4.2 Authority Relative to This Agreement. Buyer has full power and
authority to execute, deliver, and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance by
Buyer of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by all necessary action of Buyer.
This Agreement has been duly executed and delivered by Buyer and constitutes a
valid and legally binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally or by general principles of equity.
4.3 Noncontravention. The execution, delivery, and performance by Buyer of
this Agreement and the consummation by it of the transactions contemplated
hereby do not and will not (i) conflict with or result in a violation of any
provision of the charter, bylaws, or similar organizational documents of Buyer,
(ii) conflict with or result in a violation of any provision of, or constitute
(with or without the giving of notice or the passage of time or both) a default
under, or give rise (with or without the giving of notice or the passage of time
or both) to any right of termination, cancellation, or acceleration under, any
bond, debenture, note, mortgage, indenture, lease, agreement, or other
instrument or obligation to which Buyer is a party or by which Buyer or any of
its properties may be bound, (iii) result in the creation or imposition of any
Encumbrance upon the properties of Buyer, or (iv) violate any Applicable Law
binding upon Buyer, except, in the case of clauses (ii), (iii), and (iv) above,
for any such conflicts, violations, defaults, terminations, cancellations,
accelerations, or Encumbrances which would not, individually or in the
aggregate,
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have a material adverse effect on the business, assets, results of operations,
or financial condition of Buyer or on the ability of Buyer to consummate the
transactions contemplated hereby.
4.4 Governmental Approvals. Other than any HSR Act filing, no consent,
approval, order, or authorization of, or declaration, filing, or registration
with, any Governmental Entity is required to be obtained or made by Buyer in
connection with the execution, delivery, or performance by Buyer of this
Agreement or the consummation by it of the transactions contemplated hereby.
4.5 Purchase for Investment. Buyer has been furnished with all information
that it has requested for the purpose of evaluating the proposed acquisition of
the Warrants pursuant hereto, and Buyer has had an opportunity to ask questions
of and receive answers from the Company regarding the Company and its business,
assets, results of operations, and financial condition and the terms and
conditions of the issuance of the Warrants. Buyer is acquiring the Warrants to
be purchased by it for its own account for investment and not for distribution
in any manner that would violate applicable securities laws. Buyer can bear the
risk of an investment in the Warrants, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of a prospective investment in the Warrants. The acquisition of such
Warrants by Buyer at Closing shall constitute Buyer's confirmation of the
foregoing representations. Buyer understands that such Warrants are being sold
to it in a transaction which is exempt from the registration requirements of the
Securities Act, and that, in making the representations and warranties contained
in Section 3.5 pertaining to compliance by the Company with the requirements of
the Securities Act and applicable securities laws, the Company is relying, to
the extent applicable, upon Buyer's representations set forth herein.
4.6 No Other Shares. Except for such rights as may be conferred on Buyer by
this Agreement, as of the date hereof, Buyer does not beneficially own, directly
or indirectly through any subsidiary, or any affiliate of the Buyer in which the
Buyer directly or indirectly owns stock or equity interests, and Crescent Real
Estate Equities Company does not own, any shares of capital stock of the
Company.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Press Releases. Except as may be required by Applicable Law, neither
Buyer, on the one hand, nor the Company, on the other, shall issue any press
release with respect to this Agreement or the transactions contemplated hereby
without the prior written consent of the other party (which consent shall not be
unreasonably withheld under the circumstances). Any such press release required
by Applicable Law shall only be made after reasonable notice to the other party.
5.2 Stock Exchange Listing. The Company shall use its commercially
reasonable best efforts to cause the Warrant Shares to be approved for listing
on the New York Stock Exchange,
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subject to official notice of issuance, prior to the date any such Warrant
Shares become issuable upon the exercise of the Warrants.
5.3 Registration Rights.
(a) Registration of Warrant Shares. At least 90 days prior to the date on
which the Warrant Shares are issuable upon exercise of the Warrant, the Company
will prepare and file one or more registration statements under the Securities
Act, and use its commercially reasonable best efforts to cause such registration
statements to become effective as promptly as possible, with respect to the
issuance of the Warrant Shares upon exercise of the Warrants and the resale of
the Registrable Warrant Shares.
(b) Registration Procedures. With respect to each registration statement
filed in accordance with this Section 5.3 (the "Registration Statement"), the
Company shall:
(i) cause the Registration Statement and the related prospectus and
any amendment or supplement, (A) to comply in all material respects with
the applicable requirements of the Securities Act and under the rules and
regulations promulgated thereunder, and (B) not to contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading;
(ii) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith, and upon the mandatory expiration of the Registration
Statement, one or more additional registration statements, as may be
necessary to keep the Registration Statement effective on a continual basis
for so long as the Buyer or its permitted transferee owns any Underlying
Warrant Shares; provided that the Company shall not be required to maintain
the effectiveness of any Registration Statement filed hereunder for a
period in excess of twelve years and sixty (60) days from the Closing Date;
(iii) furnish, upon written request, to Buyer a copy of any amendment
or supplement to the Registration Statement or prospectus prior to filing
it after effectiveness and not file any such amendment or supplement to
which Buyer shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
promulgated thereunder;
(iv) furnish to Buyer such number of copies of the Registration
Statement, each amendment and supplement thereto, the prospectus used in
connection therewith (including, without limitation, each preliminary
prospectus and final prospectus) and such other document as Buyer may
reasonably request in order to facilitate the disposition of the
Registrable Warrant Shares owned by Buyer;
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(v) use its commercially reasonable best efforts to register or
qualify all Registrable Warrant Shares covered by the Registration
Statement under such other securities or blue sky laws of the states of the
United States as may be required for the issuance and sale of the
Registrable Warrant Shares, to keep such registration or qualification in
effect for so long as the Registration Statement remains in effect except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction in
which it is not and would not, but for the requirements of this Section
5.3, be obligated to be so qualified, or to subject itself to taxation in
any such jurisdiction, or to consent to general service of process in any
such jurisdiction;
(vi) prior to any sale of the Registrable Warrant Shares effected on a
national securities exchange, deliver to such national securities exchange
copies of the prospectus to be used in connection with the offering to be
conducted pursuant to the Registration Statement;
(vii) upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in the Registration Statement, as
then in effect, includes or in the judgment of the Company may include an
untrue statement of a material fact or omits or may omit to state any
material fact required to be stated in such prospectus or necessary to make
the statements in such prospectus not misleading in the light of the
circumstances in which they were made, which circumstance requires
amendment of the Registration Statement or supplementation of the
prospectus, prepare and file as promptly as reasonably possible a
supplement to or an amendment of such prospectus as may be necessary so
that, as when delivered (if required by the Securities Act) to a purchaser
of Registrable Warrant Shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated in such prospectus or necessary to make the statements in such
prospectus not misleading in the light of the circumstances in which they
were made;
(viii) otherwise use its commercially reasonable best efforts to
comply with all applicable rules and regulations under the Securities Act
and, in its discretion, to make available to its securities holders, as
soon as reasonably practicable, an earnings statement covering the period
of at least twelve months, but not more than eighteen months, beginning
with the first month of the first fiscal quarter after the effective date
of the Registration Statement, which earnings statement shall satisfy the
provisions of section 11(a) of the Securities Act;
(ix) provide and cause to be maintained a transfer agent and registrar
for all Registrable Warrant Shares covered by the Registration Statement
from and after a date not later than the effective date of the Registration
Statement;
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(x) use its commercially reasonable best efforts to list all
Registrable Warrant Shares covered by the Registration Statement on any
national securities exchange on which securities of the same class as the
Registrable Warrant Shares are then listed;
(xi) after any sale of the Registrable Warrant Shares pursuant to this
Section 5.3, to the extent not prohibited by law, cause any restrictive
legends to be removed and any transfer restrictions to be rescinded with
respect to the Registrable Warrant Shares;
(xii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and
scope) and take all such other actions as the holders of a majority of the
Registrable Warrant Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
such Warrant Shares;
(xiii) in the event of the issuance of any stop order suspending the
effectiveness of the Registration Statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
disqualification of any Common Stock included in the Registration Statement
for sale in any jurisdiction, the Company will use its commercially
reasonable best efforts promptly to obtain the withdrawal of such order;
and
(xiv) use its commercially reasonable best efforts to cause such
Registrable Warrant Shares covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the Buyer thereof to consummate
the disposition of such Warrant Shares.
(c) Obligations of Buyer. The Buyer holding Registrable Warrant Shares
shall furnish to the Company such information regarding the Buyer as the Company
may from time to time reasonably request in writing (and will notify the Company
of any changes in such information) and as shall be required by the Securities
Act in connection with such registration.
(d) Delay of Sales. During any period in which the Company is maintaining
the effectiveness of a Registration Statement for the Registrable Warrant Shares
pursuant to this Section 5.3, the Company shall have the right, upon giving
notice to the Buyer holding Registrable Warrant Shares of the exercise of such
right, to require the Buyer not to sell any Registrable Warrant Shares pursuant
to such Registration Statement for a period of time the Company deems reasonably
necessary, which time shall be specified in such notice but in no event longer
than a period of 90 days, if (i) the Company is engaged in an offering of shares
by the Company for its own account or is engaged in or proposes to engage in
discussions or negotiations with respect to, or has proposed or taken a
substantial step to commence, or there otherwise is pending, any merger,
acquisition, other form of business combination, divestiture, tender offer,
financing or other transaction, or there is an event or state of facts relating
to the Company, in each case which is material to the Company (any such
negotiation, step, event or state of facts being herein called a "Material
Activity"), (ii) such Material Activity would, in the opinion of counsel for the
Company reasonably acceptable to Buyer,
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require disclosure so as to permit the Registrable Warrant Shares to be sold in
compliance with applicable law, and (iii) such disclosure would, in the
reasonable judgment of the Company, be adverse to its interests in any material
respect. The Company shall have no obligation to include in any notice
contemplated by this subparagraph (f) any reference to or description of the
facts based upon which the Company is delivering such notice.
(e) Indemnification.
(i) The Company shall indemnify and hold harmless the Buyer holding
Registrable Warrant Shares and its directors, Affiliates and officers, and
each other person, if any, who controls the Buyer within the meaning of the
Securities Act against any losses, claims, damages, liabilities or expenses
(including reasonable fees and expenses of counsel), joint or several, to
which the Buyer or any such director, Affiliate or officer or participating
or controlling person may become subject under the Securities Act or
otherwise in connection with or as a result of a sale by the Buyer of the
Registrable Warrant Shares, insofar as such losses, claims, damages,
liabilities or expenses (or related actions or proceedings) arise out of or
are based upon (i) any untrue statement of any material fact contained in
the Registration Statement, any preliminary prospectus, final prospectus or
summary prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement, or any document
incorporated by reference in the Registration Statement, or (ii) any
omission to state in any such document a material fact required to be
stated in any such document or necessary to make the statements in any such
document not misleading, and the Company will reimburse the Buyer and each
such director, Affiliate, officer, participating person and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or expense (or action or proceeding in respect of any such loss,
claim, damage, liability or expense) which arises out of or is based upon
an untrue statement or omission made in the Registration Statement, any
such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement except for any untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by the Buyer or any such director, Affiliate, officer,
participating person or controlling person for use in the preparation of
the Registration Statement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Buyer or
any such director, Affiliate, officer, participating person or controlling
person and shall survive the transfer of Registrable Warrant Shares by the
Buyer.
(ii) The Buyer shall indemnify and hold harmless (in the same manner
and to the same extent as set forth in clause (i) of this subparagraph (f))
the Company, each director of the Company, each officer of the Company who
shall sign the Registration Statement and each other person, if any, who
controls the Company within the meaning of the Securities Act, with respect
to any untrue statement in or omission from the Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus included in
the Registration Statement, or any amendment or supplement to the
Registration Statement, but only to the
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extent that such statement or omission was made in direct reliance upon and
in conformity with written information furnished to the Company by the
Buyer for use in the preparation of the Registration Statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of the
Registrable Warrant Shares by the Buyer.
(iii) Indemnification under this Section 5.3 shall be made as set
forth in Article IX hereof.
(f) Registration Expenses. All expenses incident to the Company's
registration of the Registrable Warrant Shares pursuant to the provisions of
this Section 5.3, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
and engraving expenses, messenger and delivery expenses and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding underwriting discounts and any selling
commissions) and any persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be paid by the Company; provided,
that, all expenses incurred by the Buyer holding Registrable Warrant Shares to
retain any counsel, accountant or other advisor will not be deemed to be
Registration Expenses and will be paid by the Buyer. The underwriting discounts
or commissions and any selling commissions together with any stock transfer or
similar taxes attributable to sales of the Registrable Warrant Shares will be
paid by the Buyer.
5.4 Fees and Expenses. The parties shall each pay their own fees and
expenses and those of their agents, advisors, attorneys and accountants with
respect to the negotiation and execution of this Agreement.
5.5 Restrictions on Transfers: Restrictions on Exercise of Warrants.
(a) Restrictions on Transfer of Warrants and Warrant Shares. Subject to the
provisions of subsections (b) and (c), without having obtained the prior written
consent of the Company, the Buyer shall not:
(i) sell or transfer any of the Warrants held by it to any other
person, except for Excluded Transfers (as defined below) or to a wholly
owned Subsidiary; and
(ii) prior to the twelfth anniversary of the Closing Date, except for
an Excluded Transfer, sell or transfer in a privately negotiated
transaction to a single purchaser and its Affiliates, or any "Group" (as
such term is defined in Rule 13d-5(b)(1) under the Exchange Act) any
combination of Warrants and/or Warrant Shares, if the aggregate number of
Warrant Shares and Underlying Warrant Shares to be so transferred equals 5%
or more of
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the Common Stock then outstanding on a fully-diluted basis (i.e. including
all shares of Common Stock issuable under the terms of any options,
warrants and similar rights).
(b) Exceptions to Transfer Restrictions. Notwithstanding subsection (a),
the Buyer may sell or transfer any of the Warrants and/or Warrant Shares to any
person pursuant to, as a result of, or in connection with (i) a tender offer or
an exchange offer approved by the Board of Directors of the Company; (ii) the
consummation of a merger (provided the Company is not the surviving corporation
in such merger), consolidation, or a sale of all or substantially all the assets
of the Company; or (iii) any other "Fundamental Change Transaction" (as such
term is defined in the Warrant). The Buyer may also transfer all or any portion
of any one or more of the Warrants to Crescent Opportunity Corporation ("COC")
if the transfer of such Warrants is necessary to avoid jeopardizing, by reason
of the ownership or exchange of such Warrants, the qualification of Crescent
Real Estate Equities Company ("CEI") as a real estate investment trust for
federal income tax purposes ("REIT"); provided, however, that in the event of
any transfer for such purpose, the Buyer provides the Company with a written
opinion of counsel that the transfer of such Warrants is necessary to avoid
jeopardizing the qualification of CEI as a REIT (any transfer pursuant to this
Section 5.5(b), an "Excluded Transfer").
(c) Transferees. During the period in which the restrictions set forth in
this Section 5.5 remain applicable, neither Buyer nor any transferee shall be
entitled to, directly or indirectly, sell or transfer any of the Warrants and/or
Warrant Shares in an Excluded Transfer to any person who is not a party to this
Agreement, unless the purported transferee executes an instrument acknowledging
that it is bound by the terms of this Section 5.5 and such instrument is
delivered to the Company.
5.6 Indemnification of Brokerage. Each of the parties hereto agrees to
indemnify and hold harmless each other party from and against any claim or
demand for a commission or other compensation by any financial advisor, broker,
agent, finder, or similar intermediary claiming to have been employed by or on
behalf of such indemnifying party and to bear the cost of legal fees and
expenses incurred in defending against any such claim or demand.
5.7 Delivery of Information. The Company will deliver to the Buyer promptly
upon the filing thereof, copies of all registration statements (other than the
exhibits thereto and any registration statements on Form S-8 or its equivalent)
and reports on Forms 10-K (or their equivalents) which the Company shall have
filed with the Commission or any similar reports filed with any state securities
commission or office.
5.8 Rule 144 and Rule 144A Information. With a view to making available to
the Buyer the benefits of Rule 144 and Rule 144A promulgated under the 1933 Act
and any other rule or regulation of the Commission that may at any time permit
the Buyer to sell Common Stock of the Company to the public without
registration, the Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144;
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(ii) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(iii) furnish to Buyer forthwith upon request (A) a written statement
by the Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, (B) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company under the Securities Act and the Exchange
Act and (C) such other information as may be reasonably requested by each
Buyer in availing itself of any rule or regulation of the Commission which
permits the selling of any such securities without registration; and
(iv) comply with all rules and regulations of the Commission
applicable to the Company in connection with use of Rule 144A (or any
successor thereto); and
(v) within five business days of the Company's receipt of a request
made by, or on behalf of, any prospective transferee of who is a Qualified
Institutional Buyer (as defined in Rule 144A) and would be purchasing
Common Stock of the Company in reliance upon Rule 144A), provide to such
prospective transferee copies of annual audited and quarterly unaudited
financial statements of the Company for it to comply with Rule 144A.
5.9 Standstill.
(a) General. Buyer agrees that during the four year period ending on the
anniversary of the Closing Date, it will not, and it will cause its Affiliates
and employees (other than Richard E. Rainwater, John C. Goff and Gerald W.
Haddock) not to, purchase additional shares (excluding any acquisition of shares
of Common Stock or Equity Securities pursuant to warrants outstanding pursuant
to that certain Stock and Warrant Purchase Agreement dated December 22, 1995
between the Company and Richard E. Rainwater and certain other buyers) of the
Company's Common Stock (or other Equity Securities) so that Buyer and its
Affiliates and employees collectively own 20% or more of the Company's Common
Stock then outstanding; provided, however, that Buyer and its Affiliates and
employees shall not be deemed to own 20% or more of the Common Stock then
outstanding solely by reason of the Company's purchase of any Common Stock
unless thereafter Buyer and its Affiliates and employees purchase any additional
shares of Common Stock (excluding any acquisition of Warrant Shares upon
exercise of the Warrants, which shall not be restricted hereunder).
(b) Additional Standstill Obligations. Buyer further agrees that during the
twelve year period ending on the anniversary of the Closing Date, it will not,
and it will cause its Affiliates and employees not to, without prior Company
consent, (i) effect or cause to be effected any (A) "solicitation" of "proxies"
(as such terms are used in the proxy rules of the Commission) with respect to
the Company or any action resulting in such person becoming a "participant" in
any "election contest" (as such terms are used in the proxy rules of the
Commission) with respect to the Company,
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or (B) any tender or exchange offer or offer for a merger, consolidation, share
exchange or business combination involving the Company or substantially all of
its assets, (ii) propose any matter for submission to a vote of the stockholders
of the Company, or (iii) sell any shares of the Company's Common Stock (or other
Equity Securities) short.
(c) Amendments to Rights Agreement. If the Company undertakes the purchase
of any Common Stock under circumstances in which any exercise of Warrants would
be considered to cause Buyer and its Affiliates to become an "Acquiring Person"
under the Rights Agreement, the Company agrees to amend the Rights Agreement to
either (i) include the Buyer and its Affiliates in the definition of an "Initial
Shareholder", or (ii) change the definition of "Exempt Person" so as to exclude
any exercise of the Warrants from being considered as an additional purchase of
shares of Common Stock for purposes of the Rights Agreement. The Company agrees
to amend the Rights Agreement prior to Closing to the extent, if any, necessary
to prevent any of the transactions contemplated hereby, including any issuance
of Warrant Shares, to cause an issuance of certificates under Section 3 of the
Rights Agreement or a Triggering Event under the Rights Agreement.
5.10 Notices. The Company agrees to give the Buyer notice of any of the
events referred to in Section 4(g) of the Warrants at least five (5) Business
Days prior to any record date established or related to any such event which the
Buyer agrees to keep strictly confidential unless and until any such event has
been publicly announced.
5.11 Survival of Covenants. Except for any covenant or agreement which by
its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without contractual limitation.
5.12 Assignment of Warrant Shares. Prior to Closing, Buyer shall transfer
and assign to Crescent Opportunity Corporation ("COC") Warrants to purchase
1,283,311 Warrant Shares, which number is equal to one half of the total number
of Warrant Shares purchased by Buyer from the Company pursuant to this Agreement
and listed on Annex I hereto, and such Warrant Shares shall be exercisable in
accordance with Annex I. Following the Closing, this Agreement will be amended
and COC will become a party to this Agreement, subject to all of the rights and
obligations contained herein and contemplated by this Agreement.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
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6.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement shall be true and correct on and
as of the Closing Date in all material respects, except to the extent that any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
specified date, except to the extent contemplated by this Agreement.
6.2 Covenants and Agreements Performed. Buyer shall have performed and
complied with all covenants and agreements required by this Agreement, if any,
to be performed or complied with by it on or prior to the Closing Date in all
material respects.
6.3 HSR Act. To the extent that the HSR Act is applicable to the
transaction contemplated herein, all waiting periods (and any extensions
thereof) applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.
6.4 Legal Proceedings. No Proceeding shall, on the Closing Date, be pending
or threatened seeking to restrain, prohibit, or obtain damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
6.5 Certificate. The Company shall have received a certificate executed by
a duly authorized person on behalf of Buyer dated the Closing Date, representing
and certifying, in such detail as the Company may reasonably request, that the
conditions set forth in Sections 6.1, 6.2 and 6.4 have been fulfilled.
6.6 Other Conditions. All conditions to closing set forth in the REIT
Purchase Agreement have been satisfied or waived.
6.7 Other Transactions. All Transactions under the other Transaction
Documents (as defined in the REIT Purchase Agreement) have been consummated
contemporaneously herewith.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
7.1 Representations and Warranties True. All the representations and
warranties of the Company contained in this Agreement shall be true and correct
on and as of the Closing Date in all material respects, except to the extent
that any such representation or warranty is made as of a specified date, in
which case such representation or warranty shall have been true and correct as
of such specified date, except to the extent contemplated by this Agreement.
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7.2 Covenants and Agreements Performed. The Company shall have performed
and complied with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date in all material
respects.
7.3 Legal Proceeding. No Proceeding shall, on the Closing Date, be pending
or threatened seeking to restrain, prohibit, or obtain damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7.4 Certificates. Buyer shall have received a certificate or certificates
representing the Warrants, in definitive form representing the Warrants
purchased by it, ( in substantially the form set forth in Exhibit A hereto)
registered in the name of Buyer and duly executed by the Company.
7.5 Other Conditions. All conditions to closing the REIT Purchase Agreement
have been satisfied or waived.
7.6 Other Transactions. All Transactions under the other Transaction
Documents (as defined in the REIT Purchase Agreement) have been consummated
contemporaneously herewith.
ARTICLE VIII
TERMINATION, AMENDMENT, AND WAIVER
8.1 Termination. This Agreement shall be terminated and the transactions
contemplated hereby abandoned if the REIT Purchase Agreement is terminated.
8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall become void and have no
effect, except that the agreements contained in this Section and in Sections
5.1, 5.4 and 5.6 and Article IX shall survive the termination hereof. Nothing
contained in this Section shall relieve any party from liability for any breach
of this Agreement.
8.3 Amendment. This Agreement may not be amended except by an instrument in
writing signed by or on behalf of all the parties hereto.
8.4 Waiver. No failure or delay by a party hereto in exercising any right,
power, or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The provisions
of this Agreement may not be waived except by an instrument in writing signed by
or on behalf of the party against whom such waiver is sought to be enforced.
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ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
9.1 Survival. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto shall survive the Closing, regardless of any
investigation made by or on behalf of any party, until the first anniversary of
the Closing Date (the "Survival Date"). No action may be brought with respect to
a breach of any representation after the Survival Date unless, prior to such
time, the party seeking to bring such an action has notified the other party of
such claim, specifying in reasonable detail the nature of the loss suffered. The
provisions of this Section 9.1 shall have no effect upon any of the covenants of
the parties set forth in Article V or any of the other obligations of the
parties hereto under the Agreement, whether to be performed later, at or after
the Closing.
9.2 Indemnification by Company. The Company shall indemnify, defend, and
hold harmless Buyer from and against any and all claims, actions, causes of
action, demands, losses, damages, liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses) (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred by Buyer, directly or
indirectly, by reason of or resulting from any breach by the Company of any of
its representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto. Notwithstanding anything to the contrary contained herein, the Company's
indemnity obligations hereunder (i) will not extend to Damages arising out of
negligence, willful misconduct or fraud of the Buyer and (ii) with respect to
indemnification Damages under this Section 9.2 (other than, for each of (i) and
(ii), Damages related to the ability of the Buyer to exercise the Warrants,
receive the Warrant Shares, or sell the Warrant Shares related to the failure of
Magellan to effect the registration of the Warrant Shares), the Company's
indemnification obligations (x) for a period of two (2) years following the
Closing, shall not arise until the aggregate Damages resulting from the breach
exceed $1,000,000, at which time such indemnity obligations shall cover all
Damages, and (y) after two (2) years following the Closing, shall not arise
until the aggregate Damages during such period resulting from the breach exceed
$10,000,000, at which time such indemnity obligations shall cover all Damages.
9.3 Indemnification by Buyer. Buyer shall indemnify, defend, and hold
harmless the Company from and against any and all Damages asserted against,
resulting to, imposed upon, or incurred by the Company, directly or indirectly,
by reason of or resulting from any breach by Buyer of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto. Notwithstanding anything to the contrary contained herein, Buyer's
indemnity obligations hereunder (i) will not extend to Damages arising out of
negligence, willful misconduct or fraud of the Company and (ii) with respect to
indemnification Damages under this Section 9.3, the Buyer's indemnification
obligations (x) for a period of two (2) years following the Closing, shall not
arise until the aggregate Damages resulting from the breach exceed $1,000,000,
at which time such indemnity obligations shall cover all Damages, and (y) after
two (2) years following the Closing, shall not arise until the aggregate
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Damages during such period resulting from the breach exceed $10,000,000, at
which time such indemnity obligations shall cover all Damages.
9.4 Procedure for Indemnification. Promptly after receipt by an indemnified
party under Section 9.2 or 9.3 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof, but the failure so to notify the indemnifying
party shall not relieve it of any liability that it may have to any indemnified
party except to the extent the indemnifying party demonstrates that the defense
of such action is prejudiced thereby. In case any such action shall be brought
against an indemnified party and it shall give written notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party. If the indemnifying party elects to assume the defense of such action,
the indemnified party shall have the right to employ separate counsel at its own
expense and to participate in the defense thereof. If the indemnifying party
elects not to assume (or fails to assume) the defense of such action, the
indemnified party shall be entitled to assume the defense of such action with
counsel of its own choice, at the expense of the indemnifying party. If the
action is asserted against both the indemnifying party and the indemnified party
and there is a conflict of interests which renders it inappropriate for the same
counsel to represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. The indemnifying party shall have no
liability with respect to any compromise or settlement of any action effected
without its written consent (which shall not be unreasonably withheld).
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if delivered
personally, or transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, or sent by prepaid overnight delivery
service, or sent by cable, telegram, or telefax, to the parties at the addresses
and telefax numbers set forth opposite their names on the signature page hereof
(or at such other addresses and telefax numbers as shall be specified by the
parties by like notice).
10.2 Entire Agreement. This Agreement, together with the Transaction
Documents, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof
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and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
10.3 Binding Effect; Assignment; No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, successors, and permitted assigns. Except as
otherwise expressly provided in this Agreement, neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
Except as provided in Article IX, nothing in this Agreement, express or implied,
is intended to or shall confer upon any person other than the parties hereto,
and their respective legal representatives, successors, and permitted assigns,
any rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.
10.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
10.5 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, without regard to
the principles of conflicts of laws thereof.
10.6 Counterparts. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
ARTICLE XI
DEFINITIONS
11.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Article:
"Affiliate" has the meaning specified in Rule 12b-2 promulgated under
the Exchange Act.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Entity to
which a specified person or property is subject.
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"Business Day" shall mean any day other than a Saturday, a Sunday, or
a day on which banking institutions in Atlanta, Georgia or Dallas, Texas
are authorized or obligated by law or executive order to close.
"Encumbrances" means liens, charges, pledges, options, mortgages,
deeds of trust, security interests, claims, restrictions (whether on
voting, sale, transfer, disposition, or otherwise), easements, and other
encumbrances of every type and description, whether imposed by law,
agreement, understanding, or otherwise.
"Equity Ownership Interests" shall mean, with respect to the Buyer, at
any time, the fraction (a) having as its numerator the number of shares of
Common Stock and Underlying Warrant Shares held beneficially by the Buyer
at such time, and (b) having as its denominator the aggregate number of
shares of Common Stock (calculated on a fully diluted basis) issued and
outstanding at such time.
"Equity Securities" means any capital stock of the Company, and any
securities directly or indirectly convertible into, or exercisable or
exchangeable for any capital stock of the Company, or any right, option,
warrant or other security which, with the payment of additional
consideration, the expiration of time or the occurrence of any event shall
give the holder thereof the right to acquire any capital stock of the
company or any security convertible into or exercisable or exchangeable
for, any capital stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agreement" means that certain Exchange Agreement among the
Company and certain other parties dated as of December 13, 1995.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any public, governmental, or regulatory body,
agency, department, commission, board, bureau, or other authority or
instrumentality (domestic or foreign).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.
"Proceedings" means all proceedings, actions, suits, investigations,
and inquiries by or before any arbitrator or Governmental Entity.
"Registrable Warrant Shares" means the Warrant Shares and any Common
Stock or other Equity Securities issued with respect thereto by way of
stock dividend or stock split
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<PAGE>
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Rights Agreement" means that certain Rights Agreement, dated as of
July 21,1992 between the Company and First Union National Bank of North
Carolina, as rights agent.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation more than 50% of whose outstanding
voting securities, or any general partnership, joint venture, or similar
entity more than 50% of whose total equity interests, is owned, directly or
indirectly, by the Company, or any limited partnership of which the Company
or any Subsidiary is a general partner.
"Underlying Warrant Shares" shall mean, at any time, all shares of
Common Stock which may be acquired upon exercise of the Warrants. For
purposes hereof, any person who holds Warrants shall be deemed to be the
holder of the Underlying Warrant Shares obtainable upon exercise of such
Warrants.
11.2 Certain Additional Defined Terms. In addition to such terms as are
defined in the opening paragraph of and the recitals to this Agreement and in
Section 11.1, the following terms are used in this Agreement as defined in the
Sections set forth opposite such terms:
Defined Term Section Reference
Closing...............................................................Article II
Closing Date..........................................................Article II
Damages......................................................................9.2
Excluded Transfer............................................................5.5
Material Activity............................................................5.3
Purchase Price...............................................................1.2
Registration Expenses........................................................5.3
Registration Statement.......................................................5.3
SEC Filings..................................................................3.7
Survival Date................................................................9.1
Warrant Shares...............................................................3.6
Warrants.....................................................................1.1
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IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
MAGELLAN HEALTH SERVICES, INC.
Address:
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326 By: /s/ E. Mac Crawford
Fax: (404) 814-5717 -------------------------------------
E. Mac Crawford, Chairman
and Chief Executive Officer
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: /s/ Gerald Haddock
-------------------------------------
Gerald Haddock
President and Chief Operating Officer
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ANNEX I
Number of Shares of
Common Stock
Date First Issuable Upon Exercise End of Exercise
Warrant [Number] Exercisable of Warrants Period
- ----------------- ------------ ---------------------- ---------------
[1] May 31, 1998 30,000 May 31, 2001
[2] May 31, 1999 62,325 May 31, 2002
[3] May 31, 2000 97,114 May 31, 2003
[4] May 31, 2001 134,513 May 31, 2004
[5] May 31, 2002 174,678 May 31, 2005
[6] May 31, 2003 217,770 May 31, 2006
[7] May 31, 2004 263,961 May 31, 2007
[8] May 31, 2005 313,433 May 31, 2008
[9] May 31, 2006 366,376 May 31, 2009
[10] May 31, 2007 422,961 May 31, 2009
[11] May 31, 2008 483,491 May 31, 2009
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EXHIBIT A
(Form of Warrants)
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THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR UNLESS
AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
THE RIGHT TO SELL OR OTHERWISE TRANSFER THIS WARRANT IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A WARRANT PURCHASE AGREEMENT DATED JANUARY 29, 1997,
BETWEEN THE COMPANY AND THE INITIAL BUYER OF THE WARRANTS, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. THIS WARRANT MAY
NOT BE SOLD OR TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THE WARRANT
PURCHASE AGREEMENT AND IN THIS WARRANT, AND NO SALE OR TRANSFER OF THIS WARRANT
SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN
COMPLIED WITH.
------------------------------------------------------------------
MAGELLAN HEALTH SERVICES, INC.
(Incorporated under the laws of the State of Delaware)
Void after 5:00 p.m., Atlanta, Georgia, local time,
on [May 31], 2001
No. ___ Right to Purchase
[_______] Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, [Crescent Real Estate Equities
Limited Partnership, a Delaware limited partnership] (the "Holder"), or
registered assigns, is entitled to purchase from Magellan Health Services, Inc.,
a Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Paragraph 2 hereof, ([______]) fully paid and
nonassessable shares of the Company's Common Stock, par value $.25 per share
(the "Common Stock"), at an exercise price per share of $ 30 (the "Exercise
Price"). The term "Warrant Shares", as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof.
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<PAGE>
This Warrant, together with all warrants issued upon transfer, exchange or
in replacement hereof pursuant to Paragraph 7 hereof (collectively, the
"Warrants"), is issued pursuant to, and is subject to all terms, provisions, and
conditions contained in, that certain Warrant Purchase Agreement, dated January
29, 1997 (the "Purchase Agreement'), by and between the Company and the Holder.
This Warrant is subject to the following additional terms, provisions, and
conditions:
12. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof and the provisions of the Purchase Agreement
which restrict the exercise of the Warrants, this Warrant may be exercised by
the holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed Exercise Agreement in the form attached hereto, to the
Company during normal business hours on any business day at the Company's
principal office in Atlanta, Georgia (or such other office or agency of the
Company as it may designate by notice to the holder hereof), during the Exercise
Period (as defined in Paragraph 2), and upon payment to the Company of the
Exercise Price for the Warrant Shares specified in said Exercise Agreement,
which such payment shall be made in cash or by certified or official bank check.
The Company shall not be required to issue fractional Warrant Shares upon any
exercise of the Warrant, but instead shall pay to the holder of this Warrant the
cash value of any such fractional Warrant Shares. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding ten business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be reasonably requested by the holder hereof, shall, unless
the Warrant Shares evidenced by such certificate have previously been registered
under the Securities Act of 1933, as amended (the "Securities Act"), be
imprinted with a restrictive legend substantially similar to the legend
appearing on the face of this Warrant, and shall be registered in the name of
said holder or such other name as shall be designated by said holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of said
certificates, deliver to said holder a new Warrant representing the number of
shares with respect to which this Warrant shall not then have been exercised,
which Warrant shall be imprinted on its face with the same legend appearing on
the face of this Warrant. The Company shall pay all taxes and other expenses and
charges payable in connection with the preparation, execution, and delivery of
stock certificates (and any new Warrants) pursuant to this Paragraph 1 except
that, in case such stock certificates shall be registered in a name or names
other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company as
mentioned above.
13. Period of Exercise. Subject to the provisions of the Purchase Agreement
which restrict the exercise of the Warrants, this Warrant is exercisable at any
time or from time to time
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<PAGE>
during the period commencing at 9:00 a.m. Atlanta, Georgia, local time, on
[ ] and ending at 5:00 p.m. Atlanta, Georgia, local time, on
[ ] (the "Exercise Period").
14. Certain Actions Prohibited. The Company will not, by amendment of
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.
Without limiting the generality of the foregoing,
(i) the Company will not increase the par value of the shares of
Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect,
(ii) before taking any action which would cause an adjustment reducing
the Exercise Price below the then par value of the shares of Common Stock
so receivable, the Company will take all such corporate action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Exercise Price upon the exercise of this Warrant, or
(iii) the Company will not take any action which results in any
adjustment of the Exercise Price if the total number of shares of Common
Stock issuable after the action upon the exercise of this Warrant would
exceed the total number of shares of Common Stock then authorized by the
Company's charter and available for other than the purpose of issue upon
such exercise.
15. Anti-dilution Provisions. The Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock," as used herein, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future by an amendment to the Company's charter, provided that
the shares purchasable pursuant to this Warrant shall include only shares of
Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in this Paragraph 4,
the stock or other securities or property provided for in this Paragraph 4.
- 26 -
<PAGE>
(a) Subdivisions and Combinations. In case at any time the Company shall
(i) subdivide the outstanding shares of Capital Stock into a greater number of
shares, or (ii) combine the outstanding shares of Capital Stock into a smaller
number of shares, the Exercise Price in effect immediately prior thereto shall
be adjusted proportionately so that the adjusted Exercise Price shall bear the
same relation to the Exercise Price in effect immediately prior to such event as
the total number of shares of Capital Stock outstanding immediately prior to
such event shall bear to the total number of shares of Capital Stock outstanding
immediately after such event. Such adjustment shall become effective immediately
after the effective date of a subdivision or combination.
(b) Stock Dividends. In case the Company at any time after the date hereof
shall declare, order, pay or make any dividend or other distribution to all
holders of the Capital Stock payable in Capital Stock, then in each such case,
subject to Paragraph 4(d) hereof, the Exercise Price in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be reduced to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Exercise Price by a fraction
(i) the numerator of which shall be the number of shares of Capital
Stock outstanding immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the number of shares of Capital
Stock outstanding immediately after such dividend or distribution.
Such adjustment shall be made on the date such dividend is paid or such
distribution is made and shall become effective retroactive to the record date
for the determination of shareholders entitled to receive such dividend or
distribution.
(c) Dividends other than Stock Dividends. In case the Company at any time
after the date hereof shall declare, order, pay or make any dividend or other
distribution to all holders of the Capital Stock, other than a dividend payable
in shares of Capital Stock (including, without limitation, dividends or
distributions payable in cash, evidences of indebtedness, rights, options or
warrants to subscribe for or purchase any Capital Stock or other securities, or
any other securities or other property), then, and in each such case, subject to
Paragraph 4(d) hereof, the Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
any class of securities entitled to receive such dividend or distribution shall
be reduced to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Exercise Price by a fraction
(i) the numerator of which shall be the "Market Price" (as defined
below) in effect on such record date or, if any class of Capital Stock
trades on an ex-dividend basis, the trading date immediately prior to the
date of commencement of ex-dividend trading, less the value of such
dividend or distribution (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Capital Stock, and
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<PAGE>
(ii) the denominator of which shall be such Market Price on such
record date of, if any class of Capital Stock trades on an ex-dividend
basis, the trading date immediately prior to the date of commencement of
ex-dividend trading.
Such adjustment shall be made on the date such dividend is paid or such
distribution is made and shall become effective retroactive to the record date
for the determination of shareholders entitled to receive such dividend or
distribution.
For the purpose hereof, "Market Price" shall mean, on any date specified
herein, (A) if any class of Capital Stock is listed or admitted to trading on
any national securities exchange, the highest price obtained by taking the
arithmetic mean over a period of 20 consecutive days on which such national
securities exchange (or if such stock is traded on more than one national
securities exchange, the exchange the Company has designated under the
Securities Exchange Act of 1934 to receive copies of reports filed by the
Company under such act) is open for trading on a regular basis (any such day is
a "Trading Day") ending the Trading Day immediately prior to such date of the
average, on each such Trading Day, of the high and low sale prices of shares of
each such class of Capital Stock or if no such sale takes place on such date,
the average of the highest closing bid and lowest closing asked prices thereof
on such date, in each case as officially reported on all national securities
exchanges on which each such class of Capital Stock is then listed or admitted
to trading, or (B) if no shares of any class of Capital Stock are then listed or
admitted to trading on any national securities exchange, the highest closing
price of any class of Capital Stock on such date in the over-the-counter market
as shown by the NASDAQ National Market System or, if no such shares of any class
of Capital Stock are then quoted in such system, as published by the National
Quotation Bureau, Inc. or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected by the
Company. If no shares of any class of Capital Stock are then listed or admitted
to trading on any national securities exchange and if no closing bid and asked
prices thereof are then so quoted or published in the over-the-counter market,
"Market Price" shall mean the higher of (x) the book value per share of Capital
Stock (assuming for the purposes of this calculation the economic equivalence of
all shares of all class of Capital Stock) as determined on a fully diluted basis
in accordance with generally accepted accounting principles by the Board of
Directors of the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made or (y) the fair
value per share of classes of Capital Stock (assuming for the purposes of this
calculation the economic equivalence of all shares of all classes of Capital
Stock), as determined on a fully diluted basis in good faith by the Board of
Directors of the Company, as of a date which is 15 days preceding the date as of
which the determination is to be made.
(d) Minimum Adjustment of Exercise Price. If the amount of any adjustment
of the Exercise Price required pursuant to this Paragraph 4 would be less than
one percent (1%) of the Exercise Price in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one percent (1%) of such
Exercise Price; provided that, upon
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<PAGE>
the exercise of this Warrant, all adjustments carried forward and not
theretofore made up to and including the date of such exercise shall, with
respect to the portion of this Warrant then exercised, be made to the nearest
.001 of a cent.
(e) Fundamental Change Transaction. In case at any time after the date
hereof a purchase, tender, or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of Capital
Stock, or the Company is otherwise a party to any transaction (including,
without limitation, a merger, consolidation, sale of all or substantially all
the Company's assets, liquidation, or recapitalization of the Capital Stock)
which is to be effected in such a way that as a result of such transaction or
offer (x) the holders of Common Stock (or any other securities of the Company
then issuable upon the exercise of this Warrant) shall be entitled to receive
stock or other securities or property (including cash) with respect to or in
exchange for Common Stock (or such other securities), or (y) the Capital Stock
ceases to be a publicly traded security either listed on the American Stock
Exchange, the New York Stock Exchange or the NASDAQ National Market System or
any successor thereto or comparable system (each such transaction being herein
called a "Fundamental Change Transaction"), then, as a condition of such
Fundamental Change Transaction, lawful and adequate provision shall be made
whereby the holder of this Warrant shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified in this
Warrant, and in lieu of the shares of Common Stock (or such other securities)
purchasable immediately before such transaction upon the exercise hereof, such
stock or other securities or property (including cash) as may be issuable or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock (or such other securities) equal to the number of shares of Common
Stock (or such other securities) purchasable immediately before such transaction
upon the exercise hereof, had such Fundamental Change Transaction not taken
place. In any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, the provisions for adjustments
of the Exercise Price and of the number of Warrant Shares purchasable upon
exercise hereof) shall thereafter be applicable, as nearly as reasonably may be,
in relation to the stock or other securities or property thereafter deliverable
upon the exercise hereof (including an immediate adjustment of the Exercise
Price if by reason of or in connection with such Fundamental Change Transaction
any securities are issued or event occurs which would, under the terms hereof,
require an adjustment of the Exercise Price). In the event of a consolidation or
merger of the Company with or into another corporation or entity as a result of
which a greater or lesser number of shares of common stock of the surviving
corporation or entity are issuable to holders of Capital Stock in respect of the
number of shares of Capital Stock outstanding immediately prior to such
consolidation or merger, then the Exercise Price in effect immediately prior to
such consolidation or merger shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Capital
Stock. The Company shall not effect any such Fundamental Change Transaction
unless prior to or simultaneously with the consummation thereof the successor
corporation or entity (if other than the Company) resulting from such
consolidation or merger or the corporation or entity purchasing such assets and
any other corporation or entity the shares of stock or other securities or
property of which are receivable thereupon by the holder of this Warrant shall
expressly assume, by written instrument executed and delivered (and satisfactory
in
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<PAGE>
form) to the holder of this Warrant, (i) the obligation to deliver to such
holder such stock or other securities or property as, in accordance with the
foregoing provisions, such holder may be entitled to purchase and (ii) all other
obligations of the Company hereunder.
(f) Notice of Adjustment. Upon the occurrence of any event requiring an
adjustment of the Exercise Price, then and in each such case the Company shall
promptly deliver to the holder of this Warrant a notice stating the Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares of Common Stock issuable upon exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. Within 90 days after each fiscal year in which
any such adjustment shall have occurred, or within 30 days after any request
therefor by the holder of this Warrant stating that such holder contemplates
exercise of this Warrant, the Company will deliver to the holder of this Warrant
a certificate of the Company's chief financial officer confirming the statements
in the most recent notice delivered under this Paragraph 4(f).
(g) Other Notices. In case at any time:
(i) the Company shall declare or pay to all the holders of Capital
Stock any dividend (whether payable in Capital Stock, cash, securities or
other property);
(ii) the Company shall offer for subscription pro rata to all the
holders of Capital Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization, or reclassification
of the Capital Stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all its assets to, another
corporation or other entity;
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding- up of the Company; or
(v) there shall be any other Fundamental Change Transaction;
then, in any one or more of such cases, the Company shall give to the holder of
this Warrant (a) at least five (5) Business Days prior to the record date
established or related to any event referred to in clause (i) - (v) above
(which, for purposes of events referred to in clauses (i) - (v) above, shall be
the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution, or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or
Transaction) written notice of such record date and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction known to the Company, at least 30 days
prior written notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend,
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<PAGE>
distribution, or subscription rights, the date on which such holders of Capital
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause (b) shall also specify the date on which such holders of
Capital Stock shall be entitled to exchange their Capital Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or
Transaction, as the case may be. Such notice shall also state that the action in
question or the record date is subject to the effectiveness of a registration
statement under the Securities Act, or to a favorable vote of security holders,
if either is required.
(h) Certain Events. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
Paragraph 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make such adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holder of this Warrant; provided, that no
such adjustment shall have the effect of increasing the Exercise Price as
otherwise determined pursuant to this Paragraph 4.
16. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any warrant or
certificate in a name other than the holder of this Warrant.
17. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
18. Transfer, Exchange, and Replacement of Warrant; Registration Rights.
(a) Restrictions on Transfer of Warrants. This Warrant shall not be
transferable to any person or entity other than a wholly-owned affiliate of the
Holder or as permitted under the Purchase Agreement. The transfer of this
Warrant to a wholly-owned affiliate or other transferee permitted under the
Purchase Agreement and all rights hereunder, in whole or in part, is registrable
at the office or agency of the Company referred to in Paragraph 7(e) hereof by
the holder hereof in person or by his duly authorized attorney, upon surrender
of this Warrant properly endorsed. Upon any transfer of this Warrant to any
wholly-owned affiliate or other permitted transferee, other than a wholly-owned
affiliate or other permitted transferee who is at that time a holder of other
Warrants, the Company shall have the right to require the holder and the
affiliate or other transferee to make customary representations to the extent
reasonably necessary to assure that the transfer will comply with the Securities
Act and any applicable state securities laws. Each holder of this Warrant, by
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<PAGE>
taking or holding the same, consents and agrees that this Warrant, then endorsed
in blank, shall be deemed negotiable, and that the holder hereof, when this
Warrant shall have been so endorsed, may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner and holder hereof for
any purpose and as the person entitled to exercise the rights represented by
this Warrant and to the registration of transfer hereof on the books of the
Company; but until due presentment for registration of transfer on such books
the Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any notice to
the contrary.
(b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to be imprinted with the same legend appearing on the face of this
Warrant and to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender. For purposes
hereof, the term "Warrant" shall be deemed to include any and all such
replacement Warrants, whether issued pursuant to this subparagraph (b) or any
other Paragraph hereof.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
Paragraph 7, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal office in
Atlanta, Georgia (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Registration Rights. The issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant and the resale of such Warrant
Shares are entitled to the benefits of the registration rights set forth in the
Purchase Agreement.
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<PAGE>
19. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail, postage prepaid and addressed, to such holder at the address
shown for such holder on the books of the Company, or at such other address as
shall have been furnished to the Company by notice from such holder. All
notices, requests, and other communications required or permitted to be given or
delivered hereunder to the Company shall be in writing, and shall be personally
delivered, or shall be sent by certified or registered mail, postage prepaid and
addressed, to the office of the Company at 3414 Peachtree Road, N.E., Suite
1400, Atlanta, GA 30326, Attention: Chief Financial Officer, or at such other
address as shall have been furnished to the holder of this Warrant by notice
from the Company. Any such notice, request, or other communication may be sent
by telegram or telex, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail as provided
above. All notices, requests, and other communications shall be deemed to have
been given either at the time of the delivery thereof to (or the receipt by, in
the case of a telegram or telex) the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 8, or, if mailed, at
the completion of the third full day following the time of such mailing thereof
to such address, as the case may be.
20. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF DELAWARE, WITHOUT REGARD TO ANY CHOICE
OF LAW PRINCIPLES OF SUCH STATE.
21. Remedies. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific enforcement of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
22. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may not be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Successors and Assigns. This Warrant shall, to the extent provided in
Section 4(e), be binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the Company's assets.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this __ day of January __, 1997.
MAGELLAN HEALTH SERVICES, INC.
By:
---------------------------
[CORPORATE SEAL]
Attest:
- ----------------------------------------
James R. Bedenbaugh, Assistant Secretary
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<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: _____________, ____.
To: ______________________
______________________
______________________
Attention: ___________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase _____ shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant [in cash or by certified or official bank check in the
amount of $______________] held by the undersigned and any applicable taxes
payable by undersigned. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:_____________________________________________________
Signature:________________________________________________
Title of Signing Officer or Agent (if any):_______________
Note:The above signature should correspond exactly with the
name on the face of the within Warrant or with the name
of the assignee appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
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<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights represented by and under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints _______________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ______________, ____.
In the presence of
- -----------------------------------
Name:
Signature:
Title of Signing Officer or Agent
(if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
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<PAGE>
FOR IMMEDIATE RELEASE
MAGELLAN ACCELERATES STRATEGY TO EXPAND
CARE MANAGEMENT AND RELATED INFORMATION SERVICES,
PUBLIC SECTOR AND PROVIDER SERVICES BUSINESSES
THROUGH REALIGNMENT OF ITS BUSINESS STRUCTURE
CONTINUES CHARTER BEHAVIORAL HEALTH SYSTEM'S
PROVIDER BUSINESS THROUGH JOINT VENTURE
KEY STEPS ARE $400 MILLION REIT TRANSACTION
AND $80 MILLION ANNUAL FRANCHISE ARRANGEMENT
- --------------------------------------------------------------------------------
ATLANTA, GEORGIA, January 30, 1997 -- Magellan Health Services, Inc. (NYSE: MGL)
today announced an acceleration of its strategy to grow the provider services,
care management and related information services, and public sector segments of
the Company through a realignment of its business structure. Following this
realignment, Magellan's domestic provider business, Charter Behavioral Health
Systems, will be operated as a joint venture, CBHS, equally owned by Magellan
and an affiliate of Crescent Real Estate Equities, Inc. (NYSE: CEI).
As part of this business realignment, Magellan has entered into a definitive
agreement under which substantially all of the hospitals, real estate and
related personal property used in its Charter subsidiary's domestic provider
operations would be acquired by Crescent in a real estate investment trust
(REIT) transaction. The joint venture will operate the facilities under a
franchise agreement with Magellan and a lease agreement with Crescent. Crescent
will lease the real estate and related assets to CBHS for annual rent beginning
at $40 million and increasing at 5% per year, compounded.
Magellan will issue warrants to both Crescent and its affiliate (the Affiliate)
for 1,283,500 shares each of Magellan common stock at $30 per share to become
exercisable over 12 years. The Affiliate will issue warrants to Magellan for the
purchase of 2 1/2 % of the Affiliate's common stock with terms substantially
equivalent to Magellan's warrants issued to Crescent. In exchange for the sale
of Charter's real estate assets to Crescent, the Affiliate's 50% ownership
interest in CBHS, and the 2,567,000 total Magellan warrants, Magellan will
receive $400 million in cash from Crescent and the warrants in the Affiliate.
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2
In addition, CBHS will pay Magellan approximately $80 million in annual
franchise fees (subject to increase) for the use of assets retained by Magellan
and for support in certain areas that Magellan will provide CBHS. The franchise
fees paid by CBHS will be subordinated to lease obligations. The assets being
retained by Magellan include, but are not limited to, the "CHARTER" name, other
intellectual property assets, treatment protocols and procedures, clinical
quality management, operating processes and the "1-800-CHARTER" telephone call
center. Magellan will provide CBHS ongoing support in areas including managed
care contracting services, advertising and marketing assistance, risk management
services, outcomes monitoring, and consultation on matters relating to
reimbursement, government relations, clinical strategies, regulatory matters,
strategic planning and business development.
Magellan said that the transactions would monetize a significant portion of the
Company's fixed assets and add $400 million cash, before debt repayment, to
Magellan's balance sheet; deconsolidate the provider business, yet maintain the
ability to contribute to earnings per share through franchise fees; and
establish a business platform from which Magellan can offer its management and
information services expertise to other healthcare concerns.
As a result of this transaction, Magellan will deconsolidate the hospitals and
record an equity interest in CBHS. The gain on the sale of the fixed assets will
be offset by transaction costs, write-off of goodwill, and collection fees
associated with the collection of account receivables. The one-time pre-tax loss
to Magellan as a result of this transaction is expected to be $45 to $55 million
and is expected to be recognized in the third fiscal quarter of 1997. Going
forward, Magellan will receive approximately $80 million per year in franchise
fees and a 50% equity interest in CBHS's earnings.
Mac Crawford, Chairman and Chief Executive Officer of Magellan, said, "Our
decision to realign our businesses is a significant step in Magellan's
continuing development as the preeminent integrated behavioral healthcare
company. By separating Charter's domestic provider operations, Magellan will be
able to focus on the segments of our business with the greatest near-term growth
potential -- care management and related information services and public sector
services. At the same time, we will retain the strategic benefits of the
integration of the finance and delivery of care through our ownership in CBHS."
Magellan said it would remain the nation's largest integrated behavioral
healthcare system, and that the separation of CBHS would not affect Magellan's
ability to enter into national contracts integrating the delivery and management
of behavioral healthcare, nor its ability to offer products such as risk
capitation services. The Company said it would use the proceeds of the REIT
transaction to pursue acquisitions in the care management and related
information services industry, develop new products, increase managed care and
public sector marketing efforts, and reduce debt. Magellan believes that under
the terms of the Company's 11 1/4% senior
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<PAGE>
3
subordinated bond indenture, these transactions would allow bondholders the
right to put their bonds at 101% of face value.
The Company's other primary business units are Green Spring Health Services and
Magellan Public Solutions (MPS). Green Spring is one of the nation's largest
managed behavioral healthcare companies, with over 15 million lives under
management. MPS provides behavioral care, management and support services to
public sector agencies through programs such as National Mentor, Inc. (Mentor),
a community-based foster care program acquired by the Company in January, 1995.
The Company acquired a 61% ownership interest in Green Spring in December 1995.
For fiscal year 1996, Green Spring had revenues of $265 million, an increase of
33% over fiscal 1995. Mentor had revenues of $70 million in 1996 vs. revenues of
approximately $58 million in 1995, an increase of over 20%.
Crawford continued, "The growth of both Green Spring and Mentor has exceeded our
expectations. The increased focus on these businesses and the strengthening of
our balance sheet will enable us to accelerate Green Spring's growth through
acquisition and diversification into other areas of carve-out specialized care
management services. We also expect to step up the growth of our public sector
business through expansion of such programs as Mentor and AdvoCare, Green
Spring's public sector unit."
The Company said that for fiscal year 1997, it anticipates revenues of $375
million for Green Spring and nearly $90 million for Mentor before any benefits
of these transactions.
The Company said the decision to enter into the joint venture is consistent with
management=s belief that Magellan=s share price reflects neither the strong
growth trends currently seen in the Company=s care management and related
information services businesses, nor the long-term potential of the Company=s
provider business. The Company added that it believes a secondary benefit of
this new structure should be to enhance the value of Magellan's stock as
currency for future acquisitions.
Crawford said, "With Crescent, Magellan and CBHS gain a strategic partner who
recognizes the long term nature of the provider business and has the financing
and real estate expertise that CBHS will need to capitalize on opportunities for
growth and consolidation in the provider business. In addition, through
Magellan=s continued ownership interest in CBHS and retention of CBHS=s
intellectual assets, our stockholders will participate in the continued
consolidation of the provider business.@
John DeStefanis will be President and CEO of CBHS, and CBHS's board will include
two representatives chosen by Magellan and two chosen by the Affiliate,
including John Goff, Crescent's Vice Chairman, who will be Chairman of CBHS.
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<PAGE>
4
John DeStefanis, President of Charter Behavioral Health Systems, said, "Crescent
will be a valuable partner in CBHS's efforts to access financing independent of
the stock market, which in our view has undervalued Charter's assets and
prospects. We believe that as the clear industry leader, Charter is well
positioned to benefit as both public and private payers shift their focus from
cost-control to broader measures of value from providers."
Mr. DeStefanis continued, "CBHS is the nation's largest and most comprehensive
behavioral health system, and we are continuing to leverage that strength by
customizing treatment programs to maximize the value of the benefits our
customers offer their beneficiaries; driving improvement in clinical quality by
focusing on measurable outcomes; and expanding our continuum of care through the
addition of specialty care programs and out-patient services."
These transactions were unanimously approved by Magellan's and Crescent's
respective Boards of Directors, but are still subject to approval by Magellan's
stockholders and federal antitrust authorities and subject to customary closing
conditions including financing. Closing is expected to take place early in the
third quarter of fiscal year 1997.
Certain of the statements in this press release including, without limitation,
statements regarding acquisition opportunities, revenue growth, new product
development, and franchise operations constitute forward-looking statements
contemplated under the Private Securities Reform Act of 1995. Risk factors such
as the ability to successfully complete and integrate acquisitions, degree of
new product success, and profitability of franchised operations could cause
actual results to differ materially from those projected. For a brief discussion
of these factors, please see Exhibit 99 contained in the Company's Form 10K, as
amended, for the fiscal year ended September 30, 1996 filed with the Securities
and Exchange Commission on January 28, 1997.
Magellan Health Services, Inc., a Fortune 1000 company, is the country's largest
integrated behavioral healthcare company. Its three business units include:
Charter Behavioral Health Systems, the nation's largest and most comprehensive
behavioral healthcare delivery system, with nearly 100 facilities delivering a
broad continuum of inpatient and outpatient care; majority-owned Green Spring
Health Services, a leader in behavioral managed care services; and Magellan
Public Solutions, serving public sector agencies with privatized health
services.
# # #
Investor Contact: Media Contact:
Kevin Helmintoller Robert Mead
(404) 814-5742 (212) 484-6701
<PAGE>
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT is entered into as of the ___ day of
___________, 1997, by and between CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership, having its principal office at 777
Main Street, Suite 2100, Fort Worth, Texas 76102 ("Landlord"), CHARTER
BEHAVIORAL HEALTH SYSTEMS, LLC, a Delaware limited liability company, having its
principal office at Suite 900, 3414 Peachtree Rd., N.E., Atlanta, GA 30326
("OpCo"), and each of the entities listed on Exhibit B attached hereto.
W I T N E S S E T H :
WHEREAS, Landlord owns fee simple title to the Collective Leased
Properties (this and other capitalized terms used and not otherwise defined
herein having the meanings ascribed to such terms in Article 1); and
WHEREAS, Landlord wishes to lease the Collective Leased Properties to
Tenant and Tenant wishes to lease the Collective Leased Properties from
Landlord, all subject to and upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:
ARTICLE 1
DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article shall have the meanings assigned to them in this Article and include the
plural as well as the singular, (ii) all accounting terms not otherwise defined
herein shall have the meanings assigned to them in accordance with GAAP, (iii)
all references in this Agreement to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Agreement, and (iv) the words "herein," "hereof," "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
1.1 "Additional Charges" shall have the meaning given such term in Section
3.1.3.
1.2 "Additional Rent" shall mean the monthly sum of One Million Six Hundred
and Sixty-Six Thousand Six Hundred Sixty-Seven Dollars ($1,666,667.00).
<PAGE>
1.3 "Affiliated Person" shall mean, with respect to any Person, (a) in the
case of any such Person which is a partnership, any partner in such
partnership, (b) in the case of any such Person which is a limited
liability company, any member of such company, and (c) any other Person
which is a Parent, a Subsidiary, or a Subsidiary of a Parent with
respect to such Person or to one or more of the Persons referred to in
the preceding clauses (a) and (b).
1.4 "Agreement" shall mean this Master Lease Agreement, including Exhibits
A-1 to A-__, B and C hereto, as it and they may be amended from time to
time as herein provided.
1.5 "Allowance" shall mean an annual amount with respect to each Lease Year
not to exceed the additional rent for each such Lease Year. The
Allowance shall be paid by Landlord to Tenant pursuant to Section 3.5
hereof.
1.6 "Applicable Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders
(whether now existing or hereafter enacted or promulgated irrespective
of whether its enactment is foreseeable or contemplated), of all courts
of competent jurisdiction and Government Agencies, and all applicable
judicial and administrative and regulatory decrees, judgments and
orders, including common law rulings, relating to injury to, or the
protection of, real or personal property or human health (except those
requirements which, by definition, are solely the responsibility of
employers) or the Environment, including, without limitation, all valid
requirements of courts and other Government Agencies pertaining to
reporting, licensing, permitting, investigation, remediation and
removal of underground improvements (including, without limitation,
treatment or storage tanks, or water, gas or oil wells), or emissions,
discharges, releases or threatened releases of Hazardous Substances,
chemical substances, pesticides, petroleum or petroleum products,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes whether solid, liquid or gaseous in nature, into the
Environment, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances or Regulated Medical Wastes, underground improvements
(including, without limitation, treatment or storage tanks, or water,
gas or oil wells), or pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, liquid or gaseous in
nature.
1.7 "Award" shall mean all compensation, sums or other value awarded, paid
or received by virtue of a total or partial Condemnation of any of the
Collective Leased Properties (after deduction of all reasonable legal
fees and other reasonable costs and expenses, including, without
limitation, expert witness fees, incurred by Landlord, in connection
with obtaining any such award).
1.8 "Business Day" shall mean any day other than Saturday, Sunday, or any
other day on which banking institutions in the states of Texas, Georgia
and the State are authorized by law or executive action to close.
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1.9 "Capital Addition" shall mean one or more new buildings, or one or more
additional structures annexed to any portion of any of the Leased
Improvements with respect to any of the Collective Leased Properties,
or the material expansion of existing improvements, which are
constructed on any parcel or portion of the Land during the Term,
including the construction of a new wing or new story, the renovation
of existing improvements on any of the Collective Leased Properties in
order to provide a functionally new facility needed to provide services
not previously offered, or any material expansion, construction,
renovation or conversion in order to increase by more than 10% the bed
capacity of any Facility, to change the purpose for which such beds are
utilized or to improve materially the quality of any Facility.
1.10 "Capital Additions Cost" shall mean the cost of any Capital Addition
proposed to be made by Tenant at any of the Collective Leased
Properties, whether paid for by Tenant or Landlord. Such cost shall
include (a) the cost of construction of the Capital Addition, including
site preparation and improvement, materials, labor, supervision,
developer and administrative fees, legal fees, and related design,
engineering and architectural services, the cost of any fixtures, the
cost of equipment and other personalty, the cost of construction
financing (including, but not limited to, capitalized interest) and
other miscellaneous costs approved by Landlord, (b) if agreed to by
Landlord in writing, in advance, the cost of any land (including all
related acquisition costs incurred by Tenant) contiguous to the
applicable Leased Property which is to become a part of such Leased
Property purchased for the purpose of placing thereon a Capital
Addition or any portion thereof or for providing means of access
thereto, or parking facilities therefor, including the cost of
surveying the same, (c) the cost of insurance, real estate taxes, water
and sewage charges and other carrying charges for such Capital Addition
during construction, (d) title insurance charges, (e) filing,
registration and recording taxes and fees, (f) documentary stamp or
transfer taxes, and (g) all actual and reasonable costs and expenses of
Landlord and Tenant and, if agreed to by Landlord in writing, in
advance, any Lending Institution committed to finance the Capital
Addition relating to financing for the Capital Addition, including, but
not limited to, all (i) reasonable attorneys' fees and expenses, (ii)
printing expenses, (iii) filing, registration and recording taxes and
fees, (iv) documentary stamp or transfer taxes, (v) title insurance
charges and appraisal fees, (vi) rating agency fees, and (vii)
commitment fees charged by any Lending Institution advancing or
offering to advance any portion of any financing to which Landlord has
consented in writing for such Capital Addition.
1.11 "Capital Expenditure" shall mean any expenditure with respect to the
Collective Leased Properties that is properly categorized as a capital
expenditure in accordance with GAAP.
1.12 "Change in Control" shall mean the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the
meaning of Rule 13d-3 of the SEC) of 50% or more, or rights, options or
warrants to acquire 50% or more, of the outstanding
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shares of voting stock of Tenant or any Facility Subsidiary, as the
case may be, or the merger or consolidation of Tenant or any Facility
Subsidiary (except with OpCo, a Facility Subsidiary or a wholly-owned
Subsidiary of OpCo), as the case may be with or into any other Person
or any one or a series of related sales or conveyances to any Person
(except to OpCo, a Facility Subsidiary or a wholly-owned subsidiary of
OpCo) of all or substantially all of the assets of Tenant or any
Facility Subsidiary, as the case may be. In the case of OpCo, only the
following shall constitute a Change in Control; (i) a sale or
conveyance in one or a related series of transactions of all or
substantially all the assets of OpCo to any Person and (ii) a merger or
consolidation in which OpCo is not the surviving or resulting entity or
of which the holders of the equity interests of OpCo immediately prior
to the merger or consolidation do not own more than 50% of the equity
interests in the surviving or resulting entity immediately after the
merger or consolidation.
1.13 "Code" shall mean the Internal Revenue Code of 1986 and, to the extent
applicable, the Treasury Regulations promulgated thereunder, each as
from time to time amended.
1.14 "Collective Leased Properties" shall have the meaning given such term
in Section 2.1.
1.15 "Commencement Date" shall mean the date of this Agreement.
1.16 "Comparable Facility" shall mean a facility having as its primary use
the Primary Intended Use and which is reasonably acceptable to
Landlord, with an expected future profitability substantially
equivalent to or greater than that of the Designated Leased Property
which Tenant proposes that it replace, both immediately prior to such
substitution and as reasonably projected over the term of this
Agreement, taking into account any cash paid or received in connection
with the substitution and any other relevant factors.
1.17 "Condemnation" shall mean, with respect to any of the Collective
Leased Properties, (a) the exercise of any governmental power with
respect to such Leased Property, whether by legal proceedings or
otherwise, by a Condemnor of its power of condemnation, (b) a
voluntary sale or transfer of such Leased Property by Landlord to any
Condemnor, either under threat of condemnation or while legal
proceedings for condemnation are pending, and (c) a taking or
voluntary conveyance of all or part of such Leased Property, or any
interest therein, or right accruing thereto or use thereof, as the
result or in settlement of any Condemnation or other eminent domain
proceeding affecting such Leased Property, whether or not the same
shall have actually been commenced.
1.18 "Condemnor" shall mean any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.
1.19 "Contractor" shall have the meaning given such term in Section 9.8.
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1.20 "Contractor's" Insurance Certificate" shall have the meaning given such
term in Section 9.8.
1.21 "Default" shall mean any event or condition which with the giving of
notice and/or lapse of time may ripen into an Event of Default.
1.22 "Designated Leased Property" shall mean a property designated by Tenant
pursuant to Section 22.15 on which there exists a Comparable Facility
which Tenant proposes to substitute for a Leased Property.
1.23 "Encumbrance" shall have the meaning given such term in Section 20.1.
1.24 "Entity" shall mean any corporation, general or limited partnership,
limited liability company or partnership, stock company or association,
joint venture, association, company, trust, bank, trust company, land
trust, business trust, cooperative, any government or agency or
political subdivision thereof or any other entity.
1.25 "Environment" shall mean soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata, ambient air, physical
structures and equipment, and where radon gas is present, the interior
air of buildings.
1.26 "Environmental Notice" shall have the meaning given such term in
Section 4.4.1.
1.27 "Environmental Obligation" shall have the meaning given such term in
Section 4.4.1.
1.28 "Environmental Report" shall have the meaning given such term in
Section 4.4.2.
1.29 "Event of Default" shall have the meaning given such term in Section
12.1.
1.30 "Extended Terms" shall have the meaning given such term in Section 2.4.
1.31 "Facility" shall mean, with respect to any of the Collective Leased
Properties, the facility offering health care or related services being
operated or proposed to be operated on such Leased Property.
1.32 "Facility Mortgage" shall mean, with respect to any of the Collective
Leased Properties, any Encumbrance placed upon such Leased Property in
accordance with Article 20.
1.33 "Facility Mortgagee" shall mean the holder of any Facility Mortgage.
1.34 "Facility Subsidiaries" shall mean the Entities listed on Exhibit B
attached hereto, each of which is a wholly owned Subsidiary of OpCo.
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1.35 "Facility Trade Name" shall mean, with respect to any Facility, any
name under which Tenant has conducted the business of operating such
Facility at any time during the Term.
1.36 "Fair Market Rental" shall mean, with respect to any of the Collective
Leased Properties, the rental which a willing tenant not compelled to
rent would pay a willing landlord not compelled to lease for the use
and occupancy of such Leased Property (including all Capital Additions)
on the terms and conditions of this Agreement for the term in question
, assuming Tenant is not in default hereunder and determined by
agreement between Landlord and Tenant or, failing agreement, in
accordance with the appraisal procedures set forth in Article 19.
1.37 "Fair Market Value" shall mean, with respect to any of the Collective
Leased Properties, the price that a willing buyer not compelled to buy
would pay a willing seller not compelled to sell for such Leased
Property (without taking into account any reduction in value resulting
from any indebtedness to which such Leased Property is subject),
assuming the same is unencumbered by this Agreement and determined by
agreement between Landlord and Tenant or, failing agreement, the
appraisal procedures set forth in Article 19.
1.38 "Financial Officer's Certificate" shall mean, as to any Person, a
certificate of the chief financial officer of such Person, duly
authorized, accompanying the financial statements required to be
delivered by such Person pursuant to Section 17.2, in which such
officer shall certify (a) that such statements have been properly
prepared in accordance with GAAP and fairly present in all material
respects the financial condition of such Person at and as of the dates
thereof and the results of its and their operations for the periods
covered thereby, (except that, in the case of financial statements
delivered pursuant to Sections 17.2(a) and 17.2(c), the certificate
shall state the extent to which such financial statements are not in
accordance with GAAP) and (b) certify that such officer has reviewed
this Agreement and has no knowledge of any Default or Event of Default
hereunder.
1.39 "Financials" shall mean, for any Fiscal Year or other accounting period
of OpCo, annual audited and quarterly unaudited financial statements
for OpCo, including OpCo's balance sheet and the related statements of
income and cash flows, all in reasonable detail, and setting forth in
comparative form the corresponding figures for the corresponding period
in the preceding Fiscal Year, and prepared in accordance with GAAP
throughout the periods reflected, except to the extent GAAP is
customarily not complied with by OpCo in preparing quarterly unaudited
financial statements.
1.40 "Fiscal Year" shall mean the twelve (12) month period from October 1 to
September 30.
1.41 "Fixed Term" shall have the meaning given such term in Section 2.3.
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1.42 "Fixtures" shall have the meaning given such term in Section 2.1(d).
1.43 "Franchise Agreement" shall mean, collectively, that certain Franchise
Agreement of even date herewith by and between Franchisor, as
franchisor, and OpCo, as franchisee, and those certain Franchise
Agreements of even date herewith by and between Franchisor, as
franchisor, and each of the Facility Subsidiaries, as franchisee.
1.44 "Franchise Fees" shall mean all amounts payable by Tenant to Franchisor
under the Franchise Agreement.
1.45 "Franchise Subordination Agreement" shall mean that certain
Subordination Agreement of even date herewith, as the same may be
amended from time to time, by and among OpCo, Landlord and Franchisor.
1.46 "Franchisor" shall mean Magellan Health Services, Inc., a Delaware
corporation.
1.47 "GAAP" shall mean generally accepted accounting principles consistently
applied.
1.48 "Government Agencies" shall mean any court, agency, authority, board
(including, without limitation, environmental protection, planning and
zoning), bureau, commission, department, office or instrumentality of
any nature whatsoever of any governmental unit of the United States or
the State or any county or any political subdivision of any of the
foregoing, whether now or hereafter in existence, having jurisdiction
over Tenant or the Collective Leased Properties or any portion thereof
or the Facilities operated thereon.
1.49 "Hazardous Substances" shall mean any substance:
(a) the presence of which requires or may hereafter require
notification, investigation or remediation under any federal,
state or local statute, regulation, rule, ordinance, order,
action or policy; or
(b) which is or becomes defined as a "hazardous waste," "hazardous
material" or "hazardous substance" or "pollutant" or
contaminant" under any present or future federal, state or
local statute, regulation, rule or ordinance or amendments
thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42
U.S.C, et seq.) and the Resource Conservation and Recovery Act
(42 U.S.C, section 6901 et seq.) and the regulations
promulgated thereunder; or
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous
and is or becomes regulated by any governmental authority,
agency, department, commission, board, agency or
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instrumentality of the United States, any state of the United
States, or any political subdivision thereof; or
(d) the presence of which on any of the Collective Leased
Properties causes or threatens to cause a nuisance upon such
Leased Property or to adjacent properties or poses or
threatens to pose a hazard to any of the Collective Leased
Properties or to the health or safety of persons on or about
any of the Collective Leased Properties; or
(e) without limitation, which contains gasoline, diesel fuel or
other petroleum hydrocarbons or volatile organic compounds; or
(f) without limitation, which contains polychlorinated biphenyls
(PCBs) or asbestos or urea formaldehyde foam insulation; or
(g) without limitation, which contains or emits radioactive
particles, waves or material; or
(h) without limitation, constitutes Regulated Medical Wastes.
1.50 "Impositions" shall mean, with respect to any of the Collective Leased
Properties, collectively, all taxes (including, without limitation, all
taxes imposed under the laws of the State, as such laws may be amended
from time to time, and all ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or similar taxes as the
same relate to or are imposed upon Landlord, Tenant or the business
conducted upon such Leased Property), assessments (including, without
limitation, all assessments for public improvements or benefit, whether
or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), ground rents, water, sewer or
other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, inspection, authorization and similar
fees) and all other governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen or unforeseen, of
every character in respect of such Leased Property or the business
conducted thereon by Tenant (including all interest and penalties
thereon due to any failure in payment by Tenant), which at any time
prior to, during or in respect of the Term hereof may be assessed or
imposed on or in respect of or be a lien upon (a) Landlord's interest
in such Leased Property, (b) such Leased Property or any part thereof
or any rent therefrom or any estate, right, title or interest therein,
or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on, or in connection with such Leased Property or
the leasing or use of such Leased Property or any part thereof by
Tenant; provided, however, that nothing contained herein shall be
construed to require Tenant to pay (i) any tax based on net income
imposed on Landlord, (ii) any net revenue tax of Landlord, (iii) any
transfer fee or other tax imposed with respect to the sale, exchange,
financing, mortgaging, or other disposition by Landlord of the
applicable Leased Property or the proceeds thereof (other than in
connection with the sale, exchange or other
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disposition to, or in connection with a transaction involving, Tenant),
or (iv) any single business, franchise fees, gross receipts (other than
a tax on any rent received by Landlord from Tenant), transaction
privilege, rent or similar taxes as the same relate to or are imposed
upon Landlord, except to the extent that any tax, assessment, tax levy
or charge that Tenant is obligated to pay pursuant to the first
sentence of this definition and that is in effect at any time during
the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (i) or (ii)
preceding is levied, assessed or imposed expressly in lieu thereof.
1.51 "Indebtedness" shall mean all obligations, contingent or otherwise,
which in accordance with GAAP should be reflected on the obligor's
balance sheet as debt.
1.52 "Insurance Requirements" shall mean all terms of any insurance policy
required by this Agreement and all requirements of the issuer of any
such policy.
1.53 "Land" shall have the meaning given such term in Section 2.1(a).
1.54 "Landlord" shall have the meaning given such term in the preamble to
this Agreement.
1.55 "Lease Year" shall mean any consecutive annual period starting on the
Commencement Date and ending on the day prior to the anniversary
thereof; provided that if the Commencement Date is not the first day of
a calendar month then the first (1st) Lease Year shall end on the last
day of the calendar month in which occurs the date which would
otherwise be the last day of such Lease Year.
1.56 "Leased Improvements" shall have the meaning given such term in Section
2.1(b).
1.57 "Leased Personal Property" shall have the meaning given such term in
Section 2.1(e).
1.58 "Leased Property" shall mean any one of the Collective Leased
Properties.
1.59 "Legal Requirements" shall mean, with respect to any of the Collective
Leased Properties, all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting such Leased Property or
the maintenance, construction, alteration or operation thereof, whether
now or hereafter enacted or in existence, including, without
limitation, (a) all permits, licenses, certificates of need,
authorizations and regulations necessary to operate such Leased
Property for its Primary Intended Use, and (b) all covenants,
agreements, restrictions and encumbrances contained in any instruments
at any time in force affecting such Leased Property, including those
which may (i) require material repairs, modifications or alterations in
or to such Leased Property or (ii) in any way adversely affect the use
and enjoyment thereof.
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1.60 "Lending Institution" shall mean any insurance company, federally
insured commercial or savings bank, national banking association,
savings and loan association, employees' welfare, pension or
retirement fund or system, syndicated lenders' group, commercial
finance company, leasing company, corporate profit sharing or pension
trust, college or university, or real estate investment trust,
including any corporation qualified to be treated for federal tax
purposes as a real estate investment trust, such trust having a net
worth of at least $50,000,000.
1.61 "Lien" shall mean any mortgage, security interest, pledge, collateral
assignment, or other encumbrance, lien or charge of any kind, or any
transfer of any property or assets for the purpose of subjecting the
same to the payment of Indebtedness or performance of any other
obligation in priority to payment of any Person's general creditors.
1.62 "Management Agreement" shall mean any agreement whether written or oral
entered into between Tenant and any other party (including any
Affiliated Person as to Tenant) pursuant to which management services
are provided to all or substantially all of any Facility, together with
all amendments, modifications or supplements thereto.
1.63 "Manager" shall mean the management party under any Management
Agreement
1.64 "Minimum Rent" shall mean the following monthly sums with respect to
the Fixed Term:
Lease Year Minimum Rent
1 $___________
2 $___________
3 $___________
4 $___________
5 $___________
6 $___________
7 $___________
8 $___________
9 $___________
10 $___________
11 $___________
12 $___________
Initial Minimum Rent will be $40,000,000 per year, plus 10% of any
increase in the total consideration in excess of $400,000,000. The
Minimum Rent will be increased on the first day of the second Lease
Year, and each Lease Year thereafter, to an amount equal to the product
of the then Minimum Rent multiplied by 105%.
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With respect to each Extended Term, the Minimum Rent shall be an amount
determined in accordance with Section 2.5.
1.65 "Notice" shall mean a notice given in accordance with Section 22.11.
1.66 "Non-Priority Additional Rent" shall mean the installments of
additional rent with respect to any Lease Year in excess of the
Priority Additional Rent Base Amount.
1.67 "Officer's Certificate" shall mean a certificate signed by an officer
of Tenant.
1.68 "OpCo" shall have the meaning given such term in the preamble to this
Agreement.
1.69 "Overdue Rate" shall mean, on any date, a per annum rate of interest
equal to the lesser of the Prime Rate plus six (6) percentage points
and the maximum rate then permitted under applicable law.
1.70 "Parent" shall mean, with respect to any Person, any Person which owns
directly, or indirectly through one or more Subsidiaries, more than
fifty percent (50%) of beneficial equity interest in such Person.
1.71 "Permitted Encumbrances" shall mean, with respect to any of the
Collective Leased Properties, all rights, restrictions, and easements
of record set forth on Schedule B to the applicable owner's or
leasehold title insurance policy issued to Landlord on the date hereof,
plus any other such encumbrances as may have been consented to in
writing by Landlord from time to time, plus items that constitute
Permitted Exceptions under and as that term is defined in the Purchase
Agreement.
1.72 "Person" shall mean any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such
Person where the context so admits.
1.73 "Philadelphia Facility" shall mean the "Charter Fairmount" Facility
currently under renovation and located in Philadelphia, Pennsylvania.
1.74 "Primary Intended Use" shall have the meaning given such term in
Section 4.1.1.
1.75 "Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank (or its
successor) as its prime rate in effect at its principal office in New
York City, New York.
1.76 "Priority Additional Rent Base Amount" for any Lease Year shall mean an
amount of Additional Rent equal to Ten Million Dollars ($10,000,000);
provided, however, that if Landlord funds, or makes an irrevocable
commitment to fund, Capital Expenditures for any Lease Year in an
amount in excess of Ten Million Dollars ($10,000,000) at Tenant's
request, then the Priority Additional Rent Base Amount for such Lease
Year shall be
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increased to the amount of Capital Expenditures funded or committed to
be funded by Landlord for such Lease Year. Notwithstanding the
foregoing, in the event that, and for so long as, the accrued and
unpaid Franchise Fees, including interest thereon, if any, equal or
exceed Fifteen Million Dollars ($15,000,000), then the Priority
Additional Rent Base Amount for any such Lease Year shall be reduced to
$0.00; provided, however, that if Landlord funds, or makes an
irrevocable commitment to fund, Capital Expenditures for any Lease Year
in any amount at Tenant's request, then the Priority Additional Rent
Base Amount for such Lease Year shall be increased from $0.00 to the
amount of Capital Expenditures funded or committed to be funded by
Landlord for such Lease Year. The Priority Additional Rent Base Amount
shall be computed monthly in advance of the payment of Rent due
hereunder for the next succeeding month. Such calculation shall be made
on the 25th day of the month, unless the 25th day of the month is not a
Business Day, in which event such calculation for such month shall be
made on the first Business Day following such 25th day. Notwithstanding
anything set forth above to the contrary, if any request by Tenant to
Landlord for a disbursement of the Allowance in any Fiscal Year is for
an amount in excess of the amount budgeted for capital expenditures in
Tenant's approved annual budget for such Fiscal Year, then the Priority
Additional Rent Base Amount shall not be increased as provided above to
the extent that the amount of such request is above the budgeted amount
unless such request is accompanied by Franchisor's consent to such
requested amount.
1.77 "Purchase Agreement" shall have the meaning given such term in Section
22.15 hereof.
1.78 "Qualified Affiliate" shall mean any (x) Parent or Subsidiary of OpCo,
or (y) partnership or limited liability company in which OpCo has an
ownership interest of not less than 25%, whether or not such interest
is controlling.
1.79 "Qualified Appraiser" shall mean an appraiser who is not in control of,
controlled by or under common control with either Landlord or Tenant
and has not been an employee of Landlord or Tenant or any Affiliated
Person with respect to either of Landlord or Tenant at any time, who is
qualified to appraise commercial real estate in the State and is a
member of the American Institute of Real Estate Appraisers (or any
successor association or body of comparable standing if such Institute
is not then in existence) and who has held his or her certificate as an
M.A.I, or its equivalent for a period of not less than three (3) years,
and has been actively engaged in the appraisal of commercial real
estate in such area for a period of not less than five (5) years,
immediately preceding his or her appointment hereunder.
1.80 "Regulated Medical Wastes" shall mean all materials generated by
Tenant, subtenants, patients, occupants or the operators of the
Collective Leased Properties which are now or may hereafter be subject
to regulation pursuant to the Material Waste Tracking Act of 1988, or
any Applicable Laws promulgated by any Government Agencies.
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1.81 "Rent" shall mean, collectively, the Minimum Rent, Additional Rent and
Additional Charges.
1.82 "SEC" shall mean the Securities and Exchange Commission.
1.83 "State" shall mean, as to each Leased Property, the state in which such
Leased Property is located.
1.84 "Subordinated Creditor" shall mean any creditor of Tenant which is a
party to a Subordination Agreement in favor of Landlord.
1.85 "Subordination Agreement" shall mean any agreement executed by a
Subordinated Creditor pursuant to which the payment and performance of
Tenant's obligations to such Subordinated Creditor are subordinated to
the payment and performance of Tenant's obligations to Landlord under
this Agreement.
1.86 "Subsidiary" shall mean, with respect to any Person, any Entity in
which such Person owns directly, or indirectly through one or more
Subsidiaries, more than fifty percent (50%) of the beneficial equity
interest of such Person.
1.87 "Substitute Leased Property" shall have the meaning given such term in
Section 22.15 hereof.
1.88 "Substitution Date" shall have the meaning given such term in Section
22.15 hereof.
1.89 "Tenant" shall mean OpCo and the Facility Subsidiaries listed in
Exhibit B, jointly and severally.
1.90 "Tenant's Personal Property" shall mean all tangible personal property
now owned or hereafter acquired by Tenant on or after the date hereof
and located at any of the Collective Leased Properties or used in
connection with Tenant's business at any of the Collective Leased
Properties, including, without limitation, all motor vehicles and
consumable inventory and supplies, furniture, furnishings, movable
walls and partitions, equipment and machinery and all other tangible
personal property of Tenant, and all modifications, replacements,
alterations and additions to such personal property installed at the
expense of Tenant.
1.91 "Term" shall mean, collectively, the Fixed Term and the Extended Terms,
to the extent properly exercised pursuant to the provisions of Section
2.4, unless sooner terminated pursuant to the provisions of this
Agreement.
1.92 "Unsuitable for Its Primary Intended Use" shall mean, with respect to
any Facility, a state or condition of such Facility such that (a)
following any damage or destruction
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involving such Leased Property, such Leased Property cannot reasonably
be expected to be restored to substantially the same condition as
existed immediately before such damage or destruction, and as otherwise
required by Section 10.2.3, within six (6) months following such damage
or destruction or such shorter period of time as to which business
interruption insurance is available to cover Rent and other costs
related to such Leased Property following such damage or destruction,
or (b) as the result of a partial taking by Condemnation, such Facility
cannot be operated, in the good faith judgment of OpCo, on a
commercially practicable basis for its Primary Intended Use taking into
account, among other relevant factors, the number of usable beds, the
amount of square footage, or the revenues affected by such damage or
destruction or partial taking.
1.93 "Work" shall have the meaning given such term in Section 10.2.3.
ARTICLE 2
COLLECTIVE LEASED PROPERTIES AND TERM
2.1 Collective Leased Properties.
Upon and subject to the terms and conditions hereinafter set forth,
Landlord leases to Tenant and Tenant leases from Landlord all of the following
(collectively, the "Collective Leased Properties"):
(a) those certain tracts, pieces and parcels of land, as more
particularly described in Exhibits A-1 to A-_ attached hereto
and made a part hereof (the "Land");
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and
lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures presently
situated upon the Land and all Capital Additions
(collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to the Land
and the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of
property, now or hereafter permanently affixed to or
incorporated into the Leased Improvements, including,
without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water
pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems
and fire and theft protection equipment, all of which, to
the maximum extent permitted by law, are hereby deemed by
the parties hereto to constitute real estate, together with
all replacements, modifications, alterations
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and additions thereto, but specifically excluding Tenant's
Personal Property (collectively, the "Fixtures");
(e) all machinery, equipment, furniture, furnishings, moveable
walls or partitions, computers or trade fixtures or other
personal property of any kind or description used or useful
in Tenant's business on or in the Leased Improvements, and
located on or in the Leased Improvements, including, without
limitation, all "Personal Property" as defined in the
Purchase Agreement, and all modifications, replacements,
alterations and additions to such personal property, except
items, if any, included within the category of Fixtures, but
specifically excluding Tenant's Personal Property
(collectively, the "Leased Personal Property"); and
(f) all leases of space (including any security deposits held by
Tenant pursuant thereto) in the Leased Improvements to tenants
thereof.
Landlord hereby assigns to Tenant, and Tenant hereby assumes, all of
the leases described in clause (f) immediately preceding, such assumption being
to the full extent set forth in the Assignment of Leases executed at the closing
pursuant to the Purchase Agreement. In connection therewith, Tenant agrees to
perform any and all covenants of landlord thereunder, past, present and future.
Notwithstanding the foregoing, such leases shall, without the necessity of
further documentation, be deemed reassigned to Landlord upon the expiration or
earlier termination of the Term. In connection with any reassignment thereof
occurring following an Event of Default hereunder, such reassignment shall not
release Tenant from any liability thereunder with respect to the period ending
prior to the expiration of the Term.
2.2 Condition of Collective Leased Properties.
Tenant acknowledges receipt and delivery of possession of the
Collective Leased Properties and Tenant accepts the Collective Leased Properties
in their "as is" condition, subject to the rights of all occupants and parties
in possession, the existing state of title, including all covenants, conditions,
restrictions, reservations, mineral leases, easements and other matters of
record or that are visible or apparent on the Collective Leased Properties, all
applicable Legal Requirements, the lien of financing instruments, mortgages and
deeds of trust, and such other matters which would be disclosed by an inspection
of the Collective Leased Properties and the record title thereto or by an
accurate survey thereof. TENANT REPRESENTS THAT IT HAS INSPECTED THE COLLECTIVE
LEASED PROPERTIES AND ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF
SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR
LANDLORD'S AGENTS OR EMPLOYEES WITH RESPECT THERETO, AND TENANT WAIVES ANY CLAIM
OR ACTION AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE COLLECTIVE LEASED
PROPERTIES. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN
RESPECT OF THE COLLECTIVE LEASED PROPERTIES OR ANY PART THEREOF, EITHER AS TO
ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
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PURPOSE OR OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE
BY TENANT. To the maximum extent permitted by law,
however, Landlord hereby assigns to Tenant all of Landlord's rights to proceed
against any predecessor in title for breaches of warranties or representations
or for latent defects in the Collective Leased Properties. Landlord shall fully
cooperate with Tenant in the prosecution of any such claims, in Landlord's or
Tenant's name, all at Tenant's sole cost and expense. Tenant shall indemnify,
defend, and hold harmless Landlord from and against any loss, cost, damage or
liability (including reasonable attorneys' fees) incurred by Landlord in
connection with such cooperation.
2.3 Fixed Term.
The initial term of this Agreement (the "Fixed Term") shall commence on
the Commencement Date and shall expire on the last day of the twelfth (12th)
Lease Year.
2.4 Extended Term.
Provided that no Default or Event of Default shall have occurred and be
continuing and this Agreement shall be in full force and effect, Tenant shall,
subject to Section 2.5 below, have the right to extend the Term for each of four
(4) consecutive five (5)-year renewal terms (collectively, the "Extended Terms")
for all, and not less than all, of the Collective Leased Properties.
Each Extended Term shall commence on the day succeeding the expiration
of the Fixed Term or the preceding Extended Term, as the case may be. All of the
terms, covenants and provisions of this Agreement (including but not limited to
those with respect to Additional Rent and payments of the Allowance) shall apply
to each such Extended Term, except that (x) the Minimum Rent for each Extended
Term shall be the Fair Market Rental for such Extended Term and shall be
determined pursuant to Section 2.5 below and (y) Tenant shall have no right to
extend the Term beyond the expiration of the Extended Terms. If Tenant shall
elect to exercise any of the aforesaid options, it shall do so by giving
Landlord Notice thereof not later than one (1) year prior to the scheduled
expiration of the then current Term of this Agreement (Fixed Term or Extended
Term, as the case may be), it being understood and agreed that time shall be of
the essence with respect to the giving of such Notice. Tenant may not exercise
its option for more than one such Extended Term at a time. If Tenant shall fail
to give any such Notice, this Agreement shall automatically terminate at the end
of the Term then in effect and Tenant shall have no further option to extend the
Term of this Agreement. If Tenant shall give such Notice, the extension of this
Agreement shall be automatically effected without the execution of any
additional documents, it being understood and agreed, however, that Tenant and
Landlord shall execute such documents and agreements as either party shall
reasonably require to evidence the same. Notwithstanding the provisions of the
foregoing sentence, if, subsequent to the giving of such Notice, an Event of
Default shall occur and be continuing, unless Landlord shall otherwise consent
in writing, the extension of this Agreement shall cease to take effect and this
Agreement
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shall automatically terminate at the end of the Term then in effect and Tenant
shall have no further option to extend the Term of this Agreement.
2.5 Determination of Minimum Rent for Extended Terms.
The Minimum Rent for each Extended Term shall be equal to the amount
set forth in clause (x) in Section 2.4 above and shall be determined by the
mutual agreement of Landlord and Tenant within thirty (30) days after Landlord
receives Tenant's Notice exercising its option to extend with respect to such
Extended Term, but in no event earlier than twelve (12) months prior to the
commencement of the applicable Extended Term. In the event Landlord and Tenant
are unable to agree on the Minimum Rent for such Extended Term within such
period, such Minimum Rent shall be determined pursuant to appraisal in
accordance with Article 19.
ARTICLE 3
RENT
3.1 Rent.
Tenant shall pay to Landlord, in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
without offset, abatement, demand or deduction, Minimum Rent, Additional Rent
and Additional Charges, during the Term, except as hereinafter expressly
provided. All payments to Landlord shall be made by wire transfer of immediately
available federal funds or by other means acceptable to Landlord and Tenant,
each in its sole discretion. Rent for any partial month shall be prorated on a
per diem basis based on a 365-day year and the actual number of days elapsed.
3.1.1 Minimum Rent.
Minimum Rent shall be paid in advance on the first day of each calendar
month; provided, however, that the first monthly installment of Minimum Rent
shall be payable on the Commencement Date.
3.1.2 Additional Rent.
Additional Rent shall be paid in advance on the first day of each
calendar month; provided, however, that the first monthly installment of
Additional Rent shall be payable on the Commencement Date. Except as otherwise
set forth in Section 12.1(a) hereof, Tenant's failure to pay Additional Rent
shall not constitute a Default or Event of Default hereunder.
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3.1.3 Additional Charges.
In addition to the Minimum Rent and Additional Rent payable hereunder,
Tenant shall pay and discharge as and when due and payable the following
(collectively, "Additional Charges"):
(a) Impositions. Subject to Article 8 relating to Permitted Contests,
Tenant shall pay, or cause to be paid, all Impositions before any
fine, penalty, interest or cost (other than any opportunity cost
as a result of a failure to take advantage of any discount for
early payment) may be added for non-payment, such payments to be
made directly to the taxing authorities where feasible, and shall
promptly, upon request, furnish to Landlord copies of official
receipts or other satisfactory proof evidencing such payments. If
any such Imposition may, at the option of the taxpayer, lawfully
be paid in installments (whether or not interest shall accrue on
the unpaid balance of such Imposition), Tenant may exercise the
option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and, in such event,
shall pay such installments during the Term as the same become
due and before any fine, penalty, premium, further interest or
cost may be added thereto. Landlord, at its expense, shall, to
the extent required or permitted by applicable law, prepare and
file all tax returns in respect of Landlord's net income, gross
receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes and taxes on its capital stock,
and Tenant, at its expense, shall, to the extent required or
permitted by applicable laws and regulations, prepare and file
all other tax returns and reports in respect of any Imposition as
may be required by any government or Government Agency. Provided
no Default or Event of Default shall have occurred and be
continuing, if any refund shall be due from any taxing authority
in respect of any Imposition paid by Tenant, the same shall be
paid over to or retained by Tenant. Landlord and Tenant shall,
upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to the
Collective Leased Properties as may be necessary to prepare any
required returns and reports. In the event Government Agencies
classify any property covered by this Agreement as personal
property, Tenant shall file all personal property tax returns in
such jurisdictions where it may legally so file. Each party
shall, to the extent it possesses the same, provide the other,
upon request, with cost and depreciation records necessary for
filing returns for any property so classified as personal
property. Where Landlord is legally required to file personal
property tax returns, Landlord shall provide Tenant with copies
of assessment notices in sufficient time for Tenant to file a
protest. All Impositions assessed against such personal property
shall be (irrespective of whether Landlord or Tenant shall file
the relevant return) paid by Tenant not later than the last date
on which the same may be made without interest or penalty. If the
provisions of any Facility Mortgage require deposits on account
of Impositions to be made with such Facility Mortgagee, provided
the Facility Mortgagee has not elected to waive such
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provision, Tenant shall either pay Landlord the monthly amounts
required at the time and place that payments of Minimum Rent are
required and Landlord shall transfer such amounts to such
Facility Mortgagee or, pursuant to written direction by Landlord,
Tenant shall make such deposits directly with such Facility
Mortgagee. Landlord shall, however, use commercially reasonable
best efforts to cause any Facility Mortgagee not to impose such
obligation on Tenant.
Landlord shall give prompt Notice to Tenant of all Impositions payable
by Tenant hereunder of which Landlord at any time has knowledge; provided,
however, that Landlord's failure to give any such Notice shall in no way
diminish Tenant's obligation hereunder to pay such Impositions, except that
Landlord shall (unless Tenant itself knew, or should have known, about the
existence of such Impositions obligation) pay all penalties, fines and other
expenses arising out of Landlord's failure to give such Notice.
(b) Utility Charges. Tenant shall pay or cause to be paid all
charges for electricity, power, gas, oil, water and other
utilities used in connection with the Collective Leased
Properties.
(c) Insurance Premiums. Tenant shall pay or cause to be paid all
premiums for the insurance coverage required to be
maintained pursuant to Article 9.
(d) Other Charges. Tenant shall pay or cause to be paid all other
amounts, liabilities and obligations which Tenant assumes or
agrees to pay under this Agreement, including, without
limitation, all agreements to indemnify Landlord under
Sections 4.4 and 9.7.
(e) Prorations. Tenant shall pay or cause to be paid all amounts
required to be paid by OpCo under Section 10.4 of the
Purchase Agreement.
(f) Reimbursement for Additional Charges. If Tenant pays or
causes to be paid property taxes or similar Additional
Charges attributable to periods after the end of the Term,
whether upon expiration or sooner termination of this
Agreement (other than termination following an Event of
Default), Tenant may, within sixty (60) days of the end of
the Term, provide Notice to Landlord of its estimate of such
amounts. Landlord shall promptly reimburse Tenant for all
payments of such taxes and other similar Additional Charges
that are attributable to any period after the Term of this
Agreement (unless this Agreement shall have been terminated
following an Event of Default). Tenant acknowledges that it
has no claims against Landlord for Additional Charges
attributable to the periods prior to the first day of the
Term.
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3.2 Late Payment of Rent.
If any installment of (i) Minimum Rent, (ii) Additional Rent (with
respect to which Landlord has made a disbursement of the Allowance) or (iii)
Additional Charges (but only as to those Additional Charges which are payable
directly to Landlord) shall not be paid on its due date, Tenant shall pay
Landlord, on demand, as Additional Charges, a late charge (to the extent
permitted by law) computed at the Overdue Rate on the amount of such
installment, from the due date of such installment to the date of payment
thereof. To the extent that Tenant pays any Additional Charges directly to
Landlord or any Facility Mortgagee pursuant to any requirement of this
Agreement, Tenant shall be relieved of its obligation to pay such Additional
Charges to the Entity to which they would otherwise be due.
In the event of any failure by Tenant to pay any Additional Charges
when due, Tenant shall promptly pay and discharge, as Additional Charges, every
fine, penalty, interest and cost which may be added for non-payment or late
payment of such items. Landlord shall have all legal, equitable and contractual
rights, powers and remedies provided either in this Agreement or by statute or
otherwise in the case of non-payment of the Additional Charges as in the case of
non-payment of the Minimum Rent and Additional Rent, except as otherwise
specifically provided in this Agreement.
3.3 Net Lease.
The Minimum Rent shall be absolutely net to Landlord so that this
Agreement shall yield to Landlord the full amount of the installments or amounts
of Minimum Rent throughout the Term, subject to any other provisions of this
Agreement which expressly provide for adjustment of such Minimum Rent.
3.4 No Termination, Abatement, Etc.
Except as otherwise specifically provided in this Agreement, Tenant, to
the maximum extent permitted by law, shall remain bound by this Agreement in
accordance with its terms and shall neither take any action without the consent
of Landlord to modify, surrender or terminate this Agreement, nor seek, nor be
entitled to any abatement, deduction, deferment or reduction of the Rent, or
set-off against the Rent, nor shall the respective obligations of Landlord and
Tenant be otherwise affected by reason of (a) any damage to or destruction of
any of the Collective Leased Properties or any portion thereof from whatever
cause or any Condemnation; (b) the lawful or unlawful prohibition of, or
restriction upon, Tenant's use of any of the Collective Leased Properties, or
any portion thereof, or the interference with such use by any Person or by
reason of eviction by paramount title; (c) any claim which Tenant may have
against Landlord by reason of any default or breach of any warranty by Landlord
under this Agreement or any other agreement between Landlord and Tenant, or to
which Landlord and Tenant are parties; (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Landlord or any assignee or transferee of
Landlord; or (e) for any other cause whether similar or dissimilar to any of the
foregoing. Tenant hereby
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waives all rights arising from any occurrence whatsoever, which may now or
hereafter be conferred upon it by law, to (i) modify, surrender or terminate
this Agreement or quit or surrender any of the Collective Leased Properties or
any portion thereof, or (ii) entitle Tenant to any abatement, reduction,
suspension or deferment of the Rent or other sums payable or other obligations
to be performed by Tenant hereunder, except as otherwise specifically provided
in this Agreement. The obligations of Tenant hereunder shall be separate and
independent covenants and agreements, and the Rent and all other sums payable by
Tenant hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Agreement.
3.5 Annual Allowance.
Provided no Default or Event of Default pursuant to Section 12.1(a)
hereof has occurred and is continuing and this Agreement shall be in full force
and effect, Landlord shall pay the Allowance to, or at the direction of, Tenant
during each Lease Year of the Term. At least Ten Million Dollars ($10,000,000)
of the Allowance shall be used to pay for Capital Expenditures made during such
Lease Year. At Tenant's election, Tenant shall have the right to use up to Ten
Million Dollars ($10,000,000) of the Allowance to pay for Impositions, premiums
for insurance required pursuant to Article 9 hereof and franchise fees due and
owing under the Franchise Agreement. Anything in this Agreement to the contrary
notwithstanding, any and all assets paid for (or which are the subject of
reimbursements to Tenant) by disbursements of the Allowance with respect to
Capital Expenditures shall immediately be the property of Landlord and
constitute part of the Collective Leased Properties. Any portion of the
Allowance not utilized in a particular Lease Year shall, subject to the sentence
immediately following, remain available for use in subsequent Lease Years.
Notwithstanding the foregoing (x) in the event less than $10,000,000 of the
Allowance for any Lease Year is used to pay for Capital Expenditures, then a
portion of any amount remaining to be used in subsequent Lease Years shall be
used only for Capital Expenditures, such portion being equal to the amount by
which Capital Expenditures funded with the Allowance for such Lease Year were
less than $10,000,000 and (y) in the event any portion of the Allowance
(including amounts accrued from prior Lease Years) is not utilized as of the
last day of the Term, such amount shall be deemed forfeited and Tenant will
receive no payment or credit with respect thereto.
In order to receive a disbursement of the Allowance, Tenant shall
submit to Landlord (but not more often than twice monthly) a statement,
certified pursuant to an Officer's Certificate transmitted therewith, setting
forth in reasonable detail a description of the Capital Expenditures,
impositions, premiums for insurance required pursuant to Article 9 hereof, and
Franchise Fees incurred or owing during such Lease Year and for which an
Allowance disbursement is sought. Such Officer's Certificate shall certify that
the expenditures for which reimbursement is sought are either within Tenant's
approved annual budget or have been approved by Franchisor. Within five (5)
Business Days after receipt thereof, Landlord shall reimburse to Tenant (or,
upon Tenant's written direction, included along with such certified statement,
pay third-party contractors or vendors identified therein) appropriate amounts
requested. Upon two (2) Business
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Days prior Notice Landlord shall have the right to audit Tenant's books and
records to confirm the accuracy of any such statement.
The foregoing provision hereof notwithstanding, in no event shall
Landlord be obligated (x) to make disbursements in any Lease Year in excess of
Ten Million Dollars ($10,000,000) with respect to impositions, premiums for
insurance required pursuant to Article 9 hereof, and Franchise Fees, except to
the extent that any amounts carry over from previous years pursuant to the first
paragraph of Section 3.5, (y) to make disbursements with respect to any Lease
Year in excess of the Additional Rent theretofore paid for such Lease Year,
except to the extent that any amounts carry over from previous years pursuant to
the first paragraph of Section 3.5 or (z) to make any disbursements of the
Allowance if Tenant has failed to pay any monthly installments of Additional
Rent at least equal to such disbursements.
ARTICLE 4
USE OF THE COLLECTIVE LEASED PROPERTIES
4.1 Permitted Use.
4.1.1 Primary Intended Use.
Tenant shall, at all times during the Term and at any other time that
Tenant shall be in possession of any Leased Property, subject to Section 4.5
hereof, continuously use each of the Collective Leased Properties for the
operation of a licensed acute or chronic care psychiatric hospital; licensed
residential treatment center; licensed subacute hospital; licensed substance
abuse, neurological, geriatric, correctional, juvenile justice or other
healthcare service facility providing inpatient care; outpatient facility; or
any combination of the foregoing; and the healthcare services provided by or at
a Leased Property may include inpatient hospitalization, partial hospitalization
programs, outpatient therapy, intensive outpatient therapy, ambulatory
detoxification, behavioral modification programs and related services (provided
such related services constitutes services intended to be provided as part of
the "Franchised Business," as such term is defined in the Franchise Agreement),
and for such other uses as may be incidental or necessary thereto, including the
operation of any medical office buildings located on any such Leased Property
(such use being hereinafter referred to as such Leased Property's "Primary
Intended Use"). Tenant shall not use any of the Collective Leased Properties or
any portion thereof for any other use without the prior written consent of
Landlord. No use shall be made or permitted to be made of any of the Collective
Leased Properties and no acts shall be done thereon which will cause the
cancellation of any insurance policy covering any of the Collective Leased
Properties or any part thereof (unless another adequate policy is available),
nor shall Tenant sell or otherwise provide to residents or patients therein, or
permit to be kept, used or sold in or about any of the Collective Leased
Properties any article which may be prohibited by law or by the standard form of
fire insurance policies, or any other insurance policies required to be carried
hereunder, or fire underwriter's regulations. Tenant shall, at its sole cost,
comply with all
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of the requirements pertaining to the Collective Leased Properties of any
insurance board, association, organization or company necessary for the
maintenance of insurance, as herein provided, covering the Collective Leased
Properties and Tenant's Personal Property, including, without limitation, the
Insurance Requirements. Tenant shall not take or omit to take any action, the
taking or omission of which materially impairs the value or the usefulness of
any of the Collective Leased Properties or any part thereof for its Primary
Intended Use.
4.1.2 Necessary Approvals.
Tenant shall proceed with all due diligence and exercise best efforts
to obtain and maintain all approvals necessary to use and operate, for its
Primary Intended Use, each of the Collective Leased Properties and each Facility
located thereon under applicable law and, without limiting the foregoing, shall
use its commercially reasonable best efforts to maintain appropriate licensure
and participation in those reimbursement programs for which a Facility is
eligible and in which management of the Facility desires to participate.
4.1.3 Lawful Use, Etc.
Tenant shall not use or suffer or permit the use of any of the
Collective Leased Properties or Tenant's Personal Property for any unlawful
purpose. Tenant shall not commit or suffer to be committed any waste on any of
the Collective Leased Properties, or in any Facility, nor shall Tenant cause or
permit any nuisance thereon or therein. Tenant shall neither suffer nor permit
any of the Collective Leased Properties or any portion thereof, including any
Capital Addition or Tenant's Personal Property, to be used in such a manner as
(i) might reasonably tend to impair Landlord's (or Tenant's, as the case may be)
title thereto or to any portion thereof, or (ii) may reasonably make possible a
claim or claims for adverse usage or adverse possession by the public, as such,
or of implied dedication of the applicable Leased Property or any portion
thereof.
4.2 Compliance with Legal and Insurance Requirements, Etc.
Subject to the provisions of Article 8, Tenant, at its sole expense,
shall (i) comply in all material respects with Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair, alteration
and restoration of all of the Collective Leased Properties, and (ii) procure,
maintain and comply in all material respects with all appropriate licenses,
certificates of need, permits, and other authorizations and agreements required
for any use of the Collective Leased Properties and Tenant's Personal Property
then being made, and for the proper erection, installation, operation and
maintenance of the Collective Leased Properties or any part thereof, including,
without limitation, any Capital Additions.
4.3 Compliance with Medicaid and Medicare Requirements.
Tenant shall, at its sole cost and expense, make whatever improvements
(capital or ordinary) as are required to conform each of the Collective Leased
Properties to such standards as may, from time to time, be required by Federal
Medicare (Title 18) or Medicaid (Title 19), to
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the extent Tenant is a participant in such programs, or any other applicable
programs or legislation, or capital improvements required by any other
governmental agency having jurisdiction over such Leased Property as a condition
of the continued operation of such Leased Property for its Primary Intended Use.
4.4 Environmental Matters.
4.4.1 Restriction on Use, Etc.
Tenant shall not store, spill upon, dispose of or transfer to or from
the Collective Leased Properties any Hazardous Substance, except that Tenant may
store, transfer and dispose of Hazardous Substances in compliance with all
Applicable Laws. Tenant shall maintain the Collective Leased Properties at all
times free of any Hazardous Substance (except such Hazardous Substances as are
maintained in compliance with all Applicable Laws). Tenant shall promptly: (a)
notify Landlord in writing of any material change in the nature or extent of
Hazardous Substances at any of the Collective Leased Properties, (b) transmit to
Landlord a copy of any Community Right to Know report which is required to be
filed by Tenant with respect to any of the Collective Leased Properties pursuant
to SARA Title III or any other Applicable Law, (c) transmit to Landlord copies
of any demand letters, complaints or other documents initiating legal action,
citations, orders, notices or other material communications asserting claims by
private parties or government agencies with respect to Hazardous Substances
received by Tenant or its agents or representatives (collectively,
"Environmental Notice"), which Environmental Notice requires a written response
or any action to be taken and/or if such Environmental Notice gives notice of
and/or could give rise to a material violation of any Applicable Law and/or
could give rise to any material cost, expense, loss or damage (an "Environmental
Obligation"), (d) observe and comply with all Applicable Laws relating to the
use, maintenance and disposal of Hazardous Substances and all orders or
directives from any official, court or agency of competent jurisdiction relating
to the use or maintenance or requiring the removal, treatment, containment or
other disposition thereof, and (e) pay or otherwise dispose of any fine, charge
or Imposition related thereto, unless Tenant shall contest the same in good
faith and by appropriate proceedings and the right to use and the value of any
of the Collective Leased Properties is not materially and adversely affected
thereby.
If at any time Hazardous Substances are discovered in violation of
Applicable Laws on any of the Collective Leased Properties, Tenant shall take
all actions and incur any and all expenses, as may be necessary or as may be
required by any Government Agency, (i) to clean up and remove from and about
such Leased Properties all Hazardous Substances thereon, (ii) to contain and
prevent any further release or threat of release of Hazardous Substances on or
about such Leased Properties and (iii) to use good faith efforts to eliminate
any further release or threat of release of Hazardous Substances on or about
such Leased Properties.
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4.4.2 Environment Report.
Six (6) months prior to expiration of the Term, Tenant shall designate
a qualified environmental engineer, satisfactory to Landlord in its sole
discretion, which engineer shall conduct an environmental investigation of the
Collective Leased Properties and prepare an environmental site assessment report
(the "Environmental Report") with respect thereto. The scope of such
Environmental Report shall include, without limitation, review of relevant
records, interviews with persons knowledgeable about the Collective Leased
Properties and relevant governmental agencies, a site inspection of the
Collective Leased Properties, any buildings, the fencelines of the Collective
Leased Properties and adjoining properties (Phase I) and shall otherwise be
reasonably satisfactory in form and substance to Landlord. If such
investigation, in the opinion of the performing engineer, indicates that any of
the Collective Leased Properties are not environmentally sound and free from
oil, asbestos, radon and other Hazardous Substances (except in compliance with
Applicable Laws), such investigation shall also include a more detailed physical
site inspection, appropriate testing, subsurface and otherwise, and review of
historical records (Phase II) to demonstrate the compliance of such of the
Collective Leased Properties with Applicable Laws and the absence of Hazardous
Substances except in compliance with Applicable Laws.
All Environmental Reports, and supplements and amendments thereto,
shall be provided to Landlord contemporaneously with delivery thereof to Tenant.
With respect to any recommendations contained in the Environmental Report,
violations of Applicable Laws and/or the existence of any conditions at any of
the Collective Leased Properties which could give rise to an Environmental
Obligation, Tenant shall promptly give Notice thereof to Landlord, together with
a description, setting forth in reasonable detail, all actions Tenant proposes
to take in connection therewith and Tenant shall promptly take all actions, and
incur any and all expenses, as may be required by Applicable Law or by any
Government Agency or, in the case of conditions that could give rise to an
Environmental Obligation, as may be reasonably required by Landlord, (i) to
clean up, remove or remediate from and about the Collective Leased Properties
all Hazardous Substances thereon, (ii) to contain, prevent and eliminate any
further release or threat of release of Hazardous Substances on or about the
Collective Leased Properties, and (iii) otherwise to eliminate such violation or
condition from the Collective Leased Properties in accordance with Applicable
Law .
Landlord shall, provided no Event of Default has occurred and is
continuing, Landlord shall, upon receipt of a bill, along with reasonable
substantiation thereof, promptly reimburse Tenant for the reasonable
out-of-pocket costs incurred in the preparation of the Phase I Environmental
Report. In no event shall Landlord be obligated to pay or reimburse Tenant for
the costs incurred in connection with any Phase II Report or in connection with
any actions taken or proposed to be taken by Tenant as described in the
immediately preceding paragraph.
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4.4.3 Indemnification of Landlord.
Tenant shall protect, indemnify and hold harmless Landlord and each
Facility Mortgagee, their trustees, officers, agents, employees and
beneficiaries, and any of their respective successors or assigns (hereafter the
"Indemnitees," and when referred to singly, an "Indemnitee") for, from and
against any and all debts, liens, claims, causes of action, administrative
orders or notices, costs, fines, penalties or expenses (including, without
limitation, reasonable attorneys' fees and expenses) imposed upon, incurred by
or asserted against any Indemnitee resulting from, either directly or
indirectly, the presence in, the Environment or any properties surrounding any
of the Collective Leased Properties of any Hazardous Substances. Tenant's duty
herein includes, but is not limited to, indemnification for costs associated
with personal injury or property damage claims as a result of the presence of
Hazardous Substances in, upon or under the soil or ground water of any of the
Collective Leased Properties in violation of any Applicable Law. Upon Notice
from Landlord, Tenant shall undertake the defense, at Tenant's sole cost and
expense, of any indemnification duties set forth herein. The foregoing
provisions hereof notwithstanding, Tenant's indemnification of any Facility
Mortgagee pursuant to this Section 4.4.3 shall not extend to or include the
investigation and defense expenses (including, but not limited to, legal and
consulting fees and expenses) incurred by such Facility Mortgagee.
Tenant shall, upon demand, pay to Landlord, as an Additional Charge,
any cost, expense, loss or damage (including, without limitation, reasonable
attorneys' fees) incurred by Landlord in asserting any right under this Section
4.4, including without limitation any right of indemnity under this Section
4.4.3 or otherwise arising from a failure of Tenant strictly to observe and
perform the foregoing requirements, which amounts shall bear interest from the
date incurred until paid by Tenant to Landlord at the Overdue Rate.
4.4.4 Survival.
The provisions of this Section 4.4 shall survive the expiration or
sooner termination of this Agreement.
4.5 Tenant's Right to Close Facilities.
Provided that no Default or Event of Default (except pursuant to
Section 12.1(e)) shall have occurred and be continuing, Tenant shall have the
right at any time and from time to time, to cease its operations in any or all
of the Facilities. Nothing herein shall entitle Tenant to any reduction in Rent
or diminish any of Tenant's other obligations, including without limitation
obligations to (x) maintain and insure any and all facilities, and (y) surrender
each Facility upon expiration or sooner termination of the Term with all
Tenant's Personal Property in place.
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ARTICLE 5
MAINTENANCE AND REPAIRS
5.1 Maintenance and Repair.
5.1.1 Tenant's Obligations.
Tenant shall, at its sole cost and expense, keep each of the Collective
Leased Properties and all private roadways, sidewalks and curbs appurtenant
thereto (and Tenant's Personal Property) in good order and repair, reasonable
wear and tear excepted (whether or not the need for such repairs occurs as a
result of Tenant's use, any prior use, the elements or the age of the Collective
Leased Properties or Tenant's Personal Property, or any portion thereof), and
shall promptly make all necessary and appropriate repairs and replacements
thereto of every kind and nature, whether interior or exterior, structural or
nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term necessary
for the Primary Intended Use (concealed or otherwise); provided, however, that
Tenant shall be permitted to prosecute claims against Landlord's predecessors in
title for breach of any representation or warranty made to or on behalf of
Landlord or for any latent defects in the Collective Leased Properties. All
repairs shall be made in a good, workmanlike and first-class manner, in
accordance with all applicable federal, state and local statutes, ordinances,
by-laws, codes, rules and regulations relating to any such work. Except as
permitted by Section 4.5, Tenant shall not take or omit to take any action, the
taking or omission of which materially impairs the value or the usefulness of
any of the Collective Leased Properties or any part thereof for its respective
Primary Intended Use. Tenant's obligations under this Section 5.1.1 as to any of
the Collective Leased Properties shall be limited, in the event of any casualty
or Condemnation involving such Leased Property, as set forth in Sections 10.2
and 11.2. Notwithstanding any provisions of this Section 5.1 to the contrary,
Tenant's obligations with respect to Hazardous Substances are as set forth in
Section 4.4.
5.1.2 Landlord's Obligations.
Landlord shall not, under any circumstances, be required to build or
rebuild any improvement on the Collective Leased Properties, or to make any
repairs, replacements, alterations, restorations or renewals of any nature or
description to the Collective Leased Properties, whether ordinary or
extraordinary, structural or nonstructural, foreseen or unforeseen, or to make
any expenditure whatsoever with respect thereto, or to maintain the Collective
Leased Properties in any way, except as specifically provided herein. Tenant
hereby waives, to the maximum extent permitted by law, the right to make repairs
at the expense of Landlord pursuant to any law in effect on the date hereof or
hereafter enacted. Landlord shall have the right to give, record and post, as
appropriate, notices of nonresponsibility under any mechanic's lien laws now or
hereafter existing.
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5.1.3 Nonresponsibility of Landlord; No Mechanics Liens.
Landlord's interest in the Collective Leased Properties shall not be
subject to liens for Capital Additions made by Tenant, and Tenant shall have no
power or authority to create any lien or permit any lien to attach to any of the
Collective Leased Properties or the present estate, reversion or other estate of
Landlord in the Collective Leased Properties or on the building or other
improvements thereon as a result of Capital Additions made by Tenant or for any
other cause or reason. All materialmen, contractors, artisans, mechanics and
laborers and other persons contracting with Tenant with respect to the
Collective Leased Properties, or any part thereof, are hereby charged with
notice that such liens are expressly prohibited and that they must look solely
to Tenant to secure payment for any work done or material furnished for Capital
Additions by Tenant or for any other purpose during the term of this Agreement.
Nothing contained in this Agreement shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any contractor, subcontractor, laborer or materialmen
for the performance of any labor or the furnishing of any materials for any
alteration, addition, improvement or repair to any of the Collective Leased
Properties or any part thereof or as giving Tenant any right, power or authority
to contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any lien against any of the
Collective Leased Properties or any part thereof nor to subject Landlord's
estate in any of the Collective Leased Properties or any part thereof to
liability under any Mechanic's Lien Law of the State in any way, it being
expressly understood that Landlord's estate shall not be subject to any such
liability.
5.2 Tenant's Personal Property.
Tenant may (and shall as provided hereinbelow), at its expense,
install, affix or assemble or place on any parcels of the Land or in any of the
Leased Improvements any items of Tenant's Personal Property, and Tenant may,
subject to Section 7.2 and the conditions set forth below, remove and replace
the same at any time in the ordinary course of business, provided that no
Default or Event of Default has occurred and is continuing. Tenant shall provide
and maintain throughout the Term all such Tenant's Personal Property as shall be
necessary in order to operate all of the Facilities located at the Collective
Leased Properties in compliance in all material respects with all applicable
licensure and certification requirements, in compliance with applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for such Primary Intended Use. All of
Tenant's Personal Property (except that removed and replaced in the ordinary
course of business as permitted above, but including supplies and inventory that
are equivalent, on an aggregate basis, in amount and value similar to that
reasonably established for use by the Facilities in the immediately preceding
Lease Year) shall remain at the Collective Leased Properties at the expiration
or earlier termination of this Agreement without the necessity of any payment by
Landlord to Tenant and without any obligation to account therefor.
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If Tenant uses any material item of tangible personal property on, or
in connection with, any Leased Property which belongs to anyone other than
Tenant, Tenant shall use its commercially reasonable best efforts to require the
agreement permitting such use to provide that Landlord or its designee may
assume Tenant's rights under such agreement upon management or operation of the
applicable Facility by Landlord or its designee.
5.3 Yield Up.
Upon the expiration or sooner termination of this Agreement, Tenant
shall vacate and surrender each of the Collective Leased Properties to Landlord
in the condition in which each of the Collective Leased Properties was in on the
Commencement Date, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Agreement, reasonable wear and
tear excepted (and Condemnation, in the event that this Agreement is terminated
with respect to any of the Collective Leased Properties following a Condemnation
in accordance with Article 11). Rents, real estate taxes and utilities shall be
prorated in the same manner as set forth in Section 10.4 of the Purchase
Agreement. Along therewith Tenant shall surrender to Landlord any and all
records and documents related to the Collective Leased Properties and Tenant's
Personal Property (i.e., but not, subject to Section 12.6 hereof, documents
primarily related to Tenant's business operated therein) including documents and
records obtained by Tenant pursuant to Section 10.2 of the Purchase Agreement.
Landlord (or its designee) shall have the right, but not the obligation, to
assume any or all contracts relating to the Collective Leased Properties and
Tenant's Personal Property (i.e., contracts not primarily related to the
business operated therein). In no event shall Landlord (or its designee) have
any liability under such contracts for obligations or liabilities accruing under
such contracts prior to the date of such assumption by such party. Tenant shall
deliver to Landlord keys and security deposits (for assumed leases) in the same
fashion as described in Sections 10.2(e) and 10.4(d) of the Purchase Agreement.
In addition, upon the expiration or earlier termination of this
Agreement, Tenant shall, at Landlord's sole cost and expense, use its
commercially reasonable best efforts to transfer to and cooperate with Landlord
or Landlord's nominee in connection with the processing of all applications for
licenses, operating permits and other governmental authorizations and all
contracts, including contracts with governmental or quasi-governmental entities
which may be necessary for the operation of the Facilities located on the
Collective Leased Properties. If requested by Landlord, Tenant will continue to
manage any such Facility after the expiration or sooner termination of the Term
and for as long thereafter as is necessary (but not to exceed six (6) months
following the date of such expiration or sooner termination) to obtain all
necessary licenses, operating permits and other governmental authorizations, on
such reasonable terms as Landlord shall request, but in any event Landlord shall
pay to Tenant a management fee equal to the sum of (i) reasonable out-of-pocket
costs and expenses of Tenant in providing management services, (ii) reasonable
allocated internal costs of Tenant in providing management services (including
but not limited to a reasonably allocated portion of the salaries and benefits
costs of Tenant personnel who provide such services), and (iii) 10% of the sum
of (i) and (ii). In
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connection with any such management arrangement, Tenant will, use its
commercially reasonable best efforts to the extent reasonable necessary,
maintain in effect during the period of its management arrangement, those
contracts, including (for sixty (60) days after such expiration or sooner
termination, but after sixty (60) days, only if the Franchise Agreement has been
assumed pursuant to Section 12.6) the Franchise Agreement, necessary for the
performance of such management responsibilities and for the operation of the
Facilities for the Primary Intended Use.
5.4 Encroachments, Restrictions, Etc.
If any of the Leased Improvements shall, at any time, encroach upon any
property, street or right-of-way adjacent to the affected Leased Property, or
shall violate the agreements or conditions contained in any lawful restrictive
covenant or other agreement affecting any of the Collective Leased Properties,
or any part thereof, or shall impair the rights of others under any easement or
right-of-way to which any of the Collective Leased Properties is subject, upon
the request of Landlord (but only as to any encroachment, violation or
impairment that is not a Permitted Encumbrance) or of any Person affected by any
such encroachment, violation or impairment, Tenant shall, at its sole cost and
expense, subject to its right to contest the existence of any encroachment,
violation or impairment in accordance with the provisions of Article 8, either
(a) obtain valid and effective waivers or settlements of all claims, liabilities
and damages resulting from each such encroachment, violation or impairment,
whether the same shall affect Landlord or Tenant, or (b) make such changes in
the Leased Improvements and take such other actions as are reasonably
practicable to remove such encroachment and to end such violation or impairment,
including, if necessary, the alteration of any of the Leased Improvements and,
in any event, take all such actions as may be necessary in order to ensure the
continued operation of the affected Leased Improvements for their respective
Primary Intended Use substantially in the manner and to the extent such Leased
Improvements were operated prior to the assertion of such violation, impairment
or encroachment. Any such alteration shall be made in conformity with the
applicable requirements of this Article 5. Tenant's obligations under this
Section 5.4 shall be in addition to and shall in no way discharge or diminish
any obligation of any insurer under any policy of title or other insurance.
5.5 Landlord to Grant Easements, Etc.
Landlord shall from time to time, so long as no Default or Event of
Default shall have occurred and be continuing, at the request of Tenant and at
Tenant's sole cost and expense, (a) grant easements and other rights in the
nature of easements with respect to any of the Collective Leased Properties to
third parties, (b) release existing easements or other rights in the nature of
easements which are for the benefit of any of the Collective Leased Properties,
(c) dedicate or transfer unimproved portions of any of the Collective Leased
Properties for road, highway or other public purposes, (d) execute petitions to
have any of the Collective Leased Properties annexed to any municipal
corporation or utility district, (e) execute amendments to any covenants and
restrictions affecting any of the Collective Leased Properties and (f) execute
and deliver to any Person any instrument appropriate to confirm or effect such
grants, release,
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dedications, transfers, petitions and amendments (to the extent of its interests
in such Leased Property); provided, however, that Landlord shall have first
determined that such grant, release, dedication, transfer, petition or amendment
is not detrimental to the operation of the applicable Leased Property for its
Primary Intended Use and does not materially reduce the value of such Leased
Property, and Landlord shall have received an Officer's Certificate confirming
such determination, together with such additional information as Landlord may
request.
5.6 Philadelphia Facility.
In the event Franchisor does not complete the renovation/reconstruction
of the Philadelphia Facility in a timely manner as required by the Purchase
Agreement for any reason (whether or not such failure constitutes a breach of
covenant by Franchisor pursuant to Section 7.1(q) of the Purchase Agreement),
Tenant shall promptly do so at its sole cost. Tenant shall permit Franchisor to
have access to the property on which the Philadelphia Facility is to be
constructed for the purpose of performing such obligation.
ARTICLE 6
CAPITAL ADDITIONS, ETC.
6.1 Construction of Capital Additions to the Leased Property.
Tenant shall not construct or install Capital Additions on any of the
Collective Leased Properties without obtaining Landlord's prior written consent,
which consent shall not be unreasonably withheld, provided that no consent shall
be required for any Capital Addition so long as (a) the Capital Additions Costs
for such Capital Addition are less than $1,000,000, (b) such construction or
installation would not adversely affect or violate any Legal Requirement or
Insurance Requirement applicable to the applicable Leased Property and (c)
Landlord shall have received an Officer's Certificate certifying as to the
satisfaction of the conditions set out in clauses (a) and (b) above. If
Landlord's consent is required, prior to commencing construction of any Capital
Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth,
in reasonable detail, any proposed Capital Addition and shall provide to
Landlord such plans and specifications, permits, licenses, contracts and other
information concerning the proposed Capital Addition as Landlord may reasonably
request. Landlord shall have thirty (30) days to review all materials submitted
to Landlord in connection with any such proposal. Failure of Landlord to respond
to Tenant's proposal within thirty (30) days after receipt of all information
and materials requested by Landlord in connection with the proposed Capital
Addition shall be deemed to constitute approval of such proposed Capital
Addition. Without limiting the generality of the foregoing, such proposal shall
indicate the approximate projected cost of constructing such Capital Addition
and the use or uses to which it will be put. No Capital Addition shall be made
which would tie in or connect any Leased Improvement on the applicable Leased
Property with any other improvements on property adjacent to such Leased
Property (and not part of the Land) including, without limitation, tie-ins of
buildings or other structures or utilities. Any Capital
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Additions shall, upon the expiration or sooner termination of this Agreement,
pass to and become the property of Landlord, free and clear of all encumbrances
other than Permitted Encumbrances.
6.2 Financing of Capital Additions.
Tenant may arrange for financing for Capital Additions from a Lending
Institution; provided, however, that (i) any security interests in any property
of Tenant, including, without limitation, Tenant's leasehold interest in the
Collective Leased Properties, shall be expressly and fully subordinated to this
Agreement and to the interest of Landlord in the Collective Leased Properties
and to the rights of any then or thereafter existing Facility Mortgagee; and
(ii) Landlord shall have a right of first refusal to provide financing for
Capital Additions in accordance with Section 6.6.
6.4 Capital Additions Financed by Landlord.
If Landlord shall, (i) at the request of Tenant and in Landlord's sole
discretion, or (ii) in the exercise of its rights of first refusal to provide
financing pursuant to Section 6.6 hereof, elect to finance any proposed Capital
Addition, Tenant shall provide Landlord with such information as Landlord may
from time to time request, including, without limitation, the following:
(a) Evidence that such Capital Addition will be and, upon
completion, has been, completed in compliance with the
applicable requirements of State and federal law with respect
to capital expenditures for health care facilities;
(b) Copies of all building, zoning and land use permits and
approvals and, upon completion of such Capital Addition, a
copy of the certificate of occupancy for such Capital
Addition, if required;
(c) Such information, certificates, licenses, permits or other
documents necessary to confirm that Tenant will be able to use
the Capital Addition upon completion thereof in accordance
with the Primary Intended Use, including all required federal,
State or local government licenses and approvals;
(d) An Officer's Certificate and a certificate from Tenant's
architect setting forth, in reasonable detail, the projected
(or actual, if available) Capital Additions Cost, and invoices
and lien waivers from Tenant's contractors for such work;
(e) A deed conveying to Landlord title to any land acquired for
the purpose of constructing the Capital Addition free and
clear of any liens or encumbrances, except those approved by
Landlord, and, upon completion of the Capital Addition, a
final as-built survey thereof reasonably satisfactory to
Landlord;
(f) Endorsements to any outstanding policy of title insurance
covering the applicable Leased Property, or a commitment
therefor, satisfactory in form and substance to
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Landlord, (i) updating such policy without any additional
exceptions except as approved by Landlord, and (ii) increasing
the coverage thereof by an amount equal to the Fair Market
Value of the Capital Addition (except to the extent covered by
the owner's policy of title insurance referred to in
subparagraph (g) below);
(g) If appropriate, (i) an owner's policy of title insurance
insuring fee simple title to any land conveyed to Landlord
pursuant to subparagraph (e) above, free and clear of all
liens and encumbrances, except those approved by Landlord, and
(ii) a lender's policy of title insurance, reasonably
satisfactory in form and substance to Landlord and any
Facility Mortgagee;
(h) An appraisal of the applicable Leased Property by a Qualified
Appraiser, acceptable to Landlord, and/or an Officer's
Certificate stating that the value of the applicable Leased
Property upon completion of the Capital Addition exceeds the
Fair Market Value thereof prior to the commencement of such
Capital Addition by an amount not less than 80% of the Capital
Additions Cost; and
(i) Prints of architectural and engineering drawings relating to
such Capital Addition and such other certificates, documents,
opinions of counsel, appraisals, surveys, certified copies of
duly adopted resolutions of the board of directors of Tenant
authorizing the execution and delivery of any lease amendment,
or other instruments as may be reasonably required by
Landlord, any Facility Mortgagee and any Lending Institution
advancing or reimbursing Landlord or Tenant for any portion of
the Capital Additions Cost.
If Landlord shall finance the proposed Capital Addition, Landlord may
elect (with Tenant's consent, such consent not to be unreasonably withheld) to
obtain repayment of amounts so financed by an increase in the Rent payable
hereunder.
6.4 Non-Capital Additions.
Tenant shall have the right, at Tenant's sole cost and expense, to make
additions, modifications or improvements to the Collective Leased Properties
which are not Capital Additions ("Non-Capital Additions") from time to time as
Tenant, in its discretion, may deem desirable for the applicable Primary
Intended Use, provided that any such Non-Capital Addition will not materially
detract from the value, operating efficiency or revenue-producing capability of
the applicable Leased Property or adversely affect the ability of Tenant to
comply with the provisions of this Agreement, and, without limiting the
foregoing, will not violate any Legal Requirement or Insurance Requirement
applicable to the applicable Leased Property. All such Non-Capital Additions
shall, upon expiration or earlier termination of this Agreement, pass to and
become the property of Landlord, free and clear of all liens and encumbrances,
other than Permitted Encumbrances.
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6.5 Salvage.
All materials which are scrapped or removed in connection with the
making of either Capital Additions or Non-Capital Additions or repairs required
by Article 5 shall be the property of the Landlord.
6.6 Landlord's Right of First Refusal to Provide Financing for Capital
Additions.
In the event that at any time during the Term Tenant shall elect to
obtain construction financing in excess of $1,000,000 for any Capital Additions,
Tenant shall give Notice thereof to Landlord, which notice shall set forth in
reasonable detail the terms of such financing, shall identify the source thereof
and shall include a copy of a final form of commitment letter therefor. Landlord
shall have the right, exercisable by the giving of Notice to Tenant within
thirty (30) days after such notice from Tenant, to provide a final form of
commitment for such financing on the same terms and conditions as described in
the Notice given to Landlord. In the event that Landlord shall exercise such
option, Tenant shall be obligated to obtain such financing from Landlord on the
terms and conditions set forth in the Notice to Landlord. In the event that
Landlord shall decline to provide such financing or shall fail to give such
notice to Tenant, Tenant shall be free to obtain such financing from the party
identified in, and on the terms and conditions set forth in, the Notice given to
Landlord with respect thereto.
ARTICLE 7
LIENS
7.1 Liens.
Subject to Article 8 and Section 16.5, Tenant shall not, directly or
indirectly, create or allow to remain and shall promptly discharge, at its
expense, any lien, encumbrance, attachment, title retention agreement or claim
upon the Collective Leased Properties or a non-consensual lien against Tenant's
leasehold interest therein or any attachment, levy, claim or encumbrance in
respect of the Rent, other than (a) Permitted Encumbrances, (b) restrictions,
liens and other encumbrances which are consented to in writing by Landlord, (c)
liens for those taxes of Landlord which Tenant is not required to pay hereunder,
(d) subleases permitted by Article 16, (e) liens for Impositions or for sums
resulting from noncompliance with Legal Requirements so long as (i) the same are
not yet payable, or (ii) are being contested in accordance with Article 8, (f)
liens of mechanics, laborers, materialmen, suppliers or vendors incurred in the
ordinary course of business that are not yet due and payable or are for sums
that are being contested in accordance with Article 8, and (g) any Facility
Mortgages or other liens which are the responsibility of Landlord pursuant to
the provisions of Article 20.
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7.2 Landlord's Lien.
In addition to any statutory landlord's lien and in order to secure
payment of the Rent and all other sums payable hereunder by Tenant and the
performance of all of Tenant's other obligations hereunder, and to secure
payment of any loss, cost or damage which Landlord may suffer by reason of
Tenant's breach of this Agreement, Tenant hereby grants unto Landlord a security
interest in and an express contractual lien upon Tenant's Personal Property, and
all proceeds therefrom, subject to any Permitted Encumbrances; and such Tenant's
Personal Property shall not be removed from the Collective Leased Properties at
any time when a Default or an Event of Default has occurred and is continuing as
otherwise permitted pursuant to Section 5.2. In addition, Tenant hereby grants
unto Landlord a security interest in those contracts described in Section 12.6
hereof.
Upon Landlord's request, Tenant shall execute and deliver to Landlord
financing statements in form sufficient to perfect the security interest of
Landlord in (x) Tenant's Personal Property and the proceeds thereof, and (y) the
contracts described in Section 12.6 hereof, in accordance with the provisions of
the applicable laws of the State. The security interest herein granted is in
addition to any statutory lien for the Rent.
ARTICLE 8
PERMITTED CONTESTS
Tenant shall have the right to contest the amount or validity of any
Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy,
encumbrance, charge or claim (collectively, "Claims") as to any of the
Collective Leased Properties, by appropriate legal proceedings, conducted in
good faith and with due diligence, provided that (a) the foregoing shall in no
way be construed as relieving, modifying or extending Tenant's obligation to pay
any Claims as finally determined, (b) such contest shall not cause Landlord or
Tenant to be in default under any mortgage or deed of trust (except with respect
to any Facility Mortgage, the terms of which have not been fully disclosed to
Tenant) encumbering such Leased Property or any interest therein or result in or
reasonably be expected to result in a lien attaching to such Leased Property,
(c) no part of such Leased Property nor any Rent therefrom shall be in any
immediate danger of sale, forfeiture, attachment or loss, and (d) Tenant shall
indemnify and hold harmless Landlord from and against any cost, claim, damage,
penalty or reasonable expense, including reasonable attorneys' fees, incurred by
Landlord in connection therewith or as a result thereof. Upon Landlord's request
made as a result of a requirement of any Facility Mortgagee, Tenant shall either
(i) provide a bond or other assurance reasonably satisfactory to Landlord that
all Claims which may be assessed against any of the Collective Leased
Properties, together with all interest and penalties thereon will be paid, or
(ii) deposit within the time otherwise required for payment with a bank or trust
company, as trustee, as security for the payment of such Claims, an amount
sufficient to pay the same, together with interest and penalties in connection
therewith and all Claims which may be assessed against or become a Claim on any
of the Collective Leased
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Properties, or any part thereof, in connection with any such contest. Tenant
shall furnish Landlord and any Facility Mortgagee with reasonable evidence of
such deposit within five (5) days after request therefor. Landlord agrees,
however, to use commercially reasonable best efforts to cause any Facility
Mortgagee not to require any bond or deposit by Tenant as hereinabove provided.
Landlord agrees to join in any such proceedings if required legally to prosecute
such contest, provided that Landlord shall not thereby be subjected to any
liability therefor (including, without limitation, for the payment of any costs
or expenses in connection therewith). Tenant shall be entitled to any refund of
any Claims and such charges and penalties or interest thereon which have been
paid by Tenant or paid by Landlord and for which Landlord has been fully
reimbursed by Tenant. If Tenant shall fail (x) to pay any Claims when finally
determined, (y) to provide security therefor as provided in this Article 8, or
(z) to prosecute any such contest diligently and in good faith, Landlord may,
upon reasonable notice to Tenant (which notice may be oral and shall not be
required if Landlord shall reasonably determine that the same is not
practicable), pay such charges, together with interest and penalties due with
respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as
Additional Charges.
ARTICLE 9
INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements.
Tenant shall, at all times during the Term and at any other time Tenant
shall be in possession of any of the Collective Leased Properties, keep each of
the Collective Leased Properties and Tenant's Personal Property insured against
the risks and in the amounts as follows and shall maintain (for so long as such
insurance is commercially available) the following insurance:
(a) "All-risk" property insurance, including insurance against
loss or damage by fire, vandalism and malicious mischief,
explosion of steamboilers, pressure vessels or other similar
apparatus, now or hereafter installed in the Facility
located at such Leased Property, extended coverage perils,
earthquake (providing annual aggregate limits of One Hundred
Million Dollars ($100,000,000) as to all locations outside
of California and annual aggregate limits of Fifty Million
Dollars ($50,000,000) as to all locations within California)
and all physical loss perils insurance, including, but not
limited to, sprinkler leakage, in an amount (subject to
Section 9.5) equal to one hundred percent (100%) of the then
full Replacement Cost thereof (as defined in Section 9.2),
with the usual extended coverage endorsements, including a
Replacement Cost Endorsement and Builder's Risk Coverage
during the continuance of any construction at such Leased
Property;
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(b) Business interruption and blanket earnings plus extra expense
under a rental value insurance policy covering risk of loss
during the lesser of the first twelve (12) months of
reconstruction or the actual reconstruction period
necessitated by the occurrence of any of the hazards described
in subparagraphs (a) and (b) above in such amounts as may be
customary for comparable properties in the area and in an
amount sufficient to prevent Landlord or Tenant from becoming
a co-insurer;
(c) Comprehensive general liability insurance, including bodily
injury and property damage (on the broadest form available,
including broad form contractual liability, fire legal
liability and completed operations coverage) having policy
limits as to claims with respect to the Collective Leased
Properties of at least One Million Dollars ($1,000,000) per
occurrence, Three Million Dollars ($3,000,000) aggregate per
location, subject to a Five Million Dollar ($5,000,000)
aggregate limit as to all locations, and with respect to
claims arising out of malpractice in an amount not less than
One Million Dollars ($1,000,000) per occurrence, subject to
a Five Million Dollars ($5,000,000) aggregate limit as to
all Facilities, provided that such limits shall be modified
to conform to any required underlying statutory coverage,
such as State Patient Compensation Funds, or the like, and
Umbrella coverage shall be provided having limits of Twenty
Million Dollars ($20,000,000) per occurrence and in the
aggregate and attaching in excess of policy limits as to
general liability, malpractice, Patient Compensation Fund
programs, where applicable, and employer's liability
coverage;
(d) Flood (when the applicable Leased Property is located in
whole or in part within an area identified as an area having
special flood hazards and in which flood insurance has been
made available under the National Flood Insurance Act of
1968, as amended, or the Flood Disaster Protection Act of
1973, as amended (or any successor acts thereto)) and such
other hazards and in such amounts as may be customary for
comparable properties in the area, said coverage to be in an
amount equal to the lesser of the full Replacement Cost of
the applicable Leased Property or the maximum amount
available;
(e) Worker's compensation insurance coverage for all persons
employed by Tenant on the applicable Leased Property with
statutory limits and otherwise with limits of and provisions
in accordance with the requirements of applicable local, State
and federal law, and employer's liability insurance having a
limit of $1,000,000; and
(f) Such additional insurance and endorsements (and/or increased
amounts of insurance hereinabove required) as may be
reasonably required, from time to time, by Landlord.
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9.2 Replacement Cost.
"Replacement Cost" as used herein, shall mean the actual replacement
cost of the property requiring replacement from time to time, including an
increased cost of construction endorsement, less exclusions provided in the
standard form of fire insurance policy. In the event either party believes that
the then full Replacement Cost has increased or decreased at any time during the
Term, such party, at its own cost, shall have the right to have such full
Replacement Cost redetermined by an accredited appraiser approved by the other,
which approval shall not be unreasonably withheld or delayed. The party desiring
to have the full Replacement Cost so redetermined shall forthwith, on receipt of
such determination by such appraiser, give written notice thereof to the other.
The determination of such appraiser shall be final and binding on the parties
hereto, and Tenant shall forthwith conform the amount of the insurance carried
to the amount so determined by the appraiser.
9.3 Waiver of Subrogation.
Landlord and Tenant agree that (insofar as and to the extent that such
agreement may be effective without invalidating or making it impossible to
secure insurance coverage from responsible insurance companies doing business in
the State) with respect to any property loss which is covered by insurance then
being carried by Landlord or Tenant, respectively, the party carrying such
insurance and suffering said loss releases the other of and from any and all
claims with respect to such loss; and they further agree that their respective
insurance companies shall have no right of subrogation against the other on
account thereof, even though extra premium may result therefrom. In the event
that any extra premium is payable by Tenant as a result of this provision,
Landlord shall not be liable for reimbursement to Tenant for such extra premium.
9.4 Form Satisfactory, Etc.
All insurance policies and endorsements required pursuant to this
Article 9 shall be fully paid for, nonassessable and shall contain such
provisions and expiration dates and be in such form and amounts and issued by
insurance carriers authorized to do business in the State, having a general
policy holder's rating of at least A-in Best's latest rating guide (or such
other comparable rating or such other customarily used rating agency as may be
required by any Facility Mortgagee), and otherwise as shall be approved by
Landlord. Without limiting the foregoing, such policies shall include only
deductibles reasonably approved by Landlord and shall name Landlord and any
Facility Mortgagee as additional insureds. All losses shall be payable to
Landlord or Tenant as provided in Article 10. Any loss adjustment shall require
the prior written consent of Landlord and Tenant. Tenant shall pay all insurance
premiums and deliver policies or certificates thereof to Landlord prior to their
effective date (and, with respect to any renewal policy, thirty (30) days prior
to the expiration of the existing policy), and, in the event Tenant shall fail
to effect such insurance as herein required, to pay the premiums therefor or to
deliver such policies or certificates to Landlord or any Facility Mortgagee at
the times required, Landlord shall have the right, but not the obligation, to
acquire such insurance and pay the premiums therefor, which amounts shall be
payable to Landlord, upon demand, as Additional
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Charges, together with interest accrued thereon at the Overdue Rate from the
date such payment is made until the date repaid. All such policies shall provide
Landlord (and any Facility Mortgagee, if required by the same) thirty (30) days'
prior written notice of any material modification, expiration or cancellation of
such policy. Tenant may satisfy its insurance obligations through the use of (i)
a risk retention group or purchasing group or captive insurance company with a
capital structure reasonably approved by Landlord or (ii) a self insurance
program with retention limits reasonably approved by Landlord and an excess
policy or policies provided by an insurer meeting the requirements of this
Agreement.
9.5 Blanket Policy.
Notwithstanding anything to the contrary contained in this Article 9,
Tenant's obligation to maintain the insurance herein required may be brought
within the coverage of a so-called blanket policy or policies of insurance
carried and maintained by Tenant, provided that (a) the coverage thereby
afforded will not be reduced or diminished from that which would exist under a
separate policy meeting all other requirements of this Agreement, except that
the blanket all-risk policy may provide coverage as to the Collective Leased
Properties to a limit of Two Hundred Million Dollars ($200,000,000) per
occurrence and (b) the requirements of this Article 9 are otherwise satisfied.
9.6 No Separate Insurance.
Tenant shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required by this Article 9, or
increase the amount of any existing insurance by securing an additional policy
or additional policies, unless all parties having an insurable interest in the
subject matter of such insurance, including Landlord and all Facility
Mortgagees, are included therein as additional insureds and the loss is payable
under such insurance in the same manner as losses are payable under the
insurance required to be carried pursuant to this Agreement. In the event Tenant
shall take out any such separate insurance or increase any of the amounts of the
then existing insurance, Tenant shall give Landlord prompt Notice thereof.
9.7 Indemnification of Landlord.
Notwithstanding the existence of any insurance provided for herein and
without regard to the policy limits of any such insurance, Tenant shall protect,
indemnify and hold harmless Landlord for, from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and reasonable
expenses (including, without limitation, reasonable attorneys' fees), to the
maximum extent permitted by law, imposed upon or incurred by or asserted against
Landlord by reason of: (a) any accident, injury to or death of persons or loss
of or damage to property occurring on or about the Collective Leased Properties
or adjoining sidewalks or rights of way, including, without limitation, any
claims of malpractice, (b) any past, present or future use, misuse, non-use,
condition, management, maintenance or repair of the Collective Leased Properties
or Tenant's Personal Property or any litigation, proceeding or claim by
governmental entities or other third parties to which Landlord is made a party
or participant relating to the
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Collective Leased Properties or Tenant's Personal Property or such use, misuse,
non-use, condition, management, maintenance, or repair thereof, including
failure to perform obligations (other than Condemnation proceedings), to which
Landlord is made a party, (c) any Impositions (which are the obligations of
Tenant to pay pursuant to the applicable provisions of this Agreement), and (d)
any failure on the part of Tenant or anyone claiming under Tenant to perform or
comply with any of the terms of this Agreement. Tenant shall pay all amounts
payable under this Section 9.7 within ten (10) days after demand therefor and,
if not timely paid, such amounts shall bear interest at the Overdue Rate from
the date of determination to the date of payment. Tenant, at its expense, shall
contest, resist and defend any such claim, action or proceeding asserted or
instituted against Landlord or may compromise or otherwise dispose of the same,
with Landlord's prior written consent (which consent may not be unreasonably
withheld or delayed). The obligations of Tenant under this Section 9.7 are in
addition to the obligations set forth in Section 4.4 and shall survive the
termination of this Agreement.
9.8 Independent Contractor.
Tenant shall cause any person or company (each a "Contractor") entering
upon any of the Collective Leased Properties to provide any installation,
construction or repair which (x) constitutes a Capital Addition or (y) has an
anticipated cost in excess of $250,000 to: (a) have in full force and effect
Contractor's Liability Coverage (hereafter defined) effective throughout the
period said Contractor is upon said Leased Property and (b) deliver a
certificate ("Contractor's Insurance Certificate") evidencing compliance with
subpart (a) to Tenant prior to the Contractor's first entry upon said Leased
Property. As used herein the term Contractor's Liability Coverage means a
comprehensive general liability insurance policy meeting the requirements of
this Article 9 (as if required to be provided by Tenant) except the minimum
policy limit shall be $500,000 per occurrence and $1,000,000 in the aggregate.
Within thirty (30) days after delivery of Landlord's written request, Tenant
shall deliver copies of all Contractor's Certificates to Landlord.
ARTICLE 10
CASUALTY
10.1 Insurance Proceeds.
All proceeds payable by reason of any loss or damage to the Collective
Leased Properties, or any portion thereof, and insured under any policy of
property or casualty insurance required by Article 9 (other than proceeds of
business interruption insurance) in excess of $1,000,000 shall be paid directly
to Landlord and retained by Landlord (subject to the provisions of Section
10.2). If Tenant is required to reconstruct or repair any of the Collective
Leased Properties as provided herein, such proceeds shall be paid out by
Landlord from time to time for the reasonable costs of reconstruction or repair
of such Leased Property necessitated by such damage or destruction, subject to
the provisions of Section 10.2.3. Provided no Default or Event
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of Default has occurred and is continuing, any excess proceeds of insurance
remaining after the completion of the restoration shall be paid to Tenant. All
salvage resulting from any risk covered by insurance shall belong to Landlord.
10.2 Damage or Destruction.
10.2.1 Obligation to Restore. If, during the Term, any of the Collective
Leased Properties shall be totally or partially destroyed Tenant shall
promptly restore such Facility as provided in Section 10.2.3.
10.2.2 Insufficient Insurance Proceeds. If the cost of the repair or
restoration of the applicable Leased Property exceeds the amount of
insurance proceeds received by Landlord pursu ant to Article 10, upon
the demand of Landlord, Tenant shall contribute any excess amounts
needed to restore such Leased Property. Such difference shall be paid
by Tenant to Landlord and held by Landlord, together with any other
insurance proceeds, for appli cation to the cost of repair and
restoration.
10.2.3 Disbursement of Proceeds. Tenant shall, at its sole cost and
expense, commence promptly and continue diligently to perform the
repair and restoration of such Leased Property (hereinafter called the
"Work"), or shall cause the same to be done, so as to restore such
Leased Property in full compliance with all Legal Requirements and so
that such Leased Property shall be at least equal in value and general
utility to its general utility and value immediately prior to such
damage or destruction. Subject to the terms hereof, Landlord shall
advance such property and casualty insurance proceeds and the amounts
paid to it pursuant to Section 10.2.2 to Tenant regularly during the
repair and restoration period so as to permit payment for the cost of
any such restoration and repair. Any such advances shallbe for not
less than $100,000 (or such lesser amount as equals the entire balance
of the repair and restoration) and Tenant shall submit to Landlord a
written requisition and substantiation therefor on such form or forms
as may be reasonably acceptable to Land lord. Landlord may, at its
option, condition advancement of said insurance proceeds and other
amounts on (i) the absence of any Default or Event of Default, (ii)
its approval of plans and specifications of an architect satisfactory
to Landlord, (iii) general contractors' estimates, (iv) architect's
certificates, (v) unconditional lien waivers of general contrac tors,
(vi) evidence of approval by all governmental authorities and other
regulatory bodies whose approval is required and (vii) such other
certificates as Landlord may, from time to time, reasonably require.
Landlord's obligation to disburse insurance proceeds under this
Article 10 shall be subject to the release of such proceeds by the
applicable Facility Mortgagee to Landlord.
Tenant's obligation to restore the applicable Leased Property pursuant
to this Article 10 shall be subject to the release of available insurance
proceeds by the applicable Facility Mortgagee to Landlord; provided, however,
that Tenant shall be entitled to cease operations at such Facility pursuant to
and in accordance with Section 4.5 above. In the event Tenant elects to close
such Facility as aforesaid, Tenant shall, as Additional Charges, pay to Landlord
all property
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or casualty insurance proceeds received in connection therewith, along with any
deductible or retention, but in no event shall Tenant pay to Landlord less than
the full Replacement Cost of such Facility, including Tenant's Personal
Property.
10.3 Tenant's Property.
All insurance proceeds payable by reason of any loss of or damage to
any of Tenant's Personal Property shall be paid to Tenant, and, to the extent
necessary to repair or replace Tenant's Personal Property in accordance with
Section 10.4, Tenant shall hold such proceeds in trust to pay the cost of
repairing or replacing damaged Tenant's Personal Property.
10.4 Restoration of Tenant's Property.
If Tenant is required to restore the applicable Leased Property as
hereinabove provided, Tenant shall either (a) restore all alterations and
improvements made by Tenant and Tenant's Personal Property, or (b) replace such
alterations and improvements and Tenant's Personal Property with improvements or
items of the same or better quality and utility in the operation of such Leased
Property.
10.5 No Abatement of Rent.
This Agreement shall remain in full force and effect and Tenant's
obligation to make all payments of Rent and to pay all other charges as and when
required under this Agreement shall remain unabated during the Term
notwithstanding any damage involving any of the Collective Leased Properties
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10 shall
be considered an express agreement governing any cause of damage or destruction
to the applicable Leased Property and, to the maximum extent permitted by law,
no local or State statute, laws, rules, regulation or ordinance in effect during
the Term which provide for such a contingency shall have any application in such
case.
10.6 Waiver.
Tenant hereby waives any statutory rights of termination which may
arise by reason of any damage or destruction of any of the Collective Leased
Properties.
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ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc.
If either (i) the whole of any of the Collective Leased Properties
shall be taken by Condemnation or (ii) a Condemnation of less than the whole of
any of the Collective Leased Properties renders such Leased Property Unsuitable
for Its Primary Intended Use, this Agreement shall terminate with respect to
such Leased Property, Tenant and Landlord shall seek the Award for their
interests in such Leased Property as provided in Section 11.5 and the Minimum
Rent thereafter payable shall be reduced by one-twelfth (1/12th) of the product
of (x) ten percent (10%), and (y) the Award received by Landlord with respect to
such Leased Property, net of all expenses incurred by Landlord in obtaining the
same, including reasonable attorneys' fees.
11.2 Partial Condemnation.
In the event of a Condemnation of less than the whole of any of the
Collective Leased Properties such that such Leased Property is still suitable
for its Primary Intended Use, Tenant shall, at its sole cost and expense,
commence promptly and continue diligently to restore the untaken portion of the
Leased Improvements on such Leased Property so that such Leased Improvements
shall constitute a complete architectural unit of the same general character and
condition (as nearly as may be possible under the circumstances) as the Leased
Improvements existing immediately prior to such Condemnation, in full compliance
with all Legal Requirements. Subject to the terms hereof, Landlord shall
contribute to the cost of restoration that part of the Award necessary to
complete such repair or restoration, together with severance and other damages
awarded for the taken Leased Improvements, to Tenant regularly during the
restoration period so as to permit payment for the cost of such repair or
restoration. Landlord may, at its option, condition advancement of such Award
and other amounts on (i) the absence of any continuing Event of Default, (ii)
its approval of plans and specifications of an architect satisfactory to
Landlord (which approval shall not be unreasonably withheld or delayed), (iii)
general contractors' estimates, (iv) architect's certificates, (v) unconditional
lien waivers of general contractors, (vi) evidence of approval by all
governmental authorities and other regulatory bodies whose approval is required
and (vii) such other certificates as Landlord may, from time to time, reasonably
require. Landlord's obligation under this Section 11.2 to disburse the Award and
such other amounts shall be subject to (x) the collection thereof by Landlord
and (y) the satisfaction of any applicable requirements of any Facility
Mortgage, and the release of such Award by the applicable Facility Mortgagee.
Tenant's obligation to restore the applicable Leased Property shall be subject
to the release of the Award by the applicable Facility Mortgagee to Landlord. If
the cost of the restoration of the applicable Leased Property exceeds that part
of the Award necessary to complete such restoration, together with severance and
other damages awarded for the taken Leased Improvements, Tenant shall contribute
upon the demand of Landlord any excess amounts needed to restore such Leased
Property. Such difference shall be
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paid by Tenant to Landlord and held by Landlord, together with such part of the
Award and such severance and other damages, for application to the cost of
restoration.
11.3 Abatement of Rent.
Other than as specifically provided in this Agreement, this Agreement
shall remain in full force and effect and Tenant's obligation to make all
payments of Rent and to pay all other charges as and when required under this
Agreement shall remain unabated during the Term notwithstanding any Condemnation
involving the Collective Leased Properties. The provisions of this Article 11
shall be considered an express agreement governing any Condemnation involving
any or all of the Collective Leased Properties and, to the maximum extent
permitted by law, no local or State statute, law, rule, regulation or ordinance
in effect during the Term which provides for such a contingency shall have any
application in such case.
11.4 Temporary Condemnation.
In the event of any temporary Condemnation of all or any part of the
Collective Leased Properties or Tenant's interest therein, this Agreement shall
continue in full force and effect, and Tenant shall continue to pay, in the
manner and on the terms herein specified, the full amount of the Rent. Tenant
shall continue to perform and observe all of the other terms and conditions of
this Agreement on the part of Tenant to be performed and observed. Provided no
Default or Event of Default has occurred and is continuing, the entire amount of
any Award made for such temporary Condemnation allocable to the Term, whether
paid by way of damages, rent or otherwise, shall be paid to Tenant. Tenant
shall, promptly upon the termination of any such period of temporary
Condemnation, at its sole cost and expense, restore such Leased Property to the
condition that existed immediately prior to such Condemnation, in full
compliance with all Legal Requirements, unless such period of temporary
Condemnation shall extend beyond the expiration of the Term, in which event
Tenant shall not be required to make such restoration. For purposes of this
Section 11.4, a Condemnation shall be deemed to be temporary if the period of
such Condemnation is not expected to, and does not, exceed twenty-four (24)
months.
11.5 Allocation of Award.
Except as provided in the second sentence of this Section 11.5, the
total Award shall be solely the property of and payable to Landlord. Any portion
of the Award made for the taking of Tenant's leasehold interest in the
applicable Leased Property, loss of business during the remainder of the Term,
or Tenant's removal and relocation expenses shall be the sole property of and
payable to Tenant (subject to the provisions of Section 11.2). In any
Condemnation proceedings, Landlord and Tenant shall each seek its own Award in
conformity herewith, at its own expense.
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ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" hereunder:
(a) Tenant fails (i) to make any payment of the Rent payable
hereunder when due and such failure continues for a period
of ten (10) days after the date due, or (ii) to make any
required payments of real estate taxes by the earlier of (a)
ten (10) days following Notice from Landlord that such
payment is due and owing and unpaid, and (b) the date which
is 30 days prior to the date on which a Government Authority
has the right to sell or initiate the process for selling
the applicable Leased Property due to a failure to pay the
real estate taxes. The foregoing provisions hereof
notwithstanding, (x) Tenant's failure to pay Additional Rent
shall not constitute an Event of Default, except if Tenant
fails to pay Additional Rent in at least the amount of the
Allowance disbursed to date by Landlord, and (y) with
respect to the failure to pay Additional Charges that are
amounts owed to third parties (other than real estate
taxes), the failure to pay such amounts shall not constitute
an Event of Default under this Section 12.1(a) if Tenant
pays the same in full, along with all interest, penalties
and late charges due and owing to such third parties, no
later than ten (10) days following Notice from Landlord that
such sum is due and owing. In the event Landlord gives
Notice of such circumstances to Tenant twice in any Lease
Year, then on each subsequent occasion for the remainder of
such Lease Year when Landlord gives Tenant any such Notice,
Tenant shall pay to Landlord, as Additional Charges (whether
or not Tenant pays such third party within ten (10) days as
aforesaid), the sum of One Thousand Five Hundred Dollars
($1,500).
(b) Tenant fails to maintain the insurance coverages required
under Article 9 within five (5) days after Notice thereof from
Landlord.
(c) Tenant defaults in the due observance or performance of any
of the terms, covenants or agreements contained herein to be
performed or observed by it (other than as specified in
clauses (a) and (b) above), and, in either case, such
default continues for a period of thirty (30) days after
Notice thereof from Landlord to Tenant (provided that no
such Notice shall be required if Landlord reasonably
determines that immediate action is necessary to protect
person or property); provided, however, that if such default
is susceptible of cure but such cure cannot be accomplished
with due diligence within such period of time and if, in
addition, Tenant commences to cure such default within
thirty (30) days after Notice thereof from Landlord and
thereafter prosecutes the curing of such default with all
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due diligence, such period of time shall be extended to such
period of time (not to exceed an additional one hundred eighty
(180) days in the aggregate) as may be necessary to cure such
default with all due diligence.
(d) Any obligation of Tenant in respect of any Indebtedness in a
principal amount in excess of $10,000,000 for money borrowed
or for the deferred purchase price of any material property or
services, is declared to be, or as a result of acceleration
becomes, due and payable prior to the stated maturity thereof.
(e) There occurs a final unappealable determination by
applicable federal or State authorities of the revocation or
limitation of any license, permit, certification,
certificate of need or approval required for the lawful
operation of any of the Facilities in accordance with its
Primary Intended Use or the loss or limitation of any
license, permit, certification, certificate of need or
approval under any other circumstances under which Tenant is
required to cease its operation of such Facility in
accordance with its Primary Intended Use at the time of such
loss or limitation, provided, however, that if Tenant ceases
its operations in such Facility pursuant to and in
accordance with its right to do so under Section 4.5 hereof,
the closing thereof shall cause such Event of Default to be
deemed no longer continuing.
(f) Any representation or warranty made by or on behalf of Tenant
under or in connection with this Agreement, or in any
document, certificate, or agreement delivered in connection
herewith proves to have been false or misleading in any
material respect on the date when made or deemed made.
(g) Tenant is generally not paying its debts as they become due,
or Tenant makes a general assignment for the benefit of
creditors.
(h) Any petition is filed by or against Tenant under the Federal
bankruptcy laws, or any other proceeding is instituted by or
against Tenant seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, reorganization,
arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for Tenant or
for any substantial part of the property of Tenant and such
proceeding is not dismissed within ninety (90) days after
institution thereof, or Tenant takes any action to authorize
or effect any of the actions set forth above in this
paragraph.
(i) Tenant causes or institutes any proceeding for its dissolution
or termination.
(j) subject to Section 4.5 hereof, Tenant voluntarily ceases
operation of any of the Collective Leased Properties for its
Primary Intended Use for a period in excess of
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thirty (30) consecutive days, except as a result of damage,
destruction or partial or complete Condemnation.
(k) The estate or interest of Tenant in any of the Collective
Leased Properties or any part thereof is levied upon or
attached in any proceeding and the same is not vacated or
discharged within the later of (x) one hundred and twenty
(120) days after commencement thereof, unless the amount in
dispute is less than $100,000 in which case Tenant shall
give notice to Landlord of the dispute but Tenant may defend
in any suitable way, and (y) thirty (30) days after receipt
by Tenant of Notice thereof from Landlord (unless Tenant
shall be contesting such lien or attachment in good faith in
accordance with Article 8).
(l) Any Change in Control of Tenant occurs.
In any such event, Landlord, in addition to all other remedies available to it,
may terminate this Agreement with respect to all but not less than all of the
Collective Leased Properties by giving Notice thereof to Tenant and upon the
expiration of the time, if any, fixed in such Notice, this Agreement shall
terminate and all rights of Tenant under this Agreement shall cease. Landlord
shall have and may exercise all rights and remedies available at law and in
equity to Landlord as a result of Tenant's breach of this Agreement.
Upon the occurrence of an Event of Default, Landlord may, in addition
to any other remedies provided herein, enter upon the Collective Leased
Properties and take possession of, and either (i) retain any and all of Tenant's
Personal Property on any such Leased Property, without liability for trespass or
conversion (Tenant hereby waiving any right to Notice or hearing prior to such
taking of possession by Landlord) or (ii) sell the same at public or private
sale, after giving Tenant reasonable Notice of the time and place of any public
or private sale, at which sale Tenant or its assigns may purchase all or any
portion of Tenant's Personal Property. Unless otherwise provided by law and
without intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable Notice shall be met if such Notice is
given at least five (5) days before the date of sale. The proceeds from any such
disposition shall belong to Landlord and shall not be applied as a credit
against the indebtedness which is secured by the security interest granted in
Section 7.2.
The foregoing provisions hereof notwithstanding, Landlord shall have no
right to assert any remedy hereunder, and an Event of Default shall be deemed to
no longer exist, if Tenant cures an Event of Default (A) under Section 12.1(a)
prior to the earlier of (x) the commencement by Landlord of the exercise of any
remedy under this Agreement by Landlord or (y) Landlord's Notice to Tenant
stating that an Event of Default exists and further stating Landlord's intention
to assert one or more remedies hereunder; and (B) under any of Section
12.(b)-(l), prior to the commencement by Landlord of the exercise of any remedy
under this Agreement by Landlord.
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12.2 Remedies.
None of (a) the termination of this Agreement pursuant to Section 12.1,
(b) the repossession of the Collective Leased Properties, (c) the failure of
Landlord to re-let any or all of the Collective Leased Properties, or (d) the
reletting of any or all of the Collective Leased Properties, shall relieve
Tenant of its liability and obligations hereunder, all of which shall survive
any such termination, repossession or re-letting. In the event of any such
termination, Tenant shall forthwith pay to Landlord all Rent due and payable
with respect to the Collective Leased Properties through and including the date
of such termination. Thereafter, Tenant, until the end of what would have been
the Term of this Agreement in the absence of such termination, and whether or
not any of the Collective Leased Properties or any portion thereof shall have
been re-let, shall be liable to Landlord for, and shall pay to Landlord, as
current damages, the Rent and other charges which would be payable hereunder for
the remainder of the Term had such termination not occurred, less the net
proceeds, if any, of any re-letting of the Collective Leased Properties, after
deducting all expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees, advertising, expenses of employees, alteration costs and
expenses of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days on which the Minimum Rent would have
been payable hereunder if this Agreement had not been so terminated.
At any time after such termination, whether or not Landlord shall have
collected any such current damages, as liquidated final damages beyond the date
of such termination, at Landlord's election, Tenant shall pay to Landlord either
(a) an amount equal to the excess, if any, of the Rent and other charges which
would be payable hereunder from the date of such termination (assuming that, for
the purposes of this paragraph, annual payments by Tenant on account of
Impositions would be the same as payments required for the immediately preceding
twelve calendar months, or if less than twelve calendar months have expired
since the Commencement Date, the payments required for such lesser period
projected to an annual amount) for what would be the then unexpired term of this
Agreement if the same remained in effect, over the Fair Market Rental for the
same period, or (b) an amount equal to the lesser of (i) the Rent and other
charges that would have been payable for the balance of the Term had it not been
terminated, and (ii) the aggregate of the Rent and other charges accrued in the
twelve (12) months ended next prior to such termination (without reduction for
any free rent or other concession or abatement). In the event this Agreement is
so terminated prior to the expiration of the first full year of the Term, the
liquidated damages which Landlord may elect to recover pursuant to clause
(b)(ii) of this paragraph shall be calculated as if such termination had
occurred on the first anniversary of the Commencement Date. Nothing contained in
this Agreement shall, however, limit or prejudice the right of Landlord to prove
and obtain in proceedings for bankruptcy or insolvency an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater than, equal to, or less than the amount of the loss or
damages referred to above.
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In case of any Event of Default, re-entry, expiration and dispossession
by summary proceedings or otherwise, Landlord may (a) relet any of the
Collective Leased Properties or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms which may, at Landlord's option, be
equal to, less than or exceed the period which would otherwise have constituted
the balance of the Term and may grant concessions or free rent to the extent
that Landlord considers advisable and necessary to relet the same, and (b) may
make such reasonable alterations, repairs and decorations in any applicable
Leased Property or any portion thereof as Landlord, in its sole and absolute
discretion, considers advisable and necessary for the purpose of reletting any
such Leased Property; and the making of such alterations, repairs and
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable in any way
whatsoever for any failure to relet all or any portion of the Collective Leased
Properties, or, in the event that any of the Collective Leased Properties is
relet, for failure to collect the rent under such reletting. To the maximum
extent permitted by law, Tenant hereby expressly waives any and all rights of
redemption granted under any present or future laws in the event of Tenant being
evicted or dispossessed, or in the event of Landlord obtaining possession of any
of the Collective Leased Properties, by reason of the violation by Tenant of any
of the covenants and conditions of this Agreement.
12.3 Tenant's Waiver.
IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 12.1 OR 12.2,
TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN
THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS
ARTICLE 12 AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING
PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.
12.4 Application of Funds.
Any payments received by Landlord under any of the provisions of this
Agreement during the existence or continuance of any Default or Event of Default
(and any payment made to Landlord rather than Tenant due to the existence of any
Default or Event of Default) shall be applied to Tenant's obligations under this
Agreement in such order as Landlord may determine or as may be prescribed by the
laws of the State.
12.5 Landlord's Right to Cure Tenant's Default.
If an Event of Default shall have occurred and be continuing, Landlord,
after Notice to Tenant (which Notice shall not be required if Landlord shall
reasonably determine immediate action is necessary to protect person or
property), without waiving or releasing any obligation of Tenant and without
waiving or releasing any Event of Default, may (but shall not be obligated to),
at any time thereafter, make such payment or perform such act for the account
and at the expense of Tenant, and may, to the maximum extent permitted by law,
enter upon any of the
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Collective Leased Properties or any portion thereof for such purpose and take
all such action thereon as, in Landlord's sole and absolute discretion, may be
necessary or appropriate therefor, including the management of the Facility
located thereon by Landlord or its designee, and Tenant hereby irrevocably
appoints, in the event of such election by Landlord, Landlord or its designee as
manager of any such Facility and its attorney in fact for such purpose,
irrevocably and coupled with an interest, in the name, place and stead of
Tenant. No such entry shall be deemed an eviction of Tenant. All reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Landlord in connection therewith, together with interest thereon (to
the extent permitted by law) at the Overdue Rate from the date such sums are
paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand.
12.6 Landlord's Right to Assume Contracts.
In the event Landlord elects to terminate this Agreement or otherwise
obtains possession of the Collective Leased Properties following an Event of
Default, Landlord (or its designee) shall have the right, at its sole and
absolute discretion, upon Notice to Tenant within sixty (60) days after Landlord
terminates this Agreement or otherwise obtains possession following an Event of
Default, to assume all (but not less than all) of the contracts utilized by
Tenant in the operation of its business, including the Franchise Agreement, and
Tenant will cooperate in effecting such assumption. In no event will Landlord
(or its designee) have any liability under such contracts for obligations or
liabilities accruing under such contracts prior to the date of such assumption
by such party.
ARTICLE 13
HOLDING OVER
Any holding over by Tenant after the expiration or sooner termination
of this Agreement shall be treated as a daily tenancy at sufferance at a rate
equal to two (2) times the Minimum Rent then in effect plus Additional Charges
and other charges herein provided (prorated on a daily basis). Tenant shall also
pay to Landlord all damages (direct or indirect) sustained by reason of any such
holding over. Otherwise, such holding over shall be on the terms and conditions
set forth in this Agreement, to the extent applicable. Nothing contained herein
shall constitute the consent, express or implied, of Landlord to the holding
over of Tenant after the expiration or earlier termination of this Agreement.
ARTICLE 14
LANDLORD'S DEFAULT
If Landlord shall default in the performance or observance of any of
its covenants or obligations set forth in this Agreement and such default shall
continue for a period of thirty (30) days after Notice thereof from Tenant to
Landlord and any applicable Facility Mortgagee, or
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such additional period as may be reasonably required to correct the same, Tenant
may declare the occurrence of a "Landlord Default" by a second Notice to
Landlord and to such Facility Mortgagee. Thereafter, Tenant may forthwith cure
the same and, subject to the provisions of the following paragraph, invoice
Landlord for costs and expenses (including reasonable attorneys' fees and court
costs) incurred by Tenant in curing the same, together with interest thereon
from the date Landlord receives Tenant's invoice, at the Overdue Rate. Tenant
shall have no right to terminate this Agreement for any default by Landlord
hereunder and no right, for any such default, to offset or counterclaim against
any Rent or other charges due hereunder.
If Landlord shall in good faith dispute the occurrence of any Landlord
Default and Landlord, before the expiration of the applicable cure period, shall
give Notice thereof to Tenant, setting forth, in reasonable detail, the basis
therefor, no Landlord Default shall be deemed to have occurred and Landlord
shall have no obligation with respect thereto until final adverse determination
thereof. If Tenant and Landlord shall fail, in good faith, to resolve any such
dispute within ten (10) days after Landlord's Notice of dispute, either may
submit the matter for resolution to a court of competent jurisdiction.
ARTICLE 15
LANDLORD FINANCING
In the event that at any time during the Term, OpCo, or any Subsidiary
of OpCo, shall elect to obtain financing for any health care related facilities
owned or leased or to be owned or leased by OpCo, or such Subsidiary, OpCo shall
give (or cause such Subsidiary to give, as the case may be) Notice thereof to
Landlord, which notice shall set forth in reasonable detail the terms of such
financing, shall identify the source thereof and shall include a copy of an
applicable commitment letter. Landlord shall have the right, exercisable by the
giving of Notice to OpCo (or such Subsidiary, as the case may be) within thirty
(30) days after such Notice from OpCo (or such Subsidiary, as the case may be),
to provide such financing on the same terms and conditions as described in the
Notice given to Landlord. In the event that Landlord shall exercise such option,
OpCo (or such Subsidiary, as the case may be) shall be obligated to obtain such
financing from Landlord on the terms and conditions set forth in the Notice to
Landlord. In the event that Landlord shall decline to provide such financing or
shall fail to give such Notice to OpCo (or such Subsidiary, as the case may be),
OpCo (or such Subsidiary, as the case may be) shall be free to obtain such
financing from the party identified in, and on the terms and conditions set
forth in, the Notice given to Landlord with respect thereto. Notices to OpCo and
any Subsidiary shall be given as if a Notice to Tenant.
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ARTICLE 16
SUBLETTING AND ASSIGNMENT
16.1 Subletting and Assignment.
Except as provided in Sections 16.3 and 16.5 below, Tenant shall not,
without the prior written consent of Landlord (which consent may be given or
withheld in its sole and absolute discretion), assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer this Agreement or sublease (which
term shall be deemed to include the granting of concessions, licenses and the
like), all or any part of the Collective Leased Properties or suffer or permit
this Agreement or the leasehold estate created hereby or any other rights
arising under this Agreement to be assigned, transferred, mortgaged, pledged,
hypothecated or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law, or permit the use or occupancy of any of
the Collective Leased Properties by anyone other than Tenant, or any of the
Collective Leased Properties to be offered or advertised for assignment or
subletting. For purposes of this Section 16.1, an assignment of this Agreement
shall be deemed to include any Change in Control of Tenant.
If this Agreement is assigned or if any of the Collective Leased
Properties or any part thereof are sublet (or occupied by anybody other than
Tenant and its employees) in contravention of this Agreement, Landlord may
collect the rents from such assignee, subtenant or occupant, as the case may be,
and apply the net amount collected to the Rent herein reserved, but no such
collection shall be deemed a waiver of the provisions set forth in the first
paragraph of this Section 16.1, the acceptance by Landlord of such assignee,
subtenant or occupant, as the case may be, as a tenant, or a release of Tenant
from the future performance by Tenant of its covenants, agreements or
obligations contained in this Agreement.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting or
assignment in a particular instance shall be deemed to be a waiver of the
prohibition set forth in this Section 16.1. No assignment, subletting or
occupancy shall affect any Primary Intended Use. Any subletting, assignment or
other transfer of Tenant's interest under this Agreement in contravention of
this Section 16.1 shall be voidable at Landlord's option.
16.2 Required Sublease Provisions.
Any sublease of all or any portion of any of the Collective Leased
Properties shall provide (a) that it is subject and subordinate to this
Agreement and to the matters to which this Agreement is or shall be subject or
subordinate; (b) that in the event of termination of this Agreement or reentry
or dispossession of Tenant by Landlord under this Agreement, Landlord may, at
its option, terminate such sublease or take over all of the right, title and
interest of Tenant, as sublessor under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that neither Landlord
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nor any Facility Mortgagee, as holder of a mortgage or as Landlord under this
Agreement, if such mortgagee succeeds to that position, shall (i) be liable for
any act or omission of Tenant under such sublease, (ii) be subject to any
credit, counterclaim, offset or defense which theretofore accrued to such
subtenant against Tenant, (iii) be bound by any previous modification of such
sublease not consented to in writing by Landlord or by any previous prepayment
of more than one (1) month's Rent, (iv) be bound by any covenant of Tenant to
undertake or complete any construction of such Leased Property or any portion
thereof, (v) be required to account for any security deposit of the subtenant
other than any security deposit actually delivered to Landlord by Tenant, (vi)
be bound by any obligation to make any payment to such subtenant or grant any
credits, except for services, repairs, maintenance and restoration provided for
under the sublease that are to be performed after the date of such attornment,
(vii) be responsible for any monies owing by Tenant to the credit of such
subtenant, or (viii) be required to remove any Person occupying any portion of
the Collective Leased Properties; and (c), in the event that such subtenant
receives a written Notice from Landlord or any Facility Mortgagee stating that
an Event of Default has occurred and is continuing, such subtenant shall
thereafter be obligated to pay all rentals accruing under such sublease directly
to the party giving such Notice or as such party may direct. All rentals
received from such subtenant by Landlord or the Facility Mortgagee, as the case
may be, shall be credited against the amounts owing by Tenant under this
Agreement and such sublease shall provide that the subtenant thereunder shall,
at the request of Landlord, execute a suitable instrument in confirmation of
such agreement to attorn. An original counterpart of each such sublease and
assignment and assumption, duly executed by Tenant and such subtenant or
assignee, as the case may be, in form and substance reasonably satisfactory to
Landlord, shall be delivered promptly to Landlord upon request and (a) in the
case of an assignment, the assignee shall assume in writing and agree to keep
and perform all of the terms of this Agreement on the part of Tenant to be kept
and performed and shall be, and become, jointly and severally liable with Tenant
for the performance thereof and (b) in case of either an assignment or
subletting, Tenant shall remain primarily liable, as principal rather than as
surety, for the prompt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be performed by Tenant
hereunder.
The provisions of this Section 16.2 shall not be deemed a waiver of the
provisions set forth in the first paragraph of Section 16.1.
16.3 Permitted Assignments and Subleases.
Notwithstanding the requirements set forth in Section 16.1 that
Landlord's prior written consent be obtained in connection with any assignment,
mortgage, pledge, encumbrance or other transfer of this Lease or any sublease of
all or any part of the Collective Leased Properties, but subject to the
provisions of Section 16.4 and any other express conditions or limitations set
forth in this Article 16, Tenant may, in each instance, (x) after Notice to
Landlord, sublease any or all of the Collective Leased Properties, or assign
this Agreement, to any Qualified Affiliate and (y) sublease space at any of the
Collective Leased Properties for laundry, commissary, child care or medical
office or other purposes in furtherance of the applicable Primary Intended Use,
so long as such sublease will not violate or affect any Legal Requirement or
Insurance Requirement, and
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Tenant shall provide such additional insurance coverage applicable to the
activities to be conducted in such subleased space as Landlord may require. In
connection with any sublease of any Leased Property, or assignment of this
Agreement, any and all Facilities affected by or the subject of such transaction
shall continue to be operated under and pursuant to the Franchise Agreement, and
Tenant shall provide to Landlord, upon request, documentation confirming that
the operation thereof, in such manner, has the approval and consent of
Franchisor.
16.4 Sublease Limitation.
Anything contained in this Agreement to the contrary notwithstanding,
Tenant shall not sublet any of the Collective Leased Properties on any basis
such that all or any part of the Rent would fail to qualify as "rents from real
property" within the meaning of Section 856(d) of the Code, or any similar or
successor provision thereto. This limitation shall include, but not be limited
to, situations where (a) the rental to be paid by any sublessee thereunder would
be based, in whole or in part, on the income or profits derived by the business
activities of such sublessee, or (b) the sublessee would have a relationship to
Crescent Real Estate Equities, Inc., described in Section 856(d)(2)(B) of the
Code, or any similar or successor provision thereto.
16.5 Tenant's Right to Mortgage its Leasehold.
Tenant may, subject to Article 15 and Section 6.6 hereof, assign its
interest in this Agreement to a Lending Institution as collateral for
Indebtedness, provided, however, any security interests in any property of
Tenant, including without limitation Tenant's leasehold interest in the
Collective Leased Properties, shall be expressly and fully subordinated to this
Agreement and to the interest of Landlord in the Collective Leased Properties
and to the rights of any then or thereafter existing Facility Mortgagee.
ARTICLE 17
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
17.1 Estoppel Certificates.
At any time and from time to time, upon not less than ten (10) days
prior Notice by Landlord, Tenant shall furnish to Landlord an Officer's
Certificate certifying that this Agreement is unmodified and in full force and
effect (or that this Agreement is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid, that
no Default or an Event of Default has occurred and is continuing or, if a
Default or an Event of Default shall exist, specifying in reasonable detail the
nature thereof, and the steps being taken to remedy the same, and such
additional information as Landlord may reasonably request. Any such certificate
furnished pursuant to this Section 17.1 may be relied upon by Landlord, any
Facility Mortgagee and any prospective purchaser or mortgagee of any of the
Collective Leased Properties.
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17.2 Financial Statements.
OpCo shall furnish the following statements to Landlord:
(a) within forty-five (45) days after each of the first three
quarters of any Fiscal Year, the most recent Financials and
the most recent unaudited financial statements of OpCo
accompanied by the Financial Officer's Certificate;
(b) within one hundred twenty (120) days after the end of each
Fiscal Year, the most recent Financials for such Fiscal Year,
including the most recent financial statements of OpCo audited
and reported upon by an independent certified public
accountant reasonably satisfactory to Landlord and accompanied
by a Financial Officer's Certificate;
(c) within thirty (30) days after the end of each calendar
month, an unaudited statement of income of OpCo, accompanied
by a Financial Officer's Certificate;
(d) promptly after the sending or filing thereof, copies of all
periodic reports which OpCo files with the SEC or any stock
exchange on which its shares are listed or traded;
(e) promptly after the delivery thereof to OpCo, a copy of any
management letter or written report prepared by the certified
public accountants with respect to the financial condition,
operations, business or prospects of OpCo, as the case may be;
and
(f) at the expense of Landlord, at any time and from time to
time upon not less than forty-five (45) days Notice from
Landlord, any Financials or any other financial reporting
information required to be filed by Landlord with any
securities and exchange commission, the SEC or any successor
agency, or any other governmental authority, or required
pursuant to any order issued by any court, governmental
authority or arbitrator in any litigation to which Landlord
is a party, for purposes of compliance therewith, promptly,
upon Notice from Landlord, such other information concerning
the business, financial condition and affairs of Tenant as
Landlord may reasonably request from time to time.
Landlord may at any time, and from time to time, provide any Facility
Mortgagee with copies of any of the foregoing statements, provided that such
Facility Mortgagee has executed and delivered a confidentiality agreement
reasonably satisfactory to Tenant.
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17.3 General Operations.
Tenant covenants and agrees to furnish to Landlord within thirty (30)
days after written request therefor:
17.3.1 Reimbursement, Licensure, Etc.
Within thirty (30) days after receipt or modification thereof :
(a) copies of all material licenses and certificates of need
authorizing Tenant to operate each Facility for its Primary
Intended Use;
(b) a list of all Medicare and Medicaid certifications and all
related participating provider agreements; and
(c) copies of all reports of surveys, statements of deficiencies,
plans of correction, and all material correspondence relating
thereto, including, without limitation, all reports and
material correspondence concerning compliance with or
enforcement of licensure, Medicare/Medicaid, and accreditation
requirements, including physical environment and Life Safety
Code survey reports (excluding, however, correspondence which
may be subject to any attorney-client privilege).
Upon Notice from Landlord from time to time, Tenant shall make
available for inspection and copying by Landlord, where such records are kept
and maintained in the normal course of business:
(d) all Medicare and Medicaid certifications, together with all
participating provider agreements and all material
correspondence relating thereto with respect to each Facility
(excluding, however, correspondence which may be subject to
any attorney-client privilege); and
(e) such other confirmation as to the licensure and Medicare and
Medicaid participation of Tenant as Landlord may reasonably
request from time to time.
17.3.2 Annual Budgets.
Not less than sixty (60) days after the commencement of any Fiscal
Year, proposed annual income and ordinary expense and capital improvement
budgets setting forth projected income and costs and expenses projected to be
incurred by Tenant in managing, owning, maintaining and operating the Facilities
during the next succeeding Fiscal Year.
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ARTICLE 18
LANDLORD'S RIGHT TO INSPECT
Tenant shall permit Landlord and its authorized representatives to
inspect the Collective Leased Properties during usual business hours upon not
less than twenty-four (24) hours' notice (provided that no such notice shall be
required if Landlord shall reasonably determine immediate action is necessary to
protect person or property), and to make such repairs as Landlord is permitted
or required to make pursuant to the terms of this Agreement, provided that any
inspection or repair by Landlord or its representatives will not unreasonably
interfere with Tenant's use and operation of the applicable Leased Property and
further provided that in the event of an emergency, as determined by Landlord in
its sole discretion, prior Notice shall not be necessary.
ARTICLE 19
APPRAISAL
In the event that it becomes necessary to determine the Fair Market
Value or Fair Market Rental of any of the Collective Leased Properties for any
purpose of this Agreement and the parties cannot agree thereon, such Fair Market
Value or Fair Market Rental, as the case may be, shall be determined upon the
written demand of either party in accordance with the following procedure.
The party requesting an appraisal, by Notice given to the other, shall
propose and unilaterally approve a Qualified Appraiser. The other party, by
Notice given within fifteen (15) days after receipt of such Notice appointing
the first Qualified Appraiser, may appoint a second Qualified Appraiser. If the
other party fails to appoint the second Qualified Appraiser within such fifteen
(15)-day period, such party shall have waived its right to appoint a Qualified
Appraiser, the first Qualified Appraiser shall appoint a second Qualified
Appraiser within fifteen (15) days thereafter, and the Fair Market Value or Fair
Market Rental, as the case may be, shall be determined by the Qualified
Appraisers as set forth below.
The two Qualified Appraisers shall thereupon endeavor to agree upon the
Fair Market Value or Fair Market Rental, as the case may be. If the two
Qualified Appraisers so named cannot agree upon such value or rental, as the
case may be, within thirty (30) days after the designation of the second such
appraiser, each such appraiser shall, within five (5) days after the expiration
of such thirty (30)-day period, submit his appraisal of fair market value to the
other appraiser in writing, and if the fair market values set forth in such
appraisals vary by five percent (5%) or less of the greater value, the fair
market value shall be determined by calculating the average of the two fair
market values determined by the two appraisers.
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If the fair market values set forth in the two appraisals vary by more
than five percent (5%) of the greater value, the two Qualified Appraisers shall
select a third Qualified Appraiser within an additional fifteen (15) days
following the expiration of the aforesaid five (5)-day period. If the two
appraisers are unable to agree upon the appointment of a third appraiser within
such fifteen (15)-day period, either party may, upon written notice to the
other, request that such appointment be made by the then President (or
equivalent officer) of the State's Chapter of the American Institute of Real
Estate Appraisers, or his or her designee or, if there is no such organization
or if such individual declines to make such appointment, by any state or Federal
court of competent jurisdiction for the State.
In the event that all three of the appraisers cannot agree upon Fair
Market Value or Fair Market Rental, as the case may be, within twenty (20) days
following the selection of the third appraiser, each appraiser shall, within ten
(10) days thereafter, submit his appraisal of fair market value to the other two
appraisers in writing, and the fair market value shall be determined by
calculating the average of the two numerically closest values (or, if the values
are equidistant, the average of all three values) determined by the three
appraisers.
In the event that any appraiser appointed hereunder does not or is
unable to perform his or her obligation hereunder, then the party or the
appraisers appointing such appraiser shall have the right to propose and approve
unilaterally a substitute Qualified Appraiser, but if the party or the
appraisers who have the right to appoint a substitute Qualified Appraiser fail
to do so within ten (10) days after written notice from the other party (or
either party in the event such appraiser was appointed by the other appraisers),
either party may, upon written notice to the party having the right to appoint a
substitute Qualified Appraiser, request that such appointment be made by such
officer of the American Institute of Real Estate Appraisers or court of
competent jurisdiction as described above; provided, however, that a party who
has the right to appoint an appraiser or a substitute appraiser shall have the
right to make such appointment only up until the time such appointment is made
by such officer or court.
In connection with the appraisal process, Tenant shall provide the
appraisers full access during normal business hours to examine the applicable
Leased Property, the books, records and files of Tenant and all agreements,
leases and other operating agreements relating to the applicable Leased
Property.
The costs (other than Landlord's counsel fees) of each such appraisal
shall be borne by Tenant and shall be included as part of the Additional
Charges. Upon determining such value, the appraisers shall promptly notify
Landlord and Tenant in writing of such determination. If any party shall fail to
appear at the hearings appointed by the appraisers, the appraisers may act in
the absence of such party.
The determination of the Qualified Appraisers made in accordance with
the foregoing provisions shall be final and binding upon the parties, such
determination may be entered as an award in arbitration in a court of competent
jurisdiction, and judgment thereon may be entered.
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Notwithstanding anything in this Agreement to the contrary, (x) the
parties agree that the Minimum Rent for the Fixed Term provided for in Section
1.64 hereof shall not be evidence of the Fair Market Rental for any Extended
Term, and (y) if Minimum Rent for any Extended Term as determined by appraisal
pursuant to this Article 19 is not satisfactory to Landlord, in Landlord's sole
discretion, or Franchisor elects to void Tenant's extension of the Franchise
Agreement with respect to such Extended Term pursuant to the Franchise
Agreement, then Landlord shall have the right to render void Tenant's election
to extend the Term with respect to such Extended Term upon Notice given to
Tenant no later than thirty (30) days following the later of the determination
of the Minimum Rent pursuant to this Article 19, or Franchisor's election to
render void the extension of the Franchise Agreement pursuant to the Franchise
Agreement, in which event this Agreement shall expire on the last day of the
Fixed Term or the then current Extended Term, as applicable.
ARTICLE 20
FACILITY MORTGAGES
20.1 Landlord May Grant Liens.
Without the consent of Tenant, Landlord may, subject to the terms and
conditions set forth in this Section 20.1, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrance or title
retention agreement ("Encumbrance") upon any of the Collective Leased
Properties, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Any such Encumbrance shall
include the right to prepay (whether or not subject to a prepayment penalty) and
shall provide (subject to Section 20.2 below) that it is subject to the rights
of Tenant under this Agreement.
20.2 Subordination of Lease.
Subject to Section 20.1, this Agreement, any and all rights of Tenant
hereunder, are and shall be subject and subordinate to any ground or master
lease, and all renewals, extensions, modifications and replacements thereof, and
to all mortgages and deeds of trust, which may now or hereafter affect the
Collective Leased Properties, or any of them, or any improvements thereon and/or
any of such leases, whether or not such mortgages or deeds of trust shall also
cover other lands and/or buildings and/or leases, to each and every advance made
or hereafter to be made under such mortgages and deeds of trust, and to all
renewals, modifications, replacements and extensions of such leases and such
mortgages and deeds of trust and all consolidations of such mortgages and deeds
of trust. This section shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, (i)
Tenant shall promptly execute, acknowledge and deliver any instrument that
Landlord, the lessor under any such lease or the holder of any such mortgage or
the trustee or beneficiary of any deed of trust or any of their respective
successors in interest may reasonably request to evidence such subordination,
and (ii) the lessor under any such lease or the holder of any such mortgage or
the trustee or
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beneficiary of any such deed of trust shall execute and deliver to Tenant a
Non-Disturbance Agreement reasonably satisfactory to Tenant (taking into
account, however, the reasonable requirements of the lessor or lender, including
a lender becoming such in connection with a non-recourse securitized loan),
including provisions with respect to insurance and casualty matters.
Any lease to which this Agreement is, at the time referred to, subject
and subordinate is herein called "Superior Lease" and the lessor of a Superior
Lease or its successor in interest at the time referred to, is herein called
"Superior Landlord" and any mortgage or deed of trust to which this Agreement
is, at the time referred to, subject and subordinate, is herein called "Superior
Mortgage" and the holder, trustee or beneficiary of a Superior Mortgage is
herein called "Superior Mortgagee."
If any Superior Landlord or Superior Mortgagee or the nominee or
designee of any Superior Landlord or Superior Mortgagee shall succeed to the
rights of Landlord under this Agreement with respect to one or more of the
Collective Leased Properties, whether through possession or foreclosure action
or delivery of a new lease or deed, or otherwise, then at the request of such
party so succeeding to Landlord's rights (herein called "Successor Landlord")
and upon such Successor Landlord's written agreement to accept Tenant's
attornment, Tenant shall attorn to and recognize such Successor Landlord as
Tenant's landlord under this Agreement with respect to one or more of the
Collective Leased Properties, and shall promptly execute and deliver any
instrument that such Successor Landlord may reasonably request to evidence such
attornment. Upon such attornment, this Agreement shall continue in full force
and effect as a direct lease between the Successor Landlord and Tenant upon all
of the terms, conditions and covenants as are set forth in this Agreement,
except that the Successor Landlord (unless formerly the landlord under this
Agreement or its nominee or designee) shall not be (a) liable in any way to
Tenant for any act or omission, neglect or default on the part of Landlord under
this Agreement, (b) responsible for any monies owing by or on deposit with
Landlord to the credit of Tenant, (c) subject to any counterclaim or setoff
which theretofore accrued to Tenant against Landlord, (d) bound by any
modification of this Agreement subsequent to such Superior Lease or Mortgage, or
by any previous prepayment of Minimum Rent or Additional Rent for more than one
(1) month, which was not approved in writing by the Superior Landlord or the
Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor Landlord's
interest in the applicable Leased Property and the rents, income, receipts,
revenues, issues and profits issuing from such Leased Property, (f) responsible
for the performance of any work to be done by the Landlord under this Agreement
to render the applicable Leased Property ready for occupancy by Tenant, or (g)
required to remove any Person occupying the applicable Leased Property or any
part thereof, except if such person claims by, through or under the Successor
Landlord. Tenant agrees at any time and from time to time to execute a suitable
instrument in confirmation of Tenant's agreement to attorn, as aforesaid.
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20.3 Notice to Mortgagee and Ground Landlord.
Subsequent to the receipt by Tenant of notice from any Person that it
is a Facility Mortgagee or that it is the ground lessor under a lease with
Landlord, as ground lessee, which includes the applicable Leased Property as
part of the demised premises, no notice from Tenant to Landlord as to the
applicable Leased Property shall be effective unless and until a copy of the
same is given to such Facility Mortgagee or ground lessor, and the curing of any
of Landlord's defaults by such Facility Mortgagee or ground lessor shall be
treated as performance by Landlord.
ARTICLE 21
ADDITIONAL COVENANTS OF TENANT
21.1 Conduct of Business.
Tenant shall do or cause to be done all things necessary to preserve,
renew and keep in full force and effect and in good standing its corporate
existence and its rights and licenses necessary to conduct such business.
21.2 Maintenance of Accounts and Records.
Tenant shall keep records and books of account in which full, true and
correct entries in all material respects will be made of dealings and
transactions in relation to the business and affairs of Tenant.
21.3 Payments to Franchisor.
All payments by Tenant of Franchise Fees under the Franchise Agreement
shall be subordinated to payments of Rent (other than Non-Priority Additional
Rent) due to Landlord to the extent and on the terms provided in the Franchise
Subordination Agreement, and Tenant shall not make any payment of the Franchise
Fees, directly or indirectly, or set apart any sum or property therefor, or
agree to do so, other than as permitted in and by the Franchise Subordination
Agreement.
21.4 Management of Collective Leased Properties.
Tenant shall not enter into any Management Agreement unless the terms
thereof have been previously approved in writing by Landlord, which approval may
be given or withheld in Landlord's sole and absolute discretion, except for
Management Agreements between OpCo and a Facility Subsidiary. All management
fees, payments in connection with any extension of credit and fees for services
provided in connection with the operation of the applicable Leased Property,
payable by Tenant or any Affiliated Person as to Tenant shall be subordinated to
all of the obligations of Tenant due under this Agreement pursuant to a
Subordination Agreement.
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Tenant shall not agree to any change in the Manager of any of the Collective
Leased Properties and/or any Facility, to any change in any Management
Agreement, terminate any Management Agreement or permit any Manager to assign
any Management Agreement without the prior written approval of Landlord in each
instance, which approval may be given or withheld in Landlord's sole and
absolute discretion. Any Management Agreement shall provide that Landlord shall
be provided notice of any defaults thereunder and, at Landlord's option, an
opportunity to cure such defaults and shall otherwise be in form and substance
satisfactory to Landlord in its sole and absolute discretion. If Landlord shall
cure any of Tenant's defaults under any Management Agreement, the cost of such
cure shall be payable upon demand by Tenant to Landlord with interest accruing
from the demand date at the Overdue Rate and Landlord shall have the same rights
and remedies for failure to pay such costs on demand as for Tenant's failure to
pay Minimum Rent. Tenant shall deliver to Landlord any instrument requested by
Landlord to implement the intent of the foregoing provision.
21.5 Liens and Encumbrances.
Except as permitted by Sections 7.1 and 16.5, Tenant shall not create
or incur or suffer to be created or incurred or to exist any Lien on this
Agreement or Tenant's Personal Property now or at any time hereafter owned,
other than:
(a) Security interests securing the purchase price of equipment or
personal property acquired after the Commencement Date;
provided, however, that (i) such Lien shall at all times be
confined solely to the asset in question; and (ii) the
aggregate principal amount of Indebtedness secured by any such
Lien shall not exceed the cost of acquisition or construction
of the property subject thereto; and
(b) Permitted Encumbrances.
ARTICLE 22
MISCELLANEOUS
22.1 Limitation on Payment of Rent.
All agreements between Landlord and Tenant herein are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of Rent, or otherwise, shall the Rent or any other amounts payable
to Landlord under this Agreement exceed the maximum permissible under applicable
law, the benefit of which may be asserted by Tenant as a defense, and if, from
any circumstance whatsoever, fulfillment of any provision of this Agreement, at
the time performance of such provision shall be due, shall involve transcending
the limit of validity prescribed by law, or if from any circumstances Landlord
should ever receive as fulfillment of such provision such an excessive amount,
then, ipso facto, the amount which would be excessive shall be applied to the
reduction of the installment(s) of Minimum Rent next
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due and not to the payment of such excessive amount. This provision shall
control every other provision of this Agreement and any other agreements between
Landlord and Tenant.
22.2 No Waiver.
No failure by Landlord to insist upon the strict performance of any
term hereof or to exercise any right, power or remedy consequent upon a breach
thereof, and no acceptance of full or partial payment of Rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of any such term. To the maximum extent permitted by law, no waiver of any
breach shall affect or alter this Agreement, which shall continue in full force
and effect with respect to any other then existing or subsequent breach.
22.3 Remedies Cumulative.
To the maximum extent permitted by law, each legal, equitable or
contractual right, power and remedy of Landlord, now or hereafter provided
either in this Agreement or by statute or otherwise, shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Landlord of any one or more of such
rights, powers and remedies shall not preclude the simultaneous or subsequent
exercise by Landlord of any or all of such other rights, powers and remedies.
22.4 Severability.
Any clause, sentence, paragraph, section or provision of this Agreement
held by a court of competent jurisdiction to be invalid, illegal or ineffective
shall not impair, invalidate or nullify the remainder of this Agreement, but
rather the effect thereof shall be confined to the clause, sentence, paragraph,
section or provision so held to be invalid, illegal or ineffective, and this
Agreement shall be construed as if such invalid, illegal or ineffective
provisions had never been contained therein.
22.5 Acceptance of Surrender.
No surrender to Landlord of this Agreement or of any of the Collective
Leased Properties or any part thereof, or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Landlord and no
act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
22.6 No Merger of Title.
It is expressly acknowledged and agreed that it is the intent of the
parties that there shall be no merger of this Agreement or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly this Agreement or the
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leasehold estate created hereby and the fee estate or ground landlord's interest
in any of the Collective Leased Properties.
22.7 Conveyance by Landlord.
If Landlord or any successor owner of all or any portion of any of the
Collective Leased Properties shall convey all or any portion of the Collective
Leased Properties in accordance with the terms hereof other than as security for
a debt, and the grantee or transferee of such of the Collective Leased
Properties shall expressly assume all obligations of Landlord hereunder arising
or accruing from and after the date of such conveyance or transfer, Landlord or
such successor owner, as the case may be, shall thereupon be released from all
future liabilities and obligations of Landlord under this Agreement with respect
to such of the Collective Leased Properties arising or accruing from and after
the date of such conveyance or other transfer and all such future liabilities
and obligations shall thereupon be binding upon the new owner.
22.8 Quiet Enjoyment.
So long as Tenant shall pay the Rent as the same becomes due and shall
comply with all of the terms of this Agreement, Tenant shall peaceably and
quietly have, hold and enjoy the Collective Leased Properties for the Term, free
of hindrance or molestation by Landlord or anyone claiming by, through or under
Landlord, but subject to (a) any Encumbrance permitted under Article 20 or
otherwise permitted to be created by Landlord hereunder, (b) all Permitted
Encumbrances, (c) liens as to obligations of Landlord that are either not yet
due or which are being contested in good faith and by proper proceedings, and
(d) liens that have been consented to in writing by Tenant. Except as otherwise
provided in this Agreement, no failure by Landlord to comply with the foregoing
covenant shall give Tenant any right to cancel or terminate this Agreement or
abate, reduce or make a deduction from or offset against the Rent or any other
sum payable under this Agreement, or to fail to perform any other obligation of
Tenant hereunder.
22.9 Landlord's Consent.
Where provision is made in this Agreement for Landlord's consent and
Landlord shall fail or refuse to give such consent, Tenant shall not be entitled
to any damages for any withholding by Landlord of its consent, it being intended
that Tenant's sole remedy shall be an action for specific performance or
injunction, and that such remedy shall be available only in those cases where
Landlord has expressly agreed in writing not unreasonably to withhold its
consent.
22.10 Memorandum of Lease.
Neither Landlord nor Tenant shall record this Agreement. However,
Landlord and Tenant shall promptly, upon the request of the other, enter into a
short form memorandum of this Agreement, in form suitable for recording under
the laws of the State in which reference to this Agreement, and all options
contained herein, shall be made. Tenant shall pay all costs and expenses of
recording such memorandum.
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22.11 Notices.
(a) Any and all notices, demands, consents, approvals, offers,
elections and other communications required or permitted under
this Agreement shall be deemed adequately given if in writing
and the same shall be delivered either in hand, by telecopier
with written acknowledgment of receipt, or by mail or Federal
Express or similar expedited commercial carrier, addressed to
the recipient of the notice, postpaid and registered or
certified with return receipt requested (if by mail), or with
all freight charges prepaid (if by Federal Express or similar
carrier).
(b) All notices required or permitted to be sent hereunder shall
be deemed to have been given for all purposes of this
Agreement upon the date of acknowledged receipt, in the case
of a notice by telecopier, and, in all other cases, upon the
date of receipt or refusal, except that whenever under this
Agreement a notice is either received on a day which is not a
Business Day or is required to be delivered on or before a
specific day which is not a Business Day, the day of receipt
or required delivery shall automatically be extended to the
next Business Day.
(c) All such notices shall be addressed:
if to Landlord to:
Gerald W. Haddock, Esq.
President and Chief Executive Officer
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Forth Worth, Texas 76102
Facsimile: (817) 878-0429
with copies to:
David M. Dean, Esq.
Senior Vice President, Law
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Forth Worth, Texas 76102
Facsimile: (817) 878-0429
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and
Wendelin A. White, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
Facsimile: (202) 663-8007
If to Tenant to:
Steve J. Davis, Esq.
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
with a copy to:
Robert W. Miller, Esq.
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Facsimile: (404) 572-5100
(d) By notice given as herein provided, the parties hereto and
their respective successor and assigns shall have the right
from time to time and at any time during the term of this
Agreement to change their respective addresses effective upon
receipt by the other parties of such notice and each shall
have the right to specify as its address any other address
within the United States of America.
22.12 Construction.
Anything contained in this Agreement to the contrary notwithstanding,
all claims against, and liabilities of, Tenant or Landlord arising prior to any
date of termination or expiration of this Agreement with respect to any of the
Collective Leased Properties shall survive such termination or expiration. In no
event shall Landlord be liable for any consequential damages suffered by Tenant
as the result of a breach of this Agreement by Landlord. Neither this Agreement
nor any provision hereof may be changed, waived, discharged or terminated except
by an instrument in writing signed by the party to be charged. All the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and
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assigns. Each term or provision of this Agreement to be performed by Tenant
shall be construed as an independent covenant and condition. Time is of the
essence with respect to the exercise of any rights of Tenant under this
Agreement. Except as otherwise set forth in this Agreement, any obligations of
Tenant and Landlord (including without limitation, any monetary, repair and
indemnification obligations) shall survive the expiration or sooner termination
of this Agreement.
22.13 Counterparts; Headings.
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but which, when taken together, shall
constitute but one instrument and shall become effective as of the date hereof
when copies hereof, which, when taken together, bear the signatures of each of
the parties hereto shall have been signed. Headings in this Agreement are for
purposes of reference only and shall not limit or affect the meaning of the
provisions hereof.
22.14 Applicable Law, Etc.
This Agreement shall be interpreted, construed, applied and enforced in
accordance with the laws of the State of Delaware applicable to contracts
between residents of Delaware which are to be performed entirely within
Delaware, regardless of (i) where this Agreement is executed or delivered; or
(ii) where any payment or other performance required by this Agreement is made
or required to be made; or (iii) where any breach of any provision of this
Agreement occurs, or any cause of action otherwise accrues; or (iv) where any
action or other proceeding is instituted or pending; or (v) the nationality,
citizenship, domicile, principal place of business, or jurisdiction of
organization or domestication of any party; or (vi) whether the laws of the
forum jurisdiction otherwise would apply the laws of a jurisdiction other than
the State of Delaware; or (vii) any combination of the foregoing.
Notwithstanding the foregoing, the laws of the State shall apply to the
perfection and priority of liens upon and the disposition of and disposition
with respect to any of the Collective Leased Properties.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located in
the State of Delaware as is provided by law; and the parties consent to the
jurisdiction of said court or courts located in the State of Delaware and to
service of process by registered mail, return receipt requested, or by any other
manner provided by law.
22.15 Substitution of Leased Properties.
Provided no Default or Event of Default has occurred and is continuing
at the time of exercise of the right provided for in this Section 22.15, Tenant
shall have the right, from time to time, to substitute for a Designated Leased
Property another parcel of improved real property meeting criteria hereinafter
set forth and otherwise acceptable to Landlord (the "Substitute Leased
Property"). If Tenant makes such election, Tenant shall give Notice to Landlord
of
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Tenant's intention proposing a substitution closing date (the "Substitution
Date") not less than sixty (60) days or more than one-hundred twenty (120) days
from the date of such Notice and offering to Landlord a proposed Substitute
Leased Property meeting the following criteria: the Substitute Leased Property
shall be improved with a Comparable Facility; shall have a total value equal to
or greater than the total value of the Designated Leased Property to Landlord
(each as reasonably determined by Landlord); shall be freely transferable to
Landlord unencumbered by any existing lease, mortgage, or other encumbrance; and
shall be subject to no other exceptions to title except those approved by
Landlord, which approval shall not be unreasonably withheld. Tenant shall convey
the Substitute Leased Property to Landlord in exchange for the Designated Leased
Property, Landlord shall simultaneously exchange the Designated Leased Property,
for the Substitute Leased Property, and the parties shall simultaneously execute
and deliver an amendment to this Lease. The Landlord shall have thirty (30) days
following receipt of such Notice within which to accept or reject such offer;
provided, however, that Landlord shall have at least ten (10) days following
receipt of any appraisal of the Substitute Leased Property or the Designated
Leased Property (or both) requested by Landlord within which to accept or reject
such offer. If Landlord accepts the proposed Substitute Leased Property, the
substitution shall proceed in a manner (a) intended to qualify such substitution
as a "like-kind" exchange within the meaning of Section 1031 of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to Landlord, and (b)
which will satisfy Landlord's requirements related to taxation as a real estate
investment trust. Landlord may demand, at Tenant's expense, a reasonably
acceptable opinion of counsel or private letter ruling from the Internal Revenue
Service indicating that the substitution will have no material adverse tax
consequences to Landlord. After closing, the Substitute Leased Property shall be
deemed a Leased Property for all purposes. Substitution hereunder and the
closing shall be made on the following terms and shall be subject to the
following conditions:
(a) on the Substitution Date, Tenant shall execute, acknowledge
and deliver to Landlord a warranty deed in the customary
form for the relevant jurisdiction conveying to Landlord,
free and clear of any title exceptions except those approved
by Landlord as set forth above, title to the Substitute
Leased Property, and Landlord shall simultaneously execute,
acknowledge and deliver to Tenant a warranty deed conveying
to Tenant, free and clear of title exceptions, except
Permitted Encumbrances and those approved by Tenant (based
on the same criteria for approval as for Landlord), title to
the Designated Leased Property; provided, however, that in
no event shall Landlord have any obligation to cure or
remove title exceptions affecting the Designated Leased
Property, Tenant's only recourse being to designate an
alternative Designated Leased Property for substitution or
to rescind its Notice of election to substitute a Substitute
Leased Property.
(b) on or prior to the Substitution Date, Landlord and Tenant
shall have executed, acknowledged and delivered an amendment
to this Lease (the "Amendment to Lease") (the Lease, as
amended, herein referred to as the "Amended Lease") which
shall provide for the deletion of the legal description of the
Designated
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Leased Property and the substitution of the legal description
of the Substitute Leased Property therefor.
(c) Tenant shall have provided Landlord, at Tenant's sole cost,
with a title insurance policy satisfactory in form and
substance to Landlord, effective on the date of exchange,
covering the Substitute Leased Property and containing no
exceptions to title to the Substitute Leased Property other
than encumbrances approved by Landlord as provided herein, and
having such affirmative insurance and endorsements as may be
required by Landlord.
(d) Tenant shall have provided Landlord with representations and
warranties with respect to the Substitute Leased Property
reasonably satisfactory to Landlord (unless otherwise
reasonably required, generally similar to the
representations and warranties contained in Section 6.1 of
that certain Real Estate Purchase and Sale Agreement dated
as of ____________, 1997, by and between Magellan Health
Services, Inc., as seller, and Landlord, as purchaser (the
"Purchase Agreement")), such representations and warranties
shall survive the closing and Landlord shall have the same
remedies for breach thereof as are provided for in the
Purchase Agreement.
(e) Tenant shall provide Landlord with documentation satisfactory
to Landlord confirming that Tenant has the right to operate
the Substitute Leased Property in accordance with the Primary
Intended Use and under and pursuant to the Franchise
Agreement.
(f) Tenant shall reimburse Landlord, as Additional Charges, for
any and all costs and expenses incurred by Landlord, including
Landlord's reasonable attorneys' fees, in effecting the
substitution proposed (whether or not closing occurs).
Landlord and Tenant hereby covenant that once the Notice of intent to
substitute a Substitute Leased Property for the Designated Leased Property
described therein has been delivered and Landlord accepts the Substitute Leased
Property identified therein, each party will promptly perform all acts and
deliver all documents required on its part to be delivered or to satisfy the
conditions of closing set forth herein. In the event that the Substitute Leased
Property has not been exchanged for the Designated Leased Property within thirty
(30) days after the Substitution Date specified in Tenant's Notice of its
intention to substitute by reason of the acts or omissions of one party, then
the other party shall have the right to elect not to proceed with the
substitution.
Tenant covenants that, following the closing of the exchange of the
Substitute Leased Property, neither it nor any of its Affiliated Persons will
use the Designated Leased Property as a facility having as its primary use the
Primary Intended Use for at least one year after the Substitution Date.
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22.16 No Broker.
Each party hereby represents and warrants to the other that it has not
engaged, dealt with or otherwise discussed this transaction with any broker,
agent or finder. Each party agrees to indemnify and hold the other harmless from
and against any claim arising out of a breach of the foregoing agreement and
representation and warranty.
22.17 Confidentiality.
Landlord shall maintain the confidentiality of information provided by
Tenant pursuant to Sections 17.2 and 17.3 hereof or otherwise under this
Agreement. Landlord may, however, disclose such information to its attorneys,
consultants, partners, directors, officers and employees, and lenders and
purchasers (actual and potential). As a condition of such disclosure to any
lender or purchaser (actual or potential), such lender or purchaser shall be
obligated to execute a Confidentiality Agreement reasonably satisfactory to
Tenant. The provisions of this Section 22.18 shall not be applicable to
disclosure of information required by applicable law, rule or regulation or the
order of any court.
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date above first written.
LANDLORD:
Crescent Real Estate Equities
Limited Partnership
Attest: By: Crescent Real Estate Equities, Ltd.
General Partner
________________________ By: ______________________________
Name: Gerald Haddock
Title: President and Chief Executive Officer
TENANT:
Attest: CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
______________________ By:____________________________________
Name: Name:
Title: Title:
[Add Signature Blocks for all Facility
Subsidiaries]
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MASTER FRANCHISE AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS......................................................... 1
1.1. "Affiliate"............................................ 1
1.2. "Business Day"........................................... 1
1.3. "Capitalized Lease".................................... 1
1.4. "Charter System"....................................... 1
1.5. "EBITDA"............................................... 1
1.6. "Fair Market Value of the Franchise"................... 1
1.7. "Franchise Agreement".................................. 2
1.8. "Franchised Business".................................. 2
1.9. "Hospital/RTC Based Behavioral Healthcare Business".... 2
1.10. "Interest"............................................. 2
1.11. "Joint Ventures"....................................... 2
1.12. "Licensed Marks"....................................... 2
1.13. "New Products"......................................... 2
1.14. "OpCo Franchise Agreements"............................ 2
1.15. "OpCo Franchisees"..................................... 2
1.16. "OpCo's Business"...................................... 2
1.17. "Prime Rate"........................................... 2
1.18. "Qualified Appraiser".................................. 2
1.19. "Supermajority Vote of the Board"...................... 3
1.20. "Territory"............................................ 3
1.21. "Transaction Documents"................................ 3
2. GRANT AND ACCEPTANCE OF FRANCHISE................................... 3
2.1. Existing Facilities................................... 3
2.2. New Facilities........................................ 3
2.3. Condition............................................. 4
3. GUARANTY OF FRANCHISEE OBLIGATIONS.................................. 4
3.1. Definition of "Obligations"........................... 4
3.2. Guaranty.............................................. 4
3.3. OpCo's Liability Absolute............................. 5
3.4. Additional Waivers.................................... 5
3.5. Parties Benefitted.................................... 6
3.6. Continuing Effect..................................... 6
3.7. Scope of Guaranty..................................... 6
4. TERM................................................................ 6
4.1. Initial Term.......................................... 6
4.2. Extended Term......................................... 6
i
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4.3. Determination of Annual Continuing Fee for Extended
Terms................................................. 7
4.4. Appraisal............................................. 7
4.5. New Annual Continuing Fee............................. 9
5. ANNUAL CONTINUING FEES.............................................. 9
5.1. Annual Continuing Fee................................. 9
5.2. Definition of "Contract Year"......................... 10
5.3. Monthly Installments.................................. 10
5.4. Annual Continuing Fee for Short Contract Year......... 10
5.5. Credit for Payments by OpCo Franchisees............... 10
5.6. Payment Following Contract Year End................... 10
5.7. Taxes................................................. 11
5.8. OpCo Gross Revenues................................... 11
5.9. Additional Remedies for Past Due Annual Continuing
Fees.................................................. 12
5.10. Subordination......................................... 12
5.11. Interest.............................................. 13
5.12. Negotiation of Fees................................... 13
6. THE CHARTER SYSTEM.................................................. 13
7. PREFERRED PROVIDER STATUS........................................... 13
8. OPERATION OF CALL CENTER............................................ 14
9. ENHANCEMENT OF THE CHARTER SYSTEM................................... 14
10. MANAGEMENT CONTRACTS/JOINT VENTURES/CONSULTING
AGREEMENTS.......................................................... 14
11. ADVERTISING AND MARKETING........................................... 15
11.1. Annual Expenditures................................... 15
11.2. Approval of Advertising............................... 15
12. STATEMENTS, RECORDS AND FEE PAYMENTS................................ 15
12.1. Maintenance of Records; Audit Rights.................. 15
12.2. Tax Reports........................................... 16
12.3. Reports............................................... 16
12.4. Unaudited Periodic Statements......................... 16
12.5. Audited Annual Statement.............................. 16
13. ADDITIONAL COVENANTS OF OPCO........................................ 16
13.1. Covenant During Term.................................. 16
13.2. Covenant Not to Compete Post-Term..................... 17
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13.3. Acknowledgment of Reasonableness...................... 17
13.4. Confidential Information.............................. 17
13.5. Confidential Agreements with Certain Employees........ 18
13.6. Severability.......................................... 18
.
14. FRANCHISOR COVENANT NOT TO COMPETE.................................. 18
15. NEGATIVE COVENANTS OF OPCO.......................................... 18
15.1. Restriction of Indebtedness........................... 18
15.2. Restrictions on Liens................................. 19
15.3. Dividends and Redemptions............................. 19
15.4. Acquisitions and Investments.......................... 19
15.5. Liquidation; Merger; Disposition of Assets............ 19
15.6. Salaries and Other Compensation....................... 19
15.7. Affiliates............................................ 19
15.8. Business Activities................................... 19
15.9. No Bankruptcy......................................... 20
16. TRANSFER AND ASSIGNMENT............................................. 20
16.1. Assignment by Franchisor.............................. 20
16.2. Assignment by OpCo.................................... 20
16.3. Consent Not a Waiver.................................. 20
16.4. Consequences of Permitted Assignment to Crescent...... 20
16.5. Parties Bound and Benefitted.......................... 22
17. RIGHTS OF AGGRIEVED PARTY UPON DEFAULT.............................. 22
17.1. Franchisor's Right to Terminate....................... 22
17.2. OpCo's Right to Terminate............................. 22
17.3. Franchisor's Right to Participate in Involuntary
Bankruptcy Petition................................... 22
17.4. Other Remedies........................................ 22
18. INSURANCE........................................................... 23
18.1. Maintenance of Insurance.............................. 23
18.2. Notices of Claims under Insurance Policies............ 23
18.3. Notices of Other Claims/Events........................ 23
19. INDEMNIFICATION AND INDEPENDENT CONTRACTOR.......................... 23
19.1. Indemnification and Hold Harmless..................... 23
19.2. Independent Contractor................................ 23
20. WRITTEN APPROVALS, WAIVERS AND AMENDMENT............................ 24
20.1. Prior Approvals....................................... 24
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20.2. No Waiver............................................. 24
20.3. Written Amendments.................................... 24
21. ENFORCEMENT......................................................... 24
21.1. Inspections........................................... 24
21.2. No Right to Offset.................................... 24
22. REPRESENTATION OF FRANCHISOR........................................ 25
23. ENTIRE AGREEMENT.................................................... 25
24. NOTICES............................................................. 25
25. GOVERNING LAW AND DISPUTE RESOLUTION................................ 27
25.1. Governing Law......................................... 27
25.2. Arbitration/Litigation................................ 27
26. SEVERABILITY, CONSTRUCTION AND OTHER MATTERS........................ 28
26.1. Severability.......................................... 28
26.2. Regulatory Reports.................................... 28
26.3. Counterparts.......................................... 28
26.4. Table of Contents, Headings and Captions.............. 29
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MASTER FRANCHISE AGREEMENT
THIS MASTER FRANCHISE AGREEMENT is made and entered into this _______
day of _______, 1997 by and between Charter Franchise Services, LLC (hereinafter
referred to as the "Franchisor"), with its principal office at
____________________________________, and Charter Behavioral Health Systems,
LLC, a Delaware limited liability company (hereinafter referred to as "OpCo")
whose principal address is ____________________________________.
W I T N E S S E T H :
In consideration of the mutual covenants hereinafter set forth, the parties
agree as follows:
1. DEFINITIONS
In addition to other words and terms defined elsewhere in this Agreement,
the following words and terms shall have the meanings set forth below:
1.1. "Affiliate" shall mean any person, firm or corporation, which,
directly or indirectly, controls, is controlled by, or is under common control
with, OpCo.
1.2. "Business Day" shall mean any day other than Saturday, Sunday or any
other day on which banking institutions in the States of Texas and Georgia are
authorized by law or executive action to close.
1.3. "Capitalized Lease" shall mean any lease which is capitalized on the
books of the lessee, or should be so capitalized under generally accepted
accounting principles.
1.4. "Charter System" shall have the meaning ascribed to it in the recitals
to the Franchise Agreement.
1.5. "EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization of OpCo on a consolidated basis as shown on OpCo's monthly
financial statements regularly prepared by OpCo.
1.6. "Fair Market Value of the Franchise" shall mean, for the purposes of
determining the Annual Continuing Fee (as hereinafter defined) for each Extended
Term (as hereinafter defined), the amount which is the fair market value of the
rights granted to OpCo under and pursuant to this Agreement and the rights
granted to OpCo and OpCo Franchisees under and pursuant to the OpCo Franchise
Agreements, for a one-year period.
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1.7. "Franchise Agreement" shall mean the Charter Franchise Services, LLC
Franchise Agreement attached as Exhibit 1 hereto.
1.8. "Franchised Business" shall have the meaning ascribed to it in the
recitals to the Franchise Agreement.
1.9. "Hospital/RTC Based Behavioral Healthcare Business" shall have the
meaning ascribed to it in the recitals to the Franchise Agreement.
1.10. "Interest" shall have the meaning ascribed to it in the Operating
Agreement (as defined in Section 1.21).
1.11. "Joint Ventures" shall mean the "Existing Joint Ventures" (as listed
on Exhibit 3 hereto) and all other similar arrangements of OpCo for so long as
OpCo is an equity owner in any Joint Venture or so long as OpCo has a services
agreement with an Existing Joint Venture on the terms contemplated in Section
7.9 of the Contribution Agreement.
1.12. "Licensed Marks" shall have the meaning ascribed to it in the
recitals to the Franchise Agreement.
1.13. "New Products" shall have the meaning ascribed to it in Section 1.3
of the Franchise Agreement.
1.14. "OpCo Franchise Agreements" shall mean each and all of the Franchise
Agreements entered into pursuant to Article 2 of this Agreement.
1.15. "OpCo Franchisees" shall mean as of any particular date all of the
entities designated as Franchise Owners under and pursuant to the OpCo Franchise
Agreements except that OpCo Franchisees as of any particular date shall not
include any entity that is not OpCo or in which OpCo does not have voting
control through stock ownership.
1.16. "OpCo's Business" shall mean and include the business of OpCo and all
OpCo Franchisees on a consolidated basis.
1.17. "Prime Rate" shall mean the prime rate of interest published from
time to time by the Wall Street Journal.
1.18. "Qualified Appraiser" shall mean an appraiser who is not in control
of, controlled by or under common control with either OpCo or Franchisor and has
not been an employee of OpCo or Franchisor or any affiliate with respect to
either of OpCo or Franchisor at any time, who is qualified to appraise the Fair
Market Value of the Franchise, and has been actively engaged in the appraisal of
assets, rights, businesses and, to the extent reasonably practicable to locate
such an appraiser, an appraiser who has been actively engaged in the appraisal
of franchises, for a
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period of not less than five (5) years, immediately preceding his or her
appointment hereunder.
1.19. "Supermajority Vote of the Board" shall mean a vote of not less than
80% of the members of the entire Board of Directors of OpCo.
1.20. "Territory" shall have the meaning ascribed to it in Section 1.1 of
the Franchise Agreement.
1.21. "Transaction Documents" shall mean this Agreement, the OpCo Franchise
Agreements, the Master Lease Agreement dated _______________, 1997 by and
between Crescent Real Estate Equities Limited Partnership ("Crescent"), as
Landlord, and OpCo and each of the Facility Subsidiaries listed on Exhibit C
thereto, as Tenant (the "Facilities Lease"); the Operating Agreement of OpCo
dated __________, 1997 (the "Operating Agreement") by and between Franchisor and
Crescent Opportunity Corp., a Delaware corporation ("Crescent Opportunity"); the
Warrant Purchase Agreement dated __________, 1997 between Franchisor, Crescent
and Crescent Opportunity; the Warrant Purchase Agreement dated ______________,
1997 by and between Crescent Opportunity and Franchisor, the Real Estate
Purchase and Sale Agreement dated __________, 1997 by and between Franchisor and
Crescent; the Contribution Agreement dated __________, 1997 by and between
Franchisor and Crescent Opportunity, the Subordination Agreement dated
___________, 1997 between Franchisor, Crescent and OpCo, and the Bridge Loan
Agreement dated ___________, 1997 by and between OpCo and Franchisor.
2. GRANT AND ACCEPTANCE OF FRANCHISE
2.1. Existing Facilities. Subject to the terms and conditions hereof,
immediately following the execution of this Agreement, Franchisor shall enter
into a franchise agreement for each facility listed on Exhibit 2 hereto with the
subsidiary of OpCo which leases such facility, and OpCo agrees to cause each
subsidiary which operates a facility listed on Exhibit 2 to enter into a
franchise agreement with Franchisor. Each franchise agreement shall be in the
form of the Franchise Agreement, completed with the name of the Franchisee, the
name of the business, the Territory and the fees to be inserted in Section 4.2
thereof; all in accordance with Exhibit 4 hereto.
2.2. New Facilities. In the event that OpCo or a subsidiary of OpCo shall
during the term hereof develop, acquire or lease any additional Hospital/RTC
Based Behavioral Healthcare Business(es), Franchisor agrees to enter into a
franchise agreement with OpCo or with the subsidiary of OpCo developing,
acquiring or leasing each such Hospital/RTC Based Behavioral Healthcare
Business, subject to such Hospital/RTC Based Behavioral Healthcare Business's
meeting, and each facility at which such Hospital/RTC Based Behavioral
Healthcare Business is conducted meeting, Franchisor's reasonable standards and
requirements (which shall be consistent with, and not more onerous than, the
existing standards for OpCo Franchisees) and subject to such Hospital/RTC Based
Behavioral Healthcare Business's not having any of its facilities in the
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Hospital/RTC Based Behavioral Healthcare Business (i) in the Territory of any
other franchisee of Franchisor (subject to the franchisee affected thereby
either, at such franchisee's option, waiving the prohibition or agreeing to
amend such franchisee's franchise agreement to eliminate the conflict) or (ii)
in a geographic area wherein Franchisor is prohibited from granting a franchise
to operate a Hospital/RTC Based Behavioral Healthcare Business pursuant to any
judgment, order or decree or pursuant to any contractual provision existing
prior to the date of such development, acquisition or leasing. Each franchise
agreement entered into pursuant to this Section 2.2 shall be in the form of the
Franchise Agreement, completed with the name of the OpCo Franchisee, the name of
the business, the Territory, as reasonably specified by Franchisor utilizing the
guidelines set forth in Exhibit 5 hereto and the fees inserted in Section 4.2
(such fees to be as reasonably specified by Franchisor); it being understood
that for so long as such franchisee is an OpCo Franchisee, no additional fees
(other than such as result from increases in OpCo Gross Revenues) will be due to
Franchisor from OpCo.
2.3. Condition. Franchisor's obligation to enter into any Franchise
Agreement pursuant to Sections 2.1 and 2.2 hereof shall be subject to
Franchisor's having complied with all federal and state laws, rules and
regulations applicable to the execution and delivery of such Franchise
Agreement. OpCo agrees to cooperate with Franchisor, and Franchisor and OpCo
agree to use commercially reasonable best efforts to comply with all such laws,
rules and regulations.
3. GUARANTY OF FRANCHISEE OBLIGATIONS
3.1. Definition of "Obligations". The term "Obligations", as used in this
Article 3, shall refer to any and all debts, obligations, and liabilities of
each and every of the present and future OpCo Franchisees to Franchisor arising
out of or relating to the OpCo Franchisees' respective Franchise Agreements with
Franchisor, whether such Franchise Agreements and/or such debts, obligations and
liabilities are heretofore, now, or hereafter made, incurred, or created,
whether such debts, obligations and liabilities are voluntary or involuntary,
liquidated or unliquidated, secured or unsecured, and including but not limited
to contingent debts, obligations and liabilities, and including both principal
and interest on such debts, obligations or liabilities, and whether or not any
or all such debts, obligations and liabilities are or become unenforceable
against OpCo Franchisees as a result of the operation of bankruptcy or
insolvency laws.
3.2. Guaranty. OpCo hereby (a) unconditionally guarantees the full and
prompt payment and performance of the Obligations when due, whether by
acceleration or otherwise, (b) agrees to pay all costs, expenses and reasonable
attorneys' fees incurred by Franchisor in enforcing this guaranty and the
Obligations and realizing on any collateral therefor, and (c) agrees to pay to
Franchisor the amount of any payments which were made to Franchisor or another
in full or partial satisfaction of the Obligations and which are recovered from
Franchisor by a trustee, receiver, creditor or other party pursuant to
applicable law. This is a guarantee of payment, and not of collection.
Franchisor shall not be obligated to: (i) take any steps whatsoever to collect
from, or to file any claim of any kind against any OpCo Franchisee, any
guarantor, or any other person or entity liable for payment or performance of
any of the
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Obligations, or (ii) take any steps whatsoever to protect, accept, obtain,
enforce, take possession of, perfect its interest in, foreclose or realize on
collateral or security, if any, for the payment or performance of any of the
Obligations or any guarantee of any of the Obligations, or (iii) in any other
respect exercise any diligence whatever in collecting or attempting to collect
any of the Obligations by any means.
3.3. OpCo's Liability Absolute. OpCo shall have the right to assert any
defenses to enforcement of the Obligations that would be available to OpCo
Franchisees, other than defenses based on bankruptcy or insolvency laws.
However, except for the preceding sentence, OpCo's liability for payment and
performance of the Obligations shall be absolute and unconditional. OpCo
unconditionally and irrevocably waives each and every defense which, under
principles of guarantee or suretyship law, would otherwise operate to impair or
diminish such liability; and nothing whatever except actual full payment and
performance to Franchisor of the Obligations shall operate to discharge OpCo's
liability under this Article 3. Without limiting the generality of the
foregoing, Franchisor shall have the exclusive right, which may be exercised
from time to time without diminishing or impairing the liability of OpCo in any
respect, and without notice of any kind to OpCo, to: (a) in connection with the
relationship between Franchisor and any OpCo Franchisee under a Franchise
Agreement, extend any credit to any OpCo Franchisee, (b) accept any collateral,
security or guarantee for any Obligations or any other credit, (c) determine
how, when and what application of payments, credits and collections, if any,
shall be made on the Obligations and any other credit and accept partial
payments, (d) determine what, if anything, shall at any time be done with
respect to any collateral or security, (e) subordinate, sell, transfer,
surrender, release or otherwise dispose of all or any of such collateral or
security, and purchase or otherwise acquire any such collateral or security at
foreclosure or otherwise, and (f) with or without consideration grant, permit or
enter into any waiver, amendment, extension, modification, refinancing,
indulgence, compromise, settlement, subordination, discharge or release of: (i)
any of the Obligations and any agreement relating to any of the Obligations,
(ii) any obligations of any guarantor or other person or entity liable for
payment or performance of any of the Obligations, and any agreement relating to
such obligations and (iii) any collateral or security or agreement relating to
collateral or security for any of the foregoing, provided that, with respect to
(c) and (d) relating to collateral or security, Franchisor must deal with any
such collateral or security in a commercially reasonable manner.
3.4. Additional Waivers. OpCo hereby unconditionally waives (a)
presentment, notice of dishonor, protest, demand for payment and all notices of
any kind, including without limitation: notice of acceptance hereof, notice of
the creation of any of the Obligations (except as otherwise expressly required
in this Agreement), notice of nonpayment, nonperformance or other default on any
of the Obligations, and notice of any action taken to collect upon or enforce
any of the Obligations against any Franchise Owner (as defined in the preamble
to the Franchise Agreement), (b) any claim for contribution against any
co-guarantor, until the Obligations have been paid or performed in full and such
payments are not subject to any right of recovery, and (c) any setoffs against
Franchisor which would otherwise impair Franchisor's rights against OpCo
hereunder.
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3.5. Parties Benefitted. Subject to Section 16.1 below, the rights of
Franchisor under this Article 3 shall inure to the benefit of Franchisor and its
successors and assigns, including every holder or owner of any of the
Obligations, and shall be binding upon OpCo and OpCo's successors and assigns.
3.6. Continuing Effect. This is a continuing guarantee and shall continue
in effect as to those of the Obligations arising out of or relating to each OpCo
Franchise Agreement until Franchisor shall have received written notice of
termination of that OpCo Franchise Agreement (hereinafter, a "Terminated
Agreement") in accordance with its terms; provided that this guarantee shall
continue in effect thereafter with respect to all Obligations which arise out of
or are related to all OpCo Franchise Agreements of which such notice shall not
have been received, and with respect to all Obligations which were incurred
under a Terminated Agreement prior to Franchisor's receipt of such notice of
termination.
3.7. Scope of Guaranty. Nothing contained in this Article 3 shall cause the
cumulative liability of OpCo and any OpCo Franchisee for any particular
Obligation to exceed the amount of such Obligation; and the payment by OpCo, an
OpCo Franchisee or another person (other than Franchisor) in full or partial
satisfaction of any particular Obligation shall correspondingly reduce the
liability of OpCo and the particular OpCo Franchisee for such Obligation,
subject to subsection 3.2(c) above.
4. TERM
4.1. Initial Term. Unless sooner terminated pursuant to Article 16 hereof,
this Agreement shall extend for an initial term (the "Initial Term") ending on
the day prior to the anniversary date that is twelve (12) years from the date
hereof, provided that if the date hereof is not the first day of a calendar
month, then the Initial Term shall end on the last day of the calendar month in
which occurs the date which would otherwise be the last day of the Initial Term.
4.2. Extended Term. Provided that OpCo shall be in compliance with the
terms and conditions hereof, and this Agreement shall be in full force and
effect, OpCo shall, subject to Section 4.4 below, have the right to extend the
term of this Agreement, for each of four (4) consecutive five (5)-five year
renewal terms (collectively, the "Extended Terms").
Each Extended Term shall commence on the day succeeding the expiration of
the Initial Term or the preceding Extended Term, as the case may be. All of the
terms, covenants and provisions of this Agreement shall apply to each such
Extended Term, except that (x) the Annual Continuing Fee for each Extended Term
shall be the Fair Market Value of the Franchise as determined for such Extended
Term and shall be determined pursuant to Section 4.4 below and (y) OpCo shall
have no right to extend the Term beyond the expiration of the Extended Terms. If
OpCo shall elect to exercise any of the aforesaid options, it shall do so by
giving Franchisor notice thereof not later than one (1) year prior to the
scheduled expiration of the then current term
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of this Agreement (Initial Term or Extended Term, as the case may be), it being
understood and agreed that time shall be of the essence with respect to the
giving of such notice. OpCo may not exercise its option for more than one such
Extended Term at a time. If OpCo shall fail to give any such notice, this
Agreement shall automatically terminate at the end of the term then in effect
and OpCo shall have no further option to extend the term of this Agreement. If
OpCo shall give such notice, the extension of this Agreement shall be
automatically effected without the execution of any additional documents; it
being understood and agreed, however, that OpCo and Franchisor shall execute
such documents and agreements as either party shall reasonably require to
evidence the same. Notwithstanding the provisions of the previous sentence, if,
subsequent to the giving of notice of its election to exercise its right to
extend the term of this agreement OpCo shall cease to be in compliance with the
terms and conditions hereof and such non-compliance shall be continuing, unless
Franchisor shall otherwise consent in writing, the extension of this agreement
shall automatically terminate at the end of the Initial Term or Extended Term
then in effect, and OpCo shall have no further option to extend the term of this
Agreement.
4.3. Determination of Annual Continuing Fee for Extended Terms. The Annual
Continuing Fee for each Extended Term shall be determined by the mutual
agreement of OpCo and Franchisor within thirty (30) days after Franchisor
receives OpCo's notice exercising its option to extend with respect to such
Extended Term, but in no event earlier than twelve (12) months prior to the
commencement of the applicable Extended Term. In the event OpCo and Franchisor
are unable to agree on the Annual Continuing Fee for such Extended Term within
such period, such Annual Continuing Fee shall be determined pursuant to
appraisal in accordance with Section 4.4 below.
4.4. Appraisal. In the event that it becomes necessary to determine the
Fair Market Value of the Franchise and the parties cannot agree thereon, such
Fair Market Value of the Franchise shall be determined upon the written demand
of either party in accordance with the following procedure.
The party requesting an appraisal, by notice given to the other, shall
propose and unilaterally approve a Qualified Appraiser. The other party, by
notice given within fifteen (15) days after receipt of such notice appointing
the first Qualified Appraiser, may appoint a second Qualified Appraiser. If the
other party fails to appoint the second Qualified Appraiser within such fifteen
(15)-day period, such party shall have waived its right to appoint a Qualified
Appraiser, the first Qualified Appraiser shall appoint a second Qualified
Appraiser within fifteen (15) days thereafter, and the Fair Market Value of the
Franchise shall be determined by the Qualified Appraisers as set forth below.
The two Qualified Appraisers shall thereupon endeavor to agree upon the
Fair Market Value of the Franchise. If the two Qualified Appraisers so named
cannot agree upon such value within thirty (30) days after the designation of
the second such appraiser, each such appraiser shall, within five (5) days after
the expiration of such thirty (30)-day period, submit his appraisal of the Fair
Market Value of the Franchise to the other appraiser in writing, and if the fair
market
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values set forth in such appraisals vary by five percent (5%) or less of the
greater value, the Fair Market Value of the Franchise shall be determined by
calculating the average of the two fair market values determined by the two
appraisers.
If the fair market values set forth in the two appraisals vary by more than
five percent (5%) of the greater value, the two Qualified Appraisers shall
select a third Qualified Appraiser within an additional fifteen (15) days
following the expiration of the aforesaid five (5)-day period. If the two
appraisers are unable to agree upon the appointment of a third appraiser within
such fifteen (15)-day period, either party may, upon written notice to the
other, request that such appointment be made by any state court of competent
jurisdiction for the State of Delaware.
In the event that all three of the appraisers cannot agree upon the Fair
Market Value of the Franchise within twenty (20) days following the selection of
the third appraiser, each appraiser shall, within ten (10) days thereafter,
submit his appraisal of the Fair Market Value of the Franchise to the other two
appraisers in writing, and the Fair Market Value of the Franchise shall be
determined by calculating the average of the two numerically closest values (or,
if the values are equidistant, the average of all three values) determined by
the three appraisers.
In the event that any appraiser appointed hereunder does not or is unable
to perform his or her obligation hereunder, then the party or the appraisers
appointing such appraiser shall have the right to propose and approve
unilaterally a substitute Qualified Appraiser, but if the party or the
appraisers who have the right to appoint a substitute Qualified Appraiser fail
to do so within ten (10) days after written notice from the other party (or
either party in the event such appraiser was appointed by the other appraisers),
either party may, upon written notice to the party having the right to appoint a
substitute Qualified Appraiser, request that such appointment be made by such
court of competent jurisdiction as described above; provided, however, that a
party who has the right to appoint an appraiser or a substitute appraiser shall
have the right to make such appointment only up until the time such appointment
is made by such court.
The parties agree that the Annual Continuing Fee for the Initial Term
provided for in Section 5.1 shall not be evidence of the Fair Market Value of
the Franchise for any Extended Term.
In connection with the appraisal process, OpCo shall and shall cause OpCo
Franchisees to provide the appraisers full access during normal business hours
to examine the books, records, files and facilities of OpCo and all OpCo
Franchisees.
The costs of each such appraisal shall be borne equally by the parties.
Upon determining such value, the appraisers shall promptly notify OpCo and
Franchisor in writing of such determination. The determination of the Qualified
Appraisers made in accordance with the foregoing provisions shall be final and
binding upon the parties, such
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determination may be entered as an award in arbitration in a court of competent
jurisdiction, and judgment thereon may be entered.
Notwithstanding anything in this Agreement to the contrary, if the Annual
Continuing Fee for any Extended Term as determined by appraisal pursuant to this
Section 4.4 is not satisfactory to Franchisor in Franchisor's sole discretion,
or if Crescent elects to void OpCo's extension of the Facilities Lease with
respect to such Extended Term pursuant to Article 19 of the Facilities Lease,
then Franchisor shall have the right to render void OpCo's election to extend
the term with respect to such Extended Term upon notice given to OpCo no later
than thirty (30) days following the later of the determination of the Annual
Continuing Fee pursuant to this Section 4.4, or Crescent's election to render
void the extension of the Facilities Lease pursuant to the Facilities Lease, in
which event this Agreement shall expire on the last day of the Initial Term or
the then current Extended Term, as applicable.
4.5. New Annual Continuing Fee. The Fair Market Value of the Franchise, as
agreed by the parties or as determined by the Qualified Appraisers shall be the
Annual Continuing Fee provided for in Section 5.1 below, for the succeeding
Extended Term.
5. ANNUAL CONTINUING FEES
5.1. Annual Continuing Fee. For each "Contract Year" (as hereinafter
defined) during the Initial Term, OpCo shall pay to Franchisor, subject to the
terms of Section 5.4 below, an annual continuing fee (the "Annual Continuing
Fee") in the amount of the greater of:
(a) Eighty-one Million Dollars ($81,000,000) plus an amount calculated
by multiplying Eighty-one Million Dollars ($81,000,000) by the percentage
increase in the Consumer Price Index, United States City Average for All
Urban Consumers for All items (as published by the U.S. Department of
Labor, Bureau of Labor Statistics) (the "CPI") between the end of the
latest period for which said index has been published prior to the date of
this Agreement and the end of the latest period for which said index has
been published prior to the first day of said Contract Year (the "Minimum
Annual Continuing Fee"), except that no adjustment to the Minimum Annual
Continuing Fee shall be made for the second Contract Year (Contract Year
beginning October 1, 1997); it being understood that the adjustment made
for the third Contract Year (Contract Year beginning October 1, 1998) shall
take into consideration the change in the CPI between the end of the latest
period for which said index has been published prior to the date of this
Agreement and the end of the latest period for which said index has been
published prior to the first day of the third Contract Year; or
(b) Eighty-one Million Dollars ($81,000,000) plus (i) 3% of OpCo Gross
Revenues above One Billion Dollars ($1,000,000,000) and up to and including
One Billion, Two Hundred Million Dollars ($1,200,000,000) during said
Contract Year, and
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(ii) 5% of OpCo Gross Revenues above One Billion, Two Hundred Million
Dollars ($1,200,000,000) during said Contract Year.
5.2. Definition of "Contract Year". As used in this Article 5, the term
"Contract Year" shall refer to any period which begins on the date of this
Agreement or any succeeding October 1 and ends on the earlier of the following
September 30 or the effective date of expiration or termination of this
Agreement.
5.3. Monthly Installments. During each Contract Year, OpCo shall make
monthly installments against the Annual Continuing Fee for said Contract Year.
During the first and second Contract Years, each such monthly installment shall
be equal to 1/12th of the Minimum Annual Continuing Fee for said Contract Year.
During each subsequent Contract Year, each such monthly installment shall be
equal to 1/12th of the greater of (a) the Minimum Annual Continuing Fee for said
Contract Year or (b) the Annual Continuing Fee for the preceding Contract Year.
The first monthly installment shall be paid on the date of this Agreement; and
subsequent installments shall be paid on or before the first day of each
subsequent calendar month during the Initial Term and each Extended Term of this
Agreement.
5.4. Annual Continuing Fee for Short Contract Year. If the term of this
Agreement includes any Contract Year of less than 365 days (i.e., because the
date of this Agreement or the effective date of expiration or termination of
this Agreement is in the middle of a Contract Year), the Annual Continuing Fee
for such Contract Year shall be the greater of:
(a) the product of the Minimum Annual Continuing Fee for said Contract
Year times a fraction the numerator of which is the number of days that
this Agreement was in effect during said Contract Year (the "Effective
Days") and the denominator of which is 365, or
(b) the product of the amount calculated pursuant to subsection 5.1(b)
above (provided, however, that for purposes of said calculation the "OpCo
Gross Revenues" for said Contract Year shall be "OpCo Gross Revenues" as
defined in Section 5.8 below for said Contract Year times a fraction the
numerator of which is 365 and the denominator of which is the Effective
Days), times a fraction the numerator of which is the Effective Days and
the denominator of which is 365.
5.5. Credit for Payments by OpCo Franchisees. Amounts paid by OpCo
Franchisees to Franchisor, if any, pursuant to Article 4 of the respective
Franchise Agreements shall reduce dollar for dollar OpCo's obligation pursuant
to Sections 5.1, 5.3 and 5.4 above.
5.6. Payment Following Contract Year End. If the aggregate dollar amount of
payments delivered by OpCo to Franchisor in payment of the Annual Continuing Fee
in respect of any Contract Year pursuant to Section 5.3 above is different than
the Annual Continuing Fee for said
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Contract Year, a payment in the amount of such overpayment or underpayment shall
be made by the appropriate party within seventy-five (75) days after the end of
said Contract Year.
5.7. Taxes. OpCo shall pay to Franchisor the amount of all sales taxes, use
taxes, and similar taxes imposed upon or required to be collected on account of
the Annual Continuing Fee and of goods or services furnished to OpCo and OpCo
Franchisees by Franchisor, whether such goods or services are furnished by sale,
lease or otherwise.
5.8. OpCo Gross Revenues. "OpCo Gross Revenues" shall mean the sum of:
(a) the Gross Revenues (as defined in the Franchise Agreement) of all
OpCo Franchisees.
Plus,
(b) unless otherwise agreed by Franchisor and OpCo pursuant to Article
10 for any Joint Venture or Managed Business (as defined below), the gross
revenues ("Business Gross Revenues") of all the businesses which are the
subject of Joint Ventures (the "Joint Venture Businesses") and the
businesses which are the subject of management agreements and other
agreements and arrangements of OpCo pursuant to which OpCo provides
management, consulting or other services for so long as any such agreements
or arrangements are in effect (the "Managed Businesses"). "Business Gross
Revenues" shall mean the aggregate gross patient charges from each of the
Joint Venture Businesses and each of the Managed Businesses at established
billing rates less provision for contractual adjustments and provision for
denied claims (where collection is not pursued directly from the patient),
determined in accordance with generally accepted accounting principles, and
the gross amount of all other revenues from whatever source derived
(whether in form of cash, credit, agreements to pay, or other
consideration, and whether or not payment is received at the time of the
sale or provisions of services) which arise from or are derived by each of
the Joint Venture Businesses and each of the Managed Businesses, or any
other person affiliated with such business, directly or indirectly from
products or services sold or provided directly or indirectly by each of the
Joint Venture Businesses and each of the Managed Businesses or from the
sale of products or services associated with the use of the Licensed Marks.
Business Gross Revenues shall not include amounts not actually collected
(bad debts) to the extent that such have been included in Business Gross
Revenues reported to Franchisor for prior periods.
Plus,
(c) the gross amounts of all OpCo's revenues from whatever source
derived (whether in the form of cash, credit, agreements to pay, or other
consideration, and whether or not payment is received at the time of the
sale or provision of services), which arise from or are derived by OpCo, or
any person affiliated with OpCo, directly or indirectly from
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products or services sold or provided directly or indirectly by OpCo or
from the sale of services or products associated with the use of the
Licensed Marks, excluding any amounts received by OpCo from any OpCo
Franchisee the Gross Revenues of which are included in OpCo Gross Revenues
pursuant to (a) above, and excluding any amounts received by OpCo from
Joint Venture Businesses and Managed Businesses, the Business Gross
Revenues of which are included in OpCo Gross Revenues pursuant to (b)
above.
5.9. Additional Remedies for Past Due Annual Continuing Fees. In
addition to all other rights and remedies provided for herein and at law or
in equity, subject to the Subordination Agreement in the event that there
are Annual Continuing Fees past due from OpCo to Franchisor, Franchisor
shall have the rights, exercisable upon written notice to OpCo, set forth
in the table below opposite the amount past due:
RIGHTS OF FRANCHISOR/
AMOUNT IN ARREARS PROHIBITED ACTIONS BY OPCO
===================== =========================================================
$ 6,000,000 or more 1. Right to prohibit any incentive compensation to
OpCo management.
2. Right to prohibit any vesting of OpCo
management equity.
$18,000,000 or more 1. Right to prohibit any salary increases for key
personnel of OpCo.
2. Right to prohibit any additional hiring by OpCo.
3. Right to prohibit any new hospital
acquisitions/joint ventures directly or indirectly.
Above $24,000,000 1. Right to require five percent (5%) cutback on
budgeted expenses under the then current
approved OpCo annual budget.
2. Right to require monthly approval of
expenditures of the OpCo Business by
Franchisor, including capital and operating
expenditures.
3. Right to require transfer of control and
management of OpCo and of Franchised
Businesses of OpCo Franchisees to Franchisor.
===================== =========================================================
Rights are cumulative. OpCo agrees that, upon the exercise of any such right by
Franchisor, OpCo will cease taking any prohibited action and will take the
action required by Franchisor and will otherwise cooperate with Franchisor in
carrying out the purpose and intent of this Section.
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5.10. Subordination. Franchisor's right to receive the payments required to
be made by OpCo pursuant to this Article 5 is subject to the Subordination
Agreement.
5.11. Interest. OpCo shall pay to Franchisor interest on any amounts which
are past due at the lower of the maximum rate permitted by law or the Prime
Rate, plus six percent (6%) per annum; provided however that interest shall not
accrue on past due amounts (i) to the extent Franchisor does not receive such
payments as a result of the operation of the Subordination Agreement and (ii) to
the extent OpCo fails to achieve EBITDA sufficient to pay such amounts, subject
to OpCo's having during such period operated in accordance with OpCo's
then-current annual budget approved by OpCo's Board of Directors.
5.12. Negotiation of Fees. Each party hereby acknowledges that: (a) the
Annual Continuing Fee payable pursuant to this Article 5 was established during
the course of extensive, good faith, arms-length negotiations between the
parties, in which each party was represented by counsel and advised by
accountants, which professionals are familiar with the healthcare industry and
franchising, and (b) it is fully satisfied that the Annual Continuing Fee
payable pursuant to this Article 5 represents the present, and (as applicable)
reasonably anticipated during the Initial Term, Fair Market Value of the
Franchise.
6. THE CHARTER SYSTEM
Franchisor hereby grants to OpCo the right and license to utilize the
Charter System in connection with the management and administration of the
businesses franchised by Franchisor pursuant to Article 2 hereof, the management
and administration of the businesses of the Existing Joint Ventures, the
existing Managed Businesses and all New Arrangements pursuant to Article 10. In
connection with the use of the Charter System in connection with the management
and administration of such businesses, OpCo shall conform and comply with all
covenants, rules, regulations, terms, conditions and procedures which are and
may hereafter be reasonably required by Franchisor as applicable to the use by
OpCo Franchisees of the Charter System under and pursuant to the OpCo Franchise
Agreements, as applicable to OpCo's management and administration of such
businesses. Upon expiration or termination of this Agreement OpCo shall conform
and comply with all covenants, rules, regulations, terms, conditions and
procedures which are or may hereafter be applicable to the discontinuance by
OpCo Franchisees of the use of the Charter System under and pursuant to the OpCo
Franchise Agreement (including under Article 13 of the OpCo Franchise
Agreements), as applicable to OpCo's business under and pursuant to the Charter
System and the discontinuance thereof.
7. PREFERRED PROVIDER STATUS
Franchisor shall use commercially reasonable best efforts, subject to
applicable law, to cause OpCo Franchisees to have "preferred provider" status in
connection with Franchisor's managed behavioral healthcare business on a basis
substantially consistent with existing covenants, terms and conditions, unless
the customer directs otherwise.
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8. OPERATION OF CALL CENTER
Franchisor agrees to continue to operate or will provide a toll free "800"
telephone number and related call center (the "800 Call Center"), to provide
substantially the same services to OpCo Franchisees as those provided by the 800
Call Center operating immediately prior to the execution of this Agreement,
subject to such modifications as Franchisor deems advisable from time to time to
comply with applicable law or subject to such restructuring as OpCo and
Franchisor shall agree. Each party agrees to use commercially reasonable best
efforts to negotiate any such restructuring to comply with applicable law. OpCo
shall have the right to and agrees to cause OpCo Franchisees to advertise the
"800" telephone number and otherwise cooperate with Franchisor to use the 800
Call Center as a means of assisting customers to locate the places of business
of franchisees of Franchisor.
9. ENHANCEMENT OF THE CHARTER SYSTEM
Franchisor and OpCo agree to cooperate in the creation, enhancement and
updating of written manuals and materials setting forth the treatment,
financial, legal and other protocols, programs and procedures, quality
standards, quality assessment methods, performance improvement and monitoring
programs and other matters comprising the Charter System. Such manuals and other
materials (together "Charter System Materials") shall be prepared in a manner
suitable for use by Franchisor in franchising others to use the Charter System.
No changes shall be made by OpCo or OpCo Franchisees to the Charter System or
the Charter System Materials without the express written consent of Franchisor,
which consent shall not be unreasonably withheld. All protocols, programs,
procedures, standards and methods, and all Charter System Materials shall be
owned by Franchisor and used by OpCo and OpCo Franchisees only under and
pursuant to this Agreement and the OpCo Franchise Agreements.
10. MANAGEMENT CONTRACTS/JOINT VENTURES/CONSULTING AGREEMENTS
OpCo agrees during the continuance of this Agreement that it will not enter
into any new management agreements, joint ventures or consulting or other
agreements relating to a Hospital/RTC Based Behavioral Healthcare Business ("New
Arrangements") except (i) in the event a Franchise Agreement is entered into by
Franchisor with respect to such business, or (ii) with the written consent of
Franchisor in each instance, and in each instance in which Franchisor shall have
provided such written consent, Franchisor and OpCo, prior thereto, shall have
agreed (i) to the payment to Franchisor, in addition to all other amounts
payable pursuant to this Agreement, of a percentage of OpCo's gross receipts
from such New Arrangement agreeable to OpCo and Franchisor or (ii) to the
inclusion in OpCo Gross Revenues of the Business Gross Revenues of any such
Joint Venture or Managed Business.
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11. ADVERTISING AND MARKETING
11.1. Annual Expenditures. OpCo agrees that, in each year during the
continuance of this Agreement, OpCo and OpCo Franchisees will expend such amount
on advertising and marketing the Charter System and the OpCo Franchisees'
businesses as is at least equal to the amount budgeted by OpCo in good faith
pursuant to its then-current annual budget for such expenditures. If Franchisor
determines that the amount so budgeted by OpCo in its approved annual budget for
any year is significantly higher or lower than advisable, OpCo will establish a
budget for such expenditures by Supermajority Vote of the Board. OpCo shall from
time to time at the request of Franchisor upon reasonable prior notice provide
to Franchisor reports of OpCo of such expenditures.
11.2. Approval of Advertising. All advertising by OpCo and OpCo Franchisees
shall be in such media, and of such type and format as Franchisor may reasonably
approve; shall be conducted in a dignified manner and shall conform to such
standards and requirements as Franchisor may reasonably specify. Advertising
approved by Franchisor as meeting the requirements of the preceding sentence
shall continue to be deemed approved unless and until Franchisor shall notify
OpCo otherwise. OpCo and OpCo Franchisees shall not use any advertising or
promotional plans or materials not prepared by Franchisor unless and until OpCo
and OpCo Franchisees have received written approval from Franchisor following
the submission of samples thereof to Franchisor. If written approval is not
received by OpCo and OpCo Franchisees from Franchisor or its designee within
fifteen (15) days of the date of receipt by Franchisor of such samples,
Franchisor shall be deemed to have disapproved such samples.
12. STATEMENTS, RECORDS AND FEE PAYMENTS
12.1. Maintenance of Records; Audit Rights. OpCo shall, in a manner
reasonably satisfactory to Franchisor, maintain original, full and complete
records, accounts, books, data, licenses, contracts and invoices which shall
accurately reflect all particulars relating to OpCo's Business and such
statistical and other information or records as Franchisor may require and shall
keep all such information for not less than three (3) years, even if this
Agreement is no longer in effect. OpCo shall compile and provide to Franchisor
any statistical or financial information regarding the operation of OpCo's
Business, the services and products sold by it, or data of a similar nature as
Franchisor may reasonably request. Franchisor and its designated agents shall
have the right to examine and audit such records, accounts, books and data at
all reasonable times to insure that OpCo is complying with the terms of this
Agreement. In connection with any such examination or audit, Franchisor shall
not be entitled to any adjustment to the extent that OpCo Gross Revenues have
been computed in accordance with Section 5.8 and in accordance with generally
accepted accounting principles consistently applied. If such inspection
discloses, and it is ultimately determined, that the OpCo Gross Revenues during
any scheduled reporting period actually exceeded the amount reported by OpCo as
OpCo Gross Revenues by an amount equal to two percent (2%) or more of the OpCo
Gross Revenues originally reported to Franchisor, OpCo shall bear the cost of
such inspection and audit (not including any premium or contingent fee
arrangement) and shall pay any such deficiency with interest from the date due,
until paid, at the lesser of the highest rate
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permitted by applicable law or the Prime Rate, plus six percent (6%) per annum,
immediately upon the request of Franchisor.
12.2. Tax Reports. Upon Franchisor's request, OpCo shall furnish Franchisor
with a copy of each of OpCo's and OpCo Franchisee's reports and returns of
sales, use and gross receipt taxes and complete copies of any state or federal
income tax returns covering the operation of the OpCo Business.
12.3. Reports. Upon Franchisor's request, OpCo shall furnish Franchisor
with a copy of each of OpCo's and all OpCo Franchisees' reports required under
applicable federal and state laws, rules and regulations, including but not
limited to such reports required under "Medicare" and "Medicaid" laws, rules and
regulations.
12.4. Unaudited Periodic Statements. OpCo shall prepare and deliver to
Franchisor on a quarterly basis, no later than twenty-five (25) days following
the close of each fiscal quarter of OpCo, an unaudited profit and loss statement
in a form reasonably satisfactory to Franchisor covering OpCo's Business for the
prior fiscal quarter and fiscal year to date and showing OpCo Gross Revenues for
the prior fiscal quarter and fiscal year to date, all of which shall be
certified by OpCo to present fairly in all material respects such matters. OpCo
shall also submit to Franchisor no later than twenty-five (25) days following
the close of each fiscal quarter of OpCo during the term of this Agreement, an
unaudited balance sheet reflecting the financial position of the OpCo's Business
as of the preceding fiscal quarter end.
12.5. Audited Annual Statement. In addition to the foregoing unaudited
statements, within 75 days after the close of each fiscal year of OpCo, OpCo
shall furnish to Franchisor, at OpCo's expense, an audited statement of income
and retained earnings of OpCo's Business for such fiscal year and an audited
balance sheet of OpCo's Business as of the end of such fiscal year, all prepared
in accordance with generally accepted accounting principles and certified to by
a certified public accountant. Such financial statements shall be accompanied by
a certificate of such certified public accountant certifying OpCo Gross Revenues
for the prior year.
13. ADDITIONAL COVENANTS OF OPCO
13.1. Covenant During Term. During the Term of this Agreement, OpCo
covenants not to engage directly or indirectly as an owner, operator, in any
managerial capacity, or otherwise in any business (i) other than as a franchisee
of the Charter System pursuant to a Franchise Agreement; (ii) other than
pursuant to an agreement with Franchisor with regard to one or more New
Products; (iii) other than pursuant to New Arrangements; (iv) other than OpCo's
business of the management and administration of the businesses franchised by
Franchisor pursuant to Article 2 hereof or pursuant to the Joint Ventures, or
businesses conducted by OpCo Franchisees with regard to one or more New
Products.
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13.2. Covenant Not to Compete Post-Term. Following the termination or
expiration of this Agreement and for a period expiring on the earlier of three
(3) years following the expiration or termination of this Agreement or the
thirty-second anniversary of the date of this Agreement, OpCo covenants not
directly or indirectly to engage as an owner, operator, or in any managerial
capacity (i) in any Hospital/RTC Based Behavioral Healthcare Business, or (ii)
in any business with respect to a New Product, other than pursuant to a written
agreement with Franchisor; provided, however, that OpCo shall not be prohibited
hereby from owning equity securities of any such businesses whose shares are
traded on a stock exchange or on the over-the-counter market so long as the
ownership interest represents five percent (5%) or less of the total number of
outstanding shares of such business. The geographic area of the restrictions
provided for in this Section 13.2 shall be limited to (i) the Territories of the
OpCo Franchisees at the date of the termination or expiration of this Agreement
and during the two years prior thereto, which Territories shall, from time to
time, be included in Exhibit 3 hereto; (ii) the geographic areas within a ten
(10) mile radius of any Joint Venture Business and Managed Business in existence
at the date of the expiration or termination of this Agreement, which shall from
time to time be included as a part of Exhibit 3 hereto, and (iii) and the
geographic areas within a ten (10) mile radius of any place of business of OpCo
at the date of the expiration or termination of this Agreement.
13.3. Acknowledgment of Reasonableness. The parties hereto acknowledge that
the provisions of Sections 13.1 and 13.2 have been negotiated fully and fairly
by the parties, each being represented and advised by counsel. OpCo acknowledges
that it is willingly and freely agreeing to the provisions of Section 13.1 and
13.2 as reasonable and necessary under the circumstances. One of the
acknowledged reasonable business purposes of Franchisor is to protect
Franchisor's goodwill and proprietary rights. OpCo further acknowledges that
Franchisor would not enter into this Agreement without the covenants of Sections
13.1 and 13.2 and that it is fair and reasonable to OpCo that OpCo be subject to
such covenants.
13.4. Confidential Information. During the Term of this Agreement and
following the expiration or termination of the Agreement, OpCo covenants not to
communicate directly or indirectly, nor to divulge to or use for its benefit or
the benefit of any other person or legal entity, any trade secrets which are
proprietary to Franchisor or any information, knowledge or know-how deemed
confidential by Franchisor pursuant to Section 10.4 of the Franchise Agreement,
except as permitted by Franchisor. Notwithstanding the foregoing, this
obligation shall not apply to information: (a) which at the time of disclosure
is readily available to the trade or public; (b) which after disclosure becomes
readily available to the trade or public, other than through breach of this
Agreement; (c) which is subsequently lawfully and in good faith obtained by such
party from an independent third party without breach of this Agreement; (d)
which was in possession of such party prior to the date of disclosure; or (e)
which is disclosed to others in accordance with the terms of a prior written
authorization between the parties to this Agreement. In the event of any
termination, expiration or non-renewal of this Agreement, OpCo agrees that it
will never use Franchisor's confidential information, trade secrets, methods of
operation or any proprietary components of the Charter System in the design,
development or operation of any behavioral healthcare business, including,
without limitation, any Hospital/RTC Based Behavioral Healthcare Business. The
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protection granted hereunder shall be in addition to and not in lieu of all
other protections for such trade secrets and confidential information as may
otherwise be afforded in law or in equity.
13.5. Confidential Agreements with Certain Employees. Consistent with
Franchisor's existing policies with respect to employee non-disclosure
agreements, OpCo agrees to maintain and cause new employees of OpCo to execute
employee non-disclosure agreements, in the form employed by Franchisor as of the
date hereof (or such other form as reasonably requested by Franchisor), which
shall prohibit disclosure by such parties to any other person or legal entity of
any trade secrets or any other information, knowledge or know-how deemed
confidential by Franchisor concerning the operation of the Charter System.
Franchisor shall be a third party beneficiary of such agreements and OpCo shall
not amend, modify or terminate any such agreement without Franchisor's prior
written consent.
13.6. Severability. The parties agree that each of the foregoing covenants
shall be construed as independent of any other covenant or provision of this
Agreement. Should any part of one or more of these restrictions be found to be
unenforceable by virtue of its scope in terms of area, business activity
prohibited or length of time, and should such part be capable of being made
enforceable by reduction of any or all thereof, OpCo and Franchisor agree that
the same shall be enforced to the fullest extent permissible under the law. In
addition, Franchisor may, unilaterally, at any time, in its sole discretion,
revise any of the covenants in this Section 13 so as to reduce the obligations
of OpCo hereunder. The running of any period of time specified in this Section
13 shall be tolled and suspended for any period of time in which OpCo is found
by a court of competent jurisdiction to have been in violation of any
restrictive covenant. OpCo further expressly agrees that the existence of any
claim it may have against Franchisor whether or not arising from this Agreement,
shall not constitute a defense to the enforcement by Franchisor of the covenants
in this Article 13.
14. FRANCHISOR COVENANT NOT TO COMPETE
Franchisor agrees that OpCo shall be a third-party beneficiary of the
covenants set forth in Section 1 of each of the OpCo Franchise Agreements as and
to the extent such restrict Franchisor from engaging in certain businesses and
as such shall have full rights to enforce such covenants.
15. NEGATIVE COVENANTS OF OPCO
In the event that pursuant to Section 15 of the Operating Agreement
Franchisor sells its entire Interest in OpCo, from and after the close of the
sale of Franchisor's entire Interest (a "Buy/Sell Event"), OpCo shall not do any
of the following, without the prior written consent of Franchisor:
15.1. Restriction of Indebtedness. Create, incur or assume any indebtedness
for borrowed money or the deferred purchase price of any asset (including
obligations under Capitalized Leases), except indebtedness subordinated to all
debts, obligations and liabilities of OpCo to Franchisor pursuant to a
subordination agreement on terms and conditions acceptable to Franchisor;
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15.2. Restrictions on Liens. Create or permit to be created any mortgage,
pledge, encumbrance or other lien or security interest in any property or
assets, except for any such that individually or in the aggregate are immaterial
to OpCo.
15.3. Dividends and Redemptions. Make any distribution on account of any
Interest, or redeem, purchase or otherwise acquire directly or indirectly, any
Interest, except that OpCo shall have the right to make cash distributions so
long as no default has occurred and is continuing in the payment of any amount
due from OpCo to Franchisor pursuant to this Agreement and so long as, after
giving effect to the payment of the distribution sufficient working capital is
available for the payment of Annual Continuing Fees as provided in Article 5
hereof and budgeted operating expenses for the three full calendar months
following the date of payment of such distribution.
15.4. Acquisitions and Investments. Acquire any material assets or any
other business or make any material loan, advance or extension of credit to, or
investment in, any other person, corporation or other entity, including
investments acquired in exchange for stock or other securities or obligations of
any nature (other than to subsidiaries or in connection with cash management
functions in the ordinary course of business), or create or participate in the
creation of any subsidiary or joint venture.
15.5. Liquidation; Merger; Disposition of Assets. Liquidate or dissolve; or
merger with or into or consolidate with or into any corporation or other entity;
or sell, lease, transfer or otherwise dispose of all or any substantial part of
its property, assets or business (other than sales made in the ordinary course
of business).
15.6. Salaries and Other Compensation. Modify salaries, bonuses,
profit-sharing payments or any other compensation from that set forth in the
Annual Budget in effect at the time of the Buy/Sell Event to any officers,
directors, and other employees receiving in excess of $150,000 in annual
compensation and benefits (including without limitation, severance payments).
15.7. Affiliates. Amend the Facilities Lease to increase the amount or
accelerate the payment of the Rent (as defined in the Facilities Lease) or any
installment thereof or engage in any material transaction with (i) any
Affiliate, (ii) Crescent or (iii) an Affiliate of Crescent, other than pursuant
to contracts or ongoing arrangements existing at the time of the Buy/Sell Event,
including amending in any material respect any such contracts or other ongoing
arrangements existing at the time of such Buy/Sell Event.
15.8. Business Activities. Fail to carry on its business activities in
substantially the manner such activities are conducted on the date of the close
of the sale of Franchisor's Interest or make any material change in the nature
of its business or enter into any material contract that is not in the ordinary
course of OpCo's business.
15.9. No Bankruptcy. (i) Dissolve or liquidate, in whole or in part, or
institute proceedings to be adjudicated bankrupt or insolvent, (ii) consent to
the institution of bankruptcy or insolvency proceedings against it, (iii) file a
petition seeking or consent to reorganization or relief under any
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applicable federal or state law relating to bankruptcy, (iv) consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of OpCo or a substantial part of its property, (v) make a
general assignment for the benefit of creditors, (vi) admit in writing its
inability to pay its debts generally as they become due, or (vii) take any
corporate or other action to authorize any of the actions set forth in clauses
(i) through (vi) of this paragraph.
16. TRANSFER AND ASSIGNMENT
16.1. Assignment by Franchisor. This Agreement and all rights and duties
hereunder may not be assigned or transferred by Franchisor except (i) with the
prior written consent of OpCo and Crescent, in its capacity as lessor under the
Facilities Lease, which consent shall not be unreasonably withheld, conditioned
or delayed, or (ii) to an entity which simultaneously therewith acquires all or
substantially all of Franchisor's business and assets. Franchisor may grant a
security interest in Franchisor's rights and interest in (but not its
obligations under) this Agreement to any of Franchisor's lenders by means of an
assignment for collateral purposes.
16.2. Assignment by OpCo. This Agreement and all rights and duties
hereunder may not be assigned or transferred by OpCo except (i) with the written
consent of Franchisor, which consent shall not be unreasonably withheld,
conditioned or delayed, (ii) to an entity which simultaneously therewith
acquires all or substantially all of OpCo's business and assets, provided in
each case that such transferee/assignee also acquires or assumes OpCo's rights
and obligations under the Facilities Lease, or (iii) if the Facilities Lease is
terminated prior to the end of the Initial Term or any Extended Term as a result
of an Event of Default under the Facilities Lease, and if Crescent exercises its
election under the Facilities Lease to assume all (and not less than all) of the
obligations of OpCo under this Agreement and all other agreements specified in
the Facilities Lease from the date of such assumption, to Crescent or its
designee.
16.3. Consent Not a Waiver. Franchisor's consent to an assignment by OpCo
granted herein shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
16.4. Consequences of Permitted Assignment to Crescent. Following
assignment of this Agreement to Crescent pursuant to subsection 16.2(iii) above,
anything to the contrary in Section 17.1 and Section 17.3 below notwithstanding,
Franchisor may (i) terminate this Agreement and all of said assignee's rights
hereunder for "good cause", which shall mean the occurrence of any default
described in (a) through (f) below, effective immediately upon the date
Franchisor gives written notice of termination, upon such other date as may be
set forth in such notice of termination, or in those instances enumerated below
in paragraph (a), automatically upon the occurrence of an event of default. The
occurrence of any one or more of the following events shall constitute an event
of default and grounds for termination of this Agreement by Franchisor:
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(a) Automatically, without notice or action required by Franchisor, if
said assignee becomes insolvent or makes a general assignment for the
benefit of creditors, or, unless otherwise prohibited by law, if a petition
in bankruptcy is filed by said assignee, or such a petition is filed
against and consented to by said assignee or not dismissed within thirty
(30) days, or if a bill in equity or other proceeding for the appointment
of a receiver of said assignee or other custodian for said assignee's
business or assets is filed and consented to by said assignee, or if a
receiver or other custodian (permanent or temporary) of said assignee's
assets or property, or any part thereof, is appointed;
(b) If there is any violation of any transfer and assignment provision
contained in this Article 16 of this Agreement;
(c) If said assignee fails, for a period of fifteen (15) days after
notification of non-compliance by appropriate authority to comply with any
law, rule or regulation applicable to the operation of its business;
provided, however, that if such non-compliance is susceptible to cure but
such cure cannot be accomplished with due diligence within such period of
time, and if, in addition, said assignee commences to cure such
non-compliance within fifteen (15) days after notification of
non-compliance and thereafter prosecutes the curing of such non-compliance
with due diligence, such period of time shall be extended to such period of
time (not to exceed an additional ninety (90) days in the aggregate) as may
be necessary to cure such non-compliance with due diligence and further
provided, that Franchisor may not terminate this Agreement pursuant to this
Section 16.4(c) if such non-compliance is the non-compliance of one or more
Franchised Businesses (and not of OpCo) and Franchisor may as a result
terminate the corresponding Franchise Agreement or Franchise Agreements;
(d) If said assignee, other than in an immaterial respect, violates
any covenant of confidentiality or non-disclosure contained in Section 13.4
or Section 13.5 of this Agreement;
(e) If said assignee fails to perform or breaches any covenant,
obligation, term, condition, warranty or certification herein (other than
those related to the payment of amounts due Franchisor, which are the
subject of [F] below) and fails to cure such non-compliance or deficiency
within thirty (30) days after Franchisor's written notice thereof;
provided, however, that if such non-compliance or deficiency is susceptible
to cure but such cure cannot be accomplished with due diligence within such
period of time, and if, in addition, said assignee commences to cure such
non-compliance or deficiency within thirty (30) days after notification of
non-compliance or deficiency and thereafter prosecutes the curing of such
non-compliance or deficiency with due diligence, such period of time shall
be extended to such period of time (not to exceed an additional one hundred
eighty (180) days in the aggregate) as may be necessary to cure such
non-compliance or deficiency with due diligence;
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(f) If said assignee fails to pay the Annual Continuing Fee owed to
Franchisor under this Agreement when due or within ten (10) days
thereafter, or fails to pay any other amounts owed to Franchisor under this
Agreement within ten (10) days after notice from Franchisor of such
obligation,
or (ii) participate in the filing of an involuntary petition for the entry of an
"order for relief" with respect to said assignee pursuant to Section 303 of the
U.S. Bankruptcy Code, anything to the contrary in Section 17.3 below
notwithstanding.
16.5. Parties Bound and Benefitted. This Agreement shall be binding on the
parties and their respective successors and assigns. This Agreement shall inure
to the benefit of the parties and their respective permitted successors and
assigns.
17. RIGHTS OF AGGRIEVED PARTY UPON DEFAULT
17.1. Franchisor's Right to Terminate. Except as otherwise provided in
Section 16.4 above, Franchisor may not terminate this Agreement prior to the
expiration of its term (whether because of OpCo's breach, material or otherwise)
except with the prior written consent of (i) OpCo, which consent shall be
evidenced by a Supermajority Vote of the Board of OpCo, and (ii) the prior
written consent of Crescent, in its capacity as lessor under the Facilities
Lease. The provisions of this Section 17.1 shall not in any way be deemed to
limit or restrict Franchisor's right to terminate any franchise agreement or
other agreement in accordance with its terms.
17.2. OpCo's Right to Terminate. OpCo may not terminate this Agreement
prior to the expiration of its term (whether because of Franchisor's breach,
material or otherwise) except with the prior written consent of Franchisor and
Crescent, in its capacity as lessor under the Facilities Lease. Any decision by
OpCo to terminate this Agreement shall be evidenced by a Supermajority Vote of
the Board.
17.3. Franchisor's Right to Participate in Involuntary Bankruptcy Petition.
Except as otherwise provided in Section 16.4 above, Franchisor shall not
participate in the filing of an involuntary petition for the entry of an "order
for relief" with respect to OpCo pursuant to Section 303 of the U.S. Bankruptcy
Code.
17.4. Other Remedies. Except as otherwise provided in this Article 17 or in
the Subordination Agreement, nothing in this Agreement shall abridge the
remedies available to Franchisor as a result of the breach by OpCo of the terms
of this Agreement, including, but not limited to, seeking any remedy at law or
in equity, including seeking and obtaining judgments and enforcing such
judgments.
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18. INSURANCE
18.1. Maintenance of Insurance. Throughout the term of this Agreement, OpCo
shall maintain in effect at all times a policy or policies of insurance,
designating Franchisor as an additional insured at OpCo's sole cost and expense,
as set forth on Exhibit 6.
18.2. Notices of Claims under Insurance Policies. OpCo shall promptly
notify Franchisor of any and all claims against OpCo, any OpCo Franchisee and/or
Franchisor under said policies of insurance and shall deliver to Franchisor
certificates evidencing that the insurance required by Section 17.1 is in full
force and effect within thirty (30) days after signing this Agreement and each
year thereafter. Such insurance certificates shall contain a statement that the
insurance shall not be cancelled without thirty (30) days' prior written notice
to OpCo and to Franchisor.
18.3. Notices of Other Claims/Events. OpCo shall promptly notify Franchisor
of any and all demands, claims, suits, actions, causes of action, proceedings
and assessments (together "Claims") brought, made or threatened in writing
against OpCo and/or any OpCo Franchisee, and of the occurrence of any events
which might result in such a Claim, in each case within five (5) business days
after OpCo becomes aware thereof, and will provide to Franchisor information
concerning such Claims or events as Franchisor may from time to time reasonably
request.
19. INDEMNIFICATION AND INDEPENDENT CONTRACTOR
19.1. Indemnification and Hold Harmless. OpCo agrees to protect, defend,
indemnify, and hold Franchisor, and its respective directors, officers, agents,
attorneys and shareholders, jointly and severally, harmless from and against all
claims, actions, proceedings, damages, costs, expenses and other losses and
liabilities, directly or indirectly incurred (including without limitation
reasonable attorneys' and accountants' fees) as a result of, arising out of, or
connected with the operation of OpCo's Business, except those directly resulting
from Franchisor's willful misconduct or fraud. Franchisor agrees to protect,
defend, indemnify and hold OpCo, and its respective directors, officers, agents,
attorneys and shareholders, jointly and severally, harmless from and against all
claims, actions, proceedings, damages, costs, expenses and other losses and
liabilities, directly or indirectly arising out of or connected with the
operation of the OpCo's Business arising directly from Franchisor's willful
misconduct or fraud.
19.2. Independent Contractor. In all dealings with third parties including,
without limitation, employees, suppliers and patients, OpCo shall disclose in an
appropriate manner reasonably acceptable to Franchisor that it is an independent
entity. Nothing in this Agreement is intended by the parties hereto to create a
fiduciary relationship between them nor to constitute OpCo an agent, legal
representative, subsidiary, joint venturer, partner, employee or servant of
Franchisor for any purpose whatsoever. It is understood and agreed that OpCo is
an independent contractor and is in no way authorized to make any contract,
warranty or representation or to create any obligation on behalf of Franchisor.
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20. WRITTEN APPROVALS, WAIVERS AND AMENDMENT
20.1. Prior Approvals. Whenever this Agreement requires Franchisor's prior
approval, OpCo shall make a timely written request. Unless a different time
period is specified in this Agreement, Franchisor shall respond with its
approval or disapproval within fifteen (15) days of receipt of such request. If
Franchisor has not specifically approved a request within such fifteen (15) day
period, such failure to respond shall be deemed disapproval of any such request.
20.2. No Waiver. No failure of Franchisor to exercise any power reserved to
it by this Agreement and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Franchisor's right to demand exact
compliance with any of the terms herein. No waiver or approval by Franchisor of
any particular breach or default by OpCo, nor any delay, forbearance or omission
by Franchisor to act or give notice of default or to exercise any power or right
arising by reason of such default hereunder, nor acceptance by Franchisor of any
payments due hereunder shall be considered a waiver or approval by Franchisor of
any preceding or subsequent breach or default by OpCo of any term, covenant or
condition of this Agreement.
20.3. Written Amendments. Except as otherwise specifically provided in this
Agreement, no amendment, change or variance from this Agreement shall be binding
upon either Franchisor or OpCo except by mutual written agreement or in
accordance with Section 3.10 of the Subordination Agreement.
21. ENFORCEMENT
21.1. Inspections. In order to ensure compliance with this Agreement and to
enable Franchisor to carry out its obligation under this Agreement, OpCo agrees
that Franchisor and its designated agents shall be permitted, with or without
notice, full and complete access during business hours to inspect all premises
at which OpCo's Business is conducted and all records thereof, including, but
not limited to, records relating to OpCo's and OpCo's Franchisees' patients,
suppliers, employees and agents. OpCo shall cooperate fully with Franchisor and
its designated agents requesting such access.
21.2. No Right to Offset. OpCo will not, for any reason, withhold payment
of any monthly payment, fee or any other fees or payments due to the Franchisor
under this Agreement or pursuant to any other contract, agreement or obligation
to the Franchisor. OpCo shall not have the right to "offset" any liquidated or
unliquidated amounts, damages or other funds allegedly due to OpCo from the
Franchisor against any monthly payment, fee or any other fees or payments due to
the Franchisor under this Agreement or otherwise.
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22. REPRESENTATION OF FRANCHISOR
Franchisor has delivered to OpCo a draft dated __________________ ("Proxy
Statement") of its proxy statement to shareholders for its Annual Meeting of
Shareholders at which, among other matters, shareholders of Franchisor will
consider and vote on the transactions which are the subject of the Transaction
Documents. Except as described in the Proxy Statement, or in documents filed
with the Securities Exchange Commission pursuant to applicable law, Franchisor
is not aware of any material risk that Franchisor is, in the conduct of the
Business (as defined in the Contribution Agreement) prior to the closing of the
transaction contemplated by the Transaction Documents, or that OpCo will be, in
the conduct of the Business after the closing of the transaction contemplated by
the Transaction Documents, in violation of applicable federal law specifically
designed to regulate the healthcare industry, which violation will have a
material adverse effect on Franchisor or OpCo. [Franchisor will, without the
requirement that it waive any privilege, provide Crescent and OpCo with access
to its counsel Sanford Teplitzky to discuss issues relating to Franchisor's
business and the performance by the parties of the Transaction Documents under
applicable federal law specifically designed to regulate the healthcare
industry.]
23. ENTIRE AGREEMENT
This Agreement and the Transaction Documents contain the entire
agreement of the parties. No other agreements, written or oral, shall be deemed
to exist, and all prior agreements and understandings are superseded hereby.
There are no conditions to this agreement which are not expressed herein or in
the Transaction Documents.
24. NOTICES
Any and all notices, demands, consents, approvals, offers, elections and
other communications required or permitted under this Agreement shall be deemed
adequately given if in writing and the same shall be delivered either in hand,
by telecopier with written acknowledgement of receipt, or by mail or Federal
Express or similar expedited commercial carrier, addressed to the recipient of
the notice, postpaid and registered or certified with return receipt requested
(if by mail), or with all freight charges prepaid (if by Federal Express or
similar carrier).
All notices required or permitted to be sent hereunder shall be deemed to
have been given for all purposes of this Agreement upon the date of acknowledged
receipt, in the case of a notice by telecopier, and, in all other cases, upon
the date of receipt or refusal, except that whenever under this agreement a
notice is either received on a day which is not a Business Day or is required to
be delivered on or before a specific day which is not a Business Day, the day of
receipt or required delivery shall automatically be extended to the next
Business Day.
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All such notices shall be addressed:
If to OpCo, to:
______________________________________
______________________________________
Facsimile: ___________________________
with copies to:
David M. Dean
Senior Vice President, Law
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
and
Wendelin A. White
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
Facsimile: (202) 663-8007
If to Franchisor, to:
Steve J. Davis
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
with copies to:
Robert W. Miller
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
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Facsimile: (404) 572-5100
and
Benn S. DiPasquale
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Facsimile: (414) 297-4998
By notice given as herein provided, the parties hereto and their respective
successor and assigns shall have the right from time to time and at any time
during the term of this Agreement to change their respective addresses effective
upon receipt by the other parties of such notice and each shall have the right
to specify as its address any other address within the United States of America.
25. GOVERNING LAW AND DISPUTE RESOLUTION
25.1. Governing Law. This Agreement shall be interpreted, construed,
applied and enforced in accordance with the laws of the State of Delaware
applicable to contacts among residents of Delaware which are to be performed
entirely within Delaware, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required to be made;
or (iii) where any breach of any provision of this Agreement occurs, or any
cause of action otherwise accrues; or (iv) where any action or other proceeding
is instituted or pending; or (v) the nationality, citizenship, domicile,
principal place of business or jurisdiction of organization or domestication of
any party; or (vi) whether the laws of the forum jurisdiction otherwise would
apply the laws of a jurisdiction other than the State of Delaware; or (vii) any
combination of the foregoing.
Subject to Section 25.2 below, to the maximum extent permitted by
applicable law, any action to enforce, arising out of, or relating in any way
to, any of the provisions of this Agreement may be brought and prosecuted in
such court or courts located in the State of Delaware as is provided by law; and
the parties consent to the jurisdiction of said court or courts located in the
State of Delaware and to service of process by registered mail, return receipt
requested, or by any other manner provided by law.
25.2. Arbitration/Litigation.
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any contract or agreement entered into pursuant hereto or
the performance by the parties of its or their terms shall be settled by
binding arbitration held in Wilmington, Delaware, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then
in effect. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having in personam and subject matter jurisdiction.
The parties hereby submit to the
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in personam jurisdiction of the federal and state courts in Delaware, for
the purpose of confirming any such award and entering judgment thereon.
(b) Notwithstanding the foregoing, Franchisor may, in its discretion,
apply to a court of competent jurisdiction for equitable relief from any
violation or threatened violation of the covenants of OpCo in this
Agreement. OpCo acknowledges that its violation or threatened violation of
the provisions of Article 13 would cause Franchisor irreparable injury and,
in addition to any other remedies to which Franchisor may be entitled, that
Franchisor shall be entitled to injunctive relief.
26. SEVERABILITY, CONSTRUCTION AND OTHER MATTERS
26.1. Severability. Should any provision of this Agreement be for any
reason held invalid, illegal or unenforceable by a court of competent
jurisdiction, such provision shall be deemed restricted in application to the
extent required to render it valid; and the remainder of this Agreement shall in
no way be affected and shall remain valid and enforceable for all purposes. In
the event that any provision of this Agreement should be for any reason held
invalid, illegal or unenforceable by a court of competent jurisdiction, or in
the event the performance or compliance by any party with any provision of this
Agreement shall result in such party being in violation of any law, rule or
regulation of any governmental authority, then in any of such events the parties
agree to use commercially reasonable best efforts to amend in a manner
reasonably consistent with each parties' economic interests the obligations of
the parties under and pursuant to the Agreement so as to cause the parties
obligations hereunder to be enforceable and not in violation of any law, rule or
regulation of any governmental authority. In the event such total or partial
invalidity or unenforceability of any provision of this Agreement exists only
with respect to the laws of a particular jurisdiction, this paragraph shall
operate upon such provision only to the extent that the laws of such
jurisdiction are applicable to such provision. Each party agrees to execute and
deliver to the other any further documents which may be reasonably required to
effectuate fully the provisions hereof. OpCo understands and acknowledges that
Franchisor shall have the right, in its sole discretion, on a temporary or
permanent basis, to reduce the scope of any covenant or provision of this
Agreement binding upon OpCo, or any portion hereof, without OpCo's consent,
effective immediately upon receipt by OpCo of written notice thereof, and OpCo
agrees that it will comply forthwith with any covenant as so modified, which
shall be fully enforceable.
26.2. Regulatory Reports. Each party agrees to reasonably cooperate with
the other in providing on a timely basis all documents and information in its
possession or reasonably available to it, reasonably required by the other for
reports or filings required by any governmental or other regulatory authority.
26.3. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but such counterparts together shall constitute one and the same
instrument.
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26.4. Table of Contents, Headings and Captions. The table of contents,
headings and captions contained herein are for the purposes of convenience and
reference only and are not to be construed as a part of this Agreement. All
terms and words used herein shall be construed to include the number and gender
as the context of this Agreement may require. The parties agree that each
section of this Agreement shall be construed independently of any other section
or provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal on the date first written above.
FRANCHISOR:
--------------------------------------
By:___________________________________
Title: _______________________________
(Affix Corporate Seal)
OPCO:
By:___________________________________
Title:________________________________
(Affix Corporate Seal)
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CHARTER FRANCHISE SERVICES, LLC
FRANCHISE AGREEMENT
<PAGE>
TABLE OF CONTENTS
PAGE
1. GRANT OF FRANCHISE.................................................. 1
1.1. Grant............................................. 1
1.2. Modifications; Amendments to Charter System....... 2
1.3. New Products...................................... 2
1.4. Territory Exclusive............................... 2
1.5. Excepted Providers................................ 2
1.6 Reservation of Rights............................. 2
2. TERM AND RENEWAL.................................................... 3
3. OPERATING ASSISTANCE................................................ 3
4. FEES................................................................ 5
4.1. Franchise Fee..................................... 5
4.2. Annual Continuing Fee............................. 5
4.3. Definition of "Contract Year"..................... 5
4.4. Monthly Installments.............................. 6
4.5. Annual Continuing Fee for Short Contract Year..... 6
4.6. Payment Following Contract Year End............... 6
4.7. Taxes............................................. 6
4.8. Advances by Franchisor............................ 6
4.9. Interest.......................................... 6
4.10. Gross Revenues.................................... 7
4.11. Application of Payments........................... 8
5. LICENSED MARKS...................................................... 8
5.1. Ownership.......................................... 8
5.2. Authorized Use.................................... 8
5.3. Infringement...................................... 8
5.4. Operation Under Licensed Marks.................... 9
5.5. Modification/Replacement of Licensed Marks........ 9
6. STANDARDS OF OPERATION.............................................. 9
6.1. Signs............................................. 9
6.2. Compliance with System............................ 9
6.3. Compliance With Law............................... 10
6.4. Joint Commission on Accreditation of Health
Care Organizations (JCAHO)........................ 10
6.5. Maintenance of Standards.......................... 10
6.6. Operation in Conformity with Prescribed Methods,
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PAGE
Standards and Specifications...................... 10
6.7. Printed Materials; Marketing...................... 10
6.8. Ownership Identification.......................... 11
6.9. Patient Relations................................. 11
6.10. Right to Inspect.................................. 11
6.11. Variation of Standards............................ 11
6.12. Accounting Equipment and Software................. 11
6.13. Discoveries and Ideas............................. 11
7. CONFIDENTIAL OPERATING MANUAL....................................... 12
7.1. Compliance with Confidential Operating Manual..... 12
7.2. Confidentiality................................... 12
7.3. Revisions......................................... 12
7.4. Current Copy.......................................12
8. ADVERTISING AND MARKETING........................................... 13
8.1. Local Advertising................................. 13
8.2. Approval of Advertising........................... 13
8.3. Participation in Cooperative Advertising and/or
Marketing Programs................................ 13
8.4. Operation of Call Center.......................... 13
9. STATEMENTS, RECORDS AND FEE PAYMENTS................................ 14
9.1. Maintenance of Records; Audit Rights.............. 14
9.2. Reports........................................... 14
9.3. Tax Reports....................................... 14
9.4. Unaudited Periodic Statements..................... 14
9.5. Annual Audited Statement.......................... 15
10. ADDITIONAL COVENANTS................................................ 15
10.1. Covenant ......................................... 15
10.2. Covenant Not to Compete........................... 15
10.3. Acknowledgment of Reasonableness.................. 15
10.4. Confidential Information.......................... 15
10.5. Confidential Agreements with Certain Employees.... 16
10.6. Severability...................................... 16
11. TRANSFER AND ASSIGNMENT............................................. 16
11.1. Assignment by Franchisor.......................... 16
11.2. Assignment by Franchisee.......................... 17
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PAGE
11.3. Conditions of Any Approval........................ 17
11.4. Consent Not a Waiver................................. 18
11.5. Parties Bound and Benefitted...................... 18
12. DEFAULT AND TERMINATION............................................. 18
12.1. Franchisor's Right to Terminate................... 18
12.2. Franchise Owner's Right to Terminate.............. 20
13. POST TERM OBLIGATIONS............................................... 22
13.1. Cease Operations.................................. 22
13.2. Pay All Sums Outstanding.......................... 22
13.3. Return Confidential Operating Manual.............. 22
13.4. Transfer of Certain Interests..................... 22
13.5. Cease Use of System............................... 22
14. INSURANCE .......................................................... 23
14.1. Maintenance of Insurance.......................... 23
14.2. Notices of Claims................................. 23
14.3. Notices of Other Claims/Events.................... 23
15. TAXES, PERMITS AND INDEBTEDNESS..................................... 23
15.1. Payment........................................... 23
15.2. Compliance with all Laws and Regulations.......... 23
15.3. Full Responsibility............................... 24
16. INDEMNIFICATION AND INDEPENDENT CONTRACTOR.......................... 24
16.1. Indemnification and Hold Harmless................. 24
16.2. Independent Contractor............................ 24
17. WRITTEN APPROVALS, WAIVERS, FORMS OF AGREEMENT
AND AMENDMENT....................................................... 24
17.1. Prior Approvals................................... 24
17.2. No Waiver......................................... 24
17.3. Form of Agreements................................ 24
17.4. Written Amendments................................ 25
18. ENFORCEMENT......................................................... 25
18.1. Inspections....................................... 25
18.2. Injunctive Relief................................. 25
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PAGE
18.3. Costs and Expenses................................ 25
18.4. No Right to Offset................................ 25
19. ENTIRE AGREEMENT.................................................... 26
20. NOTICES............................................................. 26
21. GOVERNING LAW AND DISPUTE RESOLUTION................................ 26
21.1. Governing Law..................................... 26
21.2. Arbitration....................................... 27
22. SEVERABILITY, CONSTRUCTION.......................................... 27
22.1. Severability...................................... 27
22.2. Regulatory Reports................................ 28
22.3. Counterparts...................................... 28
22.4. Table of Contents, Headings and Captions.......... 28
23. MANAGEMENT CONTRACTS/JOINT VENTURES/CONSULTING
AGREEMENTS.......................................................... 28
24. ACKNOWLEDGMENTS..................................................... 28
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CHARTER FRANCHISE SERVICES, LLC FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (the "Agreement or the "Franchise Agreement") is
entered into as of _________, 19____ (the "Effective Date") by and between
Charter Franchise Services, LLC, a Delaware limited liability company, with its
principal place of business at ________________________, ("Franchisor"), and
__________________________ ("Franchise Owner") with its principal place of
business at ------------------------------------------.
W I T N E S S E T H :
A. Franchisor owns or has the right to license certain trade names,
trademarks, service marks and/or indicia of origin identified on Exhibit "1"
hereto (the "Licensed Marks"), the uniqueness and value of which are
acknowledged by Franchise Owner. In connection therewith, Franchisor has
developed a plan for a system for the operation of Hospital/RTC Based Behavioral
Healthcare Businesses (as hereinafter defined) under the Licensed Marks, which
system includes the right and license to utilize certain computer software owned
by Franchisor or, subject to the terms of the respective license agreement,
licensed to Franchisor, treatment protocols, treatment, financial, legal and
other programs and procedures, quality standards, quality assessment methods,
performance improvement and monitoring programs, advertising and marketing
assistance, promotional materials, consultation and other matters relating to
the operation of Hospital/RTC Based Behavioral Healthcare Businesses (the
"Charter System"), all of which are designed to enhance the reputation and
goodwill with the public of establishments operated pursuant to the Charter
System. "Hospital/RTC Based Behavioral Healthcare Business" as used herein shall
mean the business of the operation of an acute care psychiatric hospital, part
of an acute care general hospital operating an acute care psychiatric unit, a
behavioral healthcare residential treatment center, a part of a facility
operating a behavioral healthcare residential treatment center, or other similar
facility providing 24-hour behavioral healthcare (together an "In Patient
Facility"), and the delivery of behavioral healthcare from such facility and
other affiliated facilities; such behavioral healthcare to include inpatient
hospitalization, partial hospitalization programs, outpatient therapy, intensive
outpatient therapy, ambulatory detoxification, behavioral modification programs
and related services.
B. Franchise Owner has investigated and become familiar with the Charter
System, and desires, upon the terms and conditions set forth herein, to obtain a
license to use the Charter System in the operation of its Hospital/RTC Based
Healthcare Business (the "Franchised Business"). Franchisor is willing, upon the
terms and conditions set forth herein, to license Franchise Owner to operate the
Franchised Business.
1. GRANT OF FRANCHISE
1.1. Grant. Subject to all of the terms and conditions herein, Franchisor
grants to Franchise Owner the non-exclusive right to use the Charter System in
the operation of the
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Franchised Business at any present or future facilities located in the
geographic area described in Exhibit 3 to this Agreement (the "Territory"). The
rights herein granted are sometimes referred to in this Agreement as the
"Franchise." Franchise Owner agrees at all times during the continuance of this
Agreement to use its commercially reasonable best efforts to promote and operate
the Franchised Business. The Franchised Business shall be operated only under
the following name:____________________________________________________________.
1.2. Modifications; Amendments to Charter System. Franchisor reserves the
right from time to time to amend, modify, delete or enhance any portion of the
Charter System (including any of the Licensed Marks) as may be advisable in
Franchisor's sole judgment to change, maintain or enhance the Charter System,
Licensed Marks or the reputation, efficiency, competitiveness and/or quality of
the Charter System, or to adapt it to new conditions, laws, regulations or
technology, or to better serve the public. Franchise Owner, at its expense, will
fully comply with all such amendments, modifications, deletions and enhancements
designated as applicable to then existing franchise owners similarly situated.
1.3. New Products. Franchisor may from time to time develop new products
and new concepts for the delivery of behavioral healthcare and Behavioral
Modifications and Related Services (as hereinafter defined) ("New Concepts")
which may be suitable to be provided by the Franchised Business. Franchisor may,
at its sole discretion, designate such as applicable to Franchise Owner and/or
other existing franchise owners. To the extent that Franchisor does not
designate a New Product as applicable to Franchise Owner, does not elect to
utilize a New Product or elects to utilize a New Product but fails or refuses to
comply with such reasonable terms and conditions as Franchisor shall provide in
connection therewith (in which event Franchise Owner shall be deemed to have
elected not to utilize a New Product), then Franchisor may itself operate or
franchise others to operate businesses utilizing such New Product from
facilities in the Territory. As used herein, the term "Behavioral Modification
Programs and Related Services" shall mean any type of programs or services for
providing behavioral modification without regard to whether such behavioral
modification may be provided in an In Patient Facility or other affiliated
facility and shall include, for example, weight loss, stress management, smoking
cessation and similar products and programs.
1.4. Territory Exclusive. Franchisor agrees that during the term of this
Agreement, it will not establish or maintain, or franchise any other person or
firm to establish or maintain a facility located within the Territory using the
Charter System, except as otherwise provided in this Article 1.
1.5. Excepted Providers. Notwithstanding anything in this Article 1 to the
contrary, Franchisor may grant franchises or other licenses to individual
physicians, psychologists or other mental healthcare professionals or to groups
thereof or to entities employing such, to operate businesses for the delivery of
behavioral healthcare utilizing the Charter System at facilities within the
Territory, except that Franchisor will not grant any such franchise or license
for the operation of such a business at an In-Patient Facility in the Territory.
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1.6 Reservation of Rights. Franchise Owner acknowledges and agrees that, in
addition to the rights contained in other subsections of this Article 1,
Franchisor may grant to another or others the right and franchise to operate, at
facilities outside the Territory, Hospital/RTC Based Behavioral Healthcare
Businesses utilizing the Charter System, even if such businesses compete with
Franchise Owner's Franchised Business, and that Franchisor may otherwise use and
grant to others the right to use the Licensed Marks, or any other names and
marks, for other businesses. It is understood that nothing contained in this
Agreement shall prevent Franchisor (i) from providing behavioral healthcare
incidental to the managed behavioral healthcare business or incidental to any
other business the principal purpose of which is not the operation of a
Hospital/RTC Based Behavioral Healthcare Business, and (ii) from, pursuant to
contracts with federal, state and local governments and governmental agencies,
providing health and human services, including behavioral healthcare services,
to the mentally retarded, the developmentally disabled, the elderly, persons
under the control or supervision of criminal/juvenile justice systems and other
designated populations.
2. TERM AND RENEWAL
(a) This Agreement, unless previously terminated pursuant to Paragraph
_____ hereof, shall extend for _____________ (_________) years from the
Effective Date (the "Initial Term").
(b) If Franchise Owner is not in default under this Agreement, and has
materially complied with all of its provisions during the Initial Term,
including the timely payment of all fees, and further provided that
Franchise Owner has the right to continue to occupy the Premises, Franchise
Owner may renew this Franchise for One (1) additional term of ___________
(________) years (the "Renewal Term"). At least thirty (30) days prior to
the Renewal Term, Franchise Owner shall pay to Franchisor a renewal fee in
an amount equal to ________ percent (______%) of the then-current initial
franchise fee charged by Franchisor to similarly situated franchise owners
executing new franchise agreements, and in accordance with Franchisor's
then-current terms and conditions for granting renewal franchises, which
may include: (i) execution of a new and modified agreement with different
performance standards, fee structures and/or increased fees; and (ii)
execution of a general release under seal, in a form satisfactory to
Franchisor, of any and all claims against Franchisor, its parent,
subsidiaries or affiliates (if applicable) and their officers, directors,
attorneys, shareholders and employees.
(c) Franchise Owner shall exercise its option to seek renewal by
giving Franchisor written notice of Franchise Owner's election to renew not
less than six (6) nor more than twelve (12) months prior to the expiration
of the Initial Term; otherwise, such renewal right shall expire
automatically.
3. OPERATING ASSISTANCE
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(a) Prior to Franchise Owner's commencement of business under the
Charter System, Franchisor shall provide Franchise Owner with such of the
following assistance, on the same basis as it will from time to time make
available to other franchise owners of Franchisor:
(i) Information with respect to standards and specifications for
all signs, improvements, equipment and other related facilities for
use in typical or similar Charter System franchised businesses;
(ii) Information concerning possible sources of signs, equipment,
fixtures, furnishings, improvements and other products and services
available in connection with the operation of Charter System
franchised business;
(iii) [Describe training].
(iv) One (1) set of any written materials which Franchisor may
make available (known as the Confidential Operating Manual(s), as
defined in Paragraph 8 hereof), as the same may be amended from time
to time by Franchisor in its sole discretion;
(v) Computer software programs which may be required by
Franchisor to be utilized by Franchise Owner in the operation of the
Franchised Business and which may be updated or modified by Franchisor
from time to time during the term of this Agreement. Any such software
programs are proprietary and shall remain the property of Franchisor
and shall be on loan to Franchise Owner only during the term of this
Agreement.]
(b) Franchisor reserves the right to require Franchise Owner to
maintain standards of quality, appearance and service at all Franchised
Business facilities, thereby maintaining the public image and reputation of
the Charter System and the demand for the services and products provided
thereunder, and to that end Franchisor may in its sole discretion provide
Franchise Owner with the following ongoing assistance as it deems
appropriate:
(i) Periodic advertising and marketing assistance including
consultation, access to media buying programs and access to broadcast
and other advertising pieces and materials produced by Franchisor from
time to time for franchise owners.
(ii) Risk management services, including risk financing planning,
loss control and claims management.
(iii) Outcomes monitoring.
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(iv) National and regional contracting services. (v) Consultation
by telephone or at Franchisor's offices with respect to matters
relating to the Franchised Business in which Franchisor has expertise,
including matters relating to reimbursement, government relations,
clinical strategies, regulatory matters, strategic planning and
business development.
4. FEES
4.1. Franchise Fee. In consideration of the execution of this Agreement,
Franchise Owner agrees to pay Franchisor an initial franchise fee in the amount
of _______________ ($________) which is being paid in full at the execution
hereof.
4.2. Annual Continuing Fee. For each "Contract Year" (as hereinafter
defined), Franchise Owner shall pay to Franchisor, subject to the terms of
Section 4.5 below, an annual continuing fee (the "Annual Continuing Fee") in the
amount of the greater of:
(a) _________________________________ Dollars ($____________) plus an
amount calculated by multiplying ___________________________ Dollars
($__________) by the percentage increase in the Consumer Price Index,
United States City Average for All Urban Consumers for All items (as
published by the U.S. Department of Labor, Bureau of Labor Statistics) (the
"CPI") between the end of the latest period for which said index has been
published prior to the date of this Agreement and the end of the latest
period for which said index has been published prior to the first day of
said Contract Year (the "Minimum Annual Continuing Fee"), except that no
adjustment to the Minimum Annual Continuing Fee shall be made for the
second Contract Year (Contract Year commencing October 1, 1997) it being
understood that the adjustment made for the third Contract Year (Contract
Year commencing October 1, 1998) shall take into consideration the change
in the CPI between the end of the latest period for which said index has
been published prior to the date of this Agreement and the end of the
latest period for which said index has been published prior to the first
day of the third Contract Year; or
(b) _____________________________ Dollars ($__________) plus (i) 3% of
Gross Revenues above _____________________________ Dollars ($_____________)
and less than _____________________________________ Dollars
($_____________) during said Contract Year, and (ii) 5% of Gross Revenues
above ____________________ _____________________ Dollars ($_____________)
during said Contract Year.
4.3. Definition of "Contract Year". As used in this Article 4, the term
"Contract Year" shall refer to any period which begins on the date of this
Agreement or any succeeding October 1 and ends on the earlier of the following
September 30 or the effective date of expiration or termination of this
Agreement.
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4.4. Monthly Installments. During each Contract Year, Franchise Owner shall
make monthly installments against the Annual Continuing Fee for said Contract
Year. During each of the first and second Contract Years, each such monthly
installment shall be equal to 1/12th of the Minimum Annual Continuing Fee for
said Contract Year. During each subsequent Contract Year, each such monthly
installment shall be equal to 1/12th of the greater of (a) the Minimum Annual
Continuing Fee for said Contract Year or (b) the Annual Continuing Fee for the
preceding Contract Year. The first monthly installment shall be paid on the date
of this Agreement; and subsequent installments shall be paid on or before the
first day of each subsequent calendar month during the term of this Agreement.
4.5. Annual Continuing Fee for Short Contract Year. If the term of this
Agreement includes any Contract Year of less than 365 days (i.e., because the
date of this Agreement or the effective date of expiration or termination of
this Agreement is in the middle of a Contract Year), the Annual Continuing Fee
for such Contract Year shall be the greater of:
(a) the product of the Minimum Annual Continuing Fee for said Contract
Year times a fraction the numerator of which is the number of days that
this Agreement was in effect during said Contract Year (the "Effective
Days"), and the denominator of which is 365, or
(b) the product of the amount calculated pursuant to subsection 4.2(b)
above (provided, however, that for purposes of said calculation the "Gross
Revenues" for said Contract Year shall be "Gross Revenues" as defined in
Section 4.10 below for said Contract Year times a fraction the numerator of
which is 365 and the denominator of which is the Effective Days), times a
fraction the numerator of which is the Effective Days and the denominator
of which is 365.
4.6. Payment Following Contract Year End. If the aggregate dollar amount of
payments made by Franchise Owner to Franchisor in respect of any Contract Year
pursuant to Section 4.4 above is different than the Annual Continuing Fee for
said Contract Year, a payment in the amount of such overpayment or underpayment
shall be made by the appropriate party within seventy-five (75) days after the
end of said Contract Year.
4.7. Taxes. Franchise Owner shall pay to Franchisor the amount of all sales
taxes, use taxes, and similar taxes imposed upon or required to be collected on
account of the Annual Continuing Fees and of goods or services furnished to
Franchise Owner by Franchisor, whether such goods or services are furnished by
sale, lease or otherwise.
4.8. Advances by Franchisor. Franchise Owner shall pay to Franchisor all
amounts, if any, advanced by Franchisor or which Franchisor has paid, or for
which Franchisor has become obligated, on behalf of Franchisee.
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4.9. Interest. Franchise Owner shall pay to Franchisor interest on any
amounts which are past due at the lower of the maximum rate permitted by law or
the Prime Rate, plus six percent (6%) per annum. The term" Prime Rate" as used
in this Agreement shall mean the prime rate of interest from time to time as
published in The Wall Street Journal.
4.10. Gross Revenues. "Gross Revenues" shall mean the sum of the following:
(a) the aggregate gross patient charges from operation of the
Franchised Business at established billing rates, less provision for
contractual adjustments and provision for denied claims (where collection
is not pursued directly from the patient), determined in accordance with
generally accepted accounting principles, and the gross amount of all other
revenues from whatever source derived (whether in the form of cash, credit,
agreements to pay, or other consideration, and whether or not payment is
received at the time of the sale or provision of services) which arise from
or are derived by Franchise Owner or any other person affiliated with
Franchise Owner, directly or indirectly from products or services sold or
provided directly or indirectly by Franchise Owner, or from the sale of
services or products associated with the use of the Licensed Marks. Gross
Revenues shall not include amounts not actually collected (bad debts) to
the extent such have been included in Gross Revenues reported to Franchisor
for prior periods.
Plus,
(b) the gross revenues ("Business Gross Revenues") of all the
businesses which are the subject of joint venture agreements or
arrangements of Franchise Owner (the "Joint Venture Businesses") and the
businesses which are the subject of management agreements and other
agreements and arrangements of Franchise Owner pursuant to which Franchise
Owner provides management, consulting or other services for so long as any
such agreements or arrangements are in effect (the "Managed Businesses").
"Business Gross Revenues" shall mean the aggregate gross patient charges
from each of the Joint Venture Businesses and each of the Managed
Businesses at established billing rates, less provision for contractual
adjustments and provision for denied claims (where collection is not
pursued directly from the patient), determined in accordance with generally
accepted accounting principles, and the gross amount of all other revenues
from whatever source derived (whether in form of cash, credit, agreements
to pay, or other consideration, and whether or not payment is received at
the time of the sale or provisions of services) which arise from or are
derived by each of the Joint Venture Businesses and each of the Managed
Businesses, or any other person affiliated with such business, directly or
indirectly from products or services sold or provided directly or
indirectly by each of the Joint Venture Businesses and each of the Managed
Businesses or from the sale of products or services associated with the use
of the Licensed Marks. Business Gross Revenues shall not include amounts
not actually collected (bad debts) to the extent that such have been
included in Business Gross Revenues reported to Franchisor for prior
periods.
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Plus,
(c) the gross amounts of all Franchise Owner's other revenues from
whatever source derived (whether in the form of cash, credit, agreements to
pay, or other consideration, and whether or not payment is received at the
time of the sale or provision of services), which arise from or are derived
by Franchise Owner, or any person affiliated with Franchise Owner, directly
or indirectly from products or services sold or provided directly or
indirectly by Franchise Owner or from the sale of services or products
associated with the use of the Licensed Marks, excluding any amounts
received by Franchise Owner from Joint Venture Businesses and Managed
Businesses, the Business Gross Revenue of which are included in Gross
Revenue pursuant to (b) above.
4.11. Application of Payments. All payments by Franchise Owner pursuant to
this Paragraph 4 shall be applied in such order as Franchisor may designate from
time to time. Franchise Owner agrees that it may not designate an order for
application of any fees different from that designated by Franchisor and
expressly acknowledges and agrees that Franchisor may accept fees paid pursuant
to different instructions without any obligation to follow such instructions,
even if such payment is made by its terms conditional on such instructions being
followed. This provision may be waived only by written agreement signed by
Franchisor, which written agreement must be separate from the check or other
document constituting payment.
5. LICENSED MARKS
5.1. Ownership. Franchise Owner expressly acknowledges Franchisor's rights
in and to the Licensed Marks and agrees not to represent in any manner that
Franchise Owner has acquired any ownership rights in the Licensed Marks.
Franchise Owner further acknowledges and agrees that any and all goodwill
associated with the Charter System and identified by the Licensed Marks shall
inure directly and exclusively to the benefit of Franchisor.
5.2. Authorized Use. Franchise Owner understands and agrees that any use of
the Licensed Marks other than as expressly authorized by this Agreement, without
Franchisor's prior written consent, may constitute an infringement of
Franchisor's rights therein and that the right to use the Licensed Marks granted
herein does not extend beyond the termination or expiration of this Agreement.
Franchise Owner expressly covenants that, during the term of this Agreement and
thereafter, Franchise Owner shall not, directly or indirectly, commit any act of
infringement or contest or aid others in contesting the validity or registration
of Franchisor's right to use the Licensed Marks or take any other action in
derogation thereof.
5.3. Infringement. Franchise Owner shall promptly notify Franchisor of any
claim, demand or cause of action that Franchisor may have based upon or arising
from any unauthorized attempt by any person or legal entity to use the Licensed
Marks, any colorable variation thereof, or any other mark, name or indicia in
which Franchisor has or claims a proprietary interest (an
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"Unauthorized Third Party Use"). Franchise Owner shall assist Franchisor, upon
request and at Franchisor's expense, in taking such action, if any, as
Franchisor may deem appropriate to halt such Unauthorized Third Party Use, but
shall take no action nor incur any expenses on Franchisor's behalf without
Franchisor's prior written approval. If Franchisor undertakes the defense or
prosecution of any litigation relating to the Licensed Marks, Franchise Owner
agrees to execute any and all documents and to do such acts and things as may,
in the opinion of Franchisor's legal counsel, be reasonably necessary to carry
out such defense or prosecution.
5.4. Operation Under Licensed Marks. Franchise Owner further agrees and
covenants to operate and advertise only under the names or marks from time to
time designated by Franchisor for use by similar Charter System franchise
owners; to adopt and use the Licensed Marks solely in the manner prescribed by
Franchisor; to refrain from using the Licensed Marks to perform any activity or
to incur any obligation or indebtedness in such a manner as may, in any way,
subject Franchisor to liability therefor; to observe all laws with respect to
the registration of trade names and assumed or fictitious names, to include in
any application therefor a statement that Franchise Owner's use of the Licensed
Marks is limited by the terms of this Agreement, and to provide Franchisor with
a copy of any such application and other registration document(s); to observe
such requirements with respect to trademark and service mark registrations and
copyright notices as Franchisor may, from time to time, require, including,
without limitation, affixing "SM", "TM", or (R) adjacent to all such Licensed
Marks in any and all uses thereof; and to utilize such other appropriate notice
of ownership, registration and copyright as Franchisor may require.
5.5. Modification/Replacement of Licensed Marks. Franchisor reserves the
right, in its sole discretion, to designate one or more new, modified or
replacement Licensed Marks for use by franchise owners and to require the use by
Franchise Owner of any such new, modified or replacement Licensed Marks in
addition to or in lieu of any previously designated Licensed Marks. Any expenses
or costs associated with the use by Franchise Owner of any such new, modified or
replacement Licensed Marks shall be the sole responsibility of Franchise Owner.
6. STANDARDS OF OPERATION
Franchisor shall establish and Franchise Owner shall maintain standards of
quality, appearance and operation for the Franchised Business. For the purpose
of enhancing the public image and reputation of businesses operating under the
Charter System, protecting the goodwill associated with the Licensed Marks, and
for the purpose of increasing the demand for services and products provided by
Franchisor and its franchisees, the parties agree as follows:
6.1. Signs. Subject to compliance with applicable laws and regulations,
Franchise Owner shall acquire all signs as required by Franchisor for use at or
in connection with the Franchised Business.
6.2. Compliance with System. Franchise Owner agrees in connection with the
Franchised Business to utilize and comply with all treatment protocols,
treatment, financial, legal
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and other programs and procedures, quality standards, quality assessment
methods, performance improvement and monitoring programs and other matters which
now or hereafter comprise the Charter System, and to comply with all Charter
System rules, regulations, policies and standards, including all such contained
in the "Confidential Operating Manual" (as hereinafter defined).
6.3. Compliance With Law. Franchise Owner agrees at all times to operate
the Franchised Business, and to keep all premises at which the Franchised
Business operates, in compliance with all applicable federal, state and local
laws, rules and regulations.
6.4. Joint Commission on Accreditation of Health Care Organizations
(JCAHO). Franchise Owner agrees to maintain throughout the term of this
Agreement accreditation by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"). Franchise Owner also agrees to obtain, within such
reasonable times as may be specified by Franchisor, and maintain throughout the
term of this Agreement accreditation by other organizations specified by
Franchisor. All costs of obtaining and maintaining accreditation(s) shall be
borne and paid by Franchise Owner.
6.5. Maintenance of Standards. Franchise Owner agrees to maintain all
premises from or at which the Franchised Business is conducted, and all
furnishings and equipment thereon, in conformity with Franchisor's then-current
standards, at all times during the term of this Agreement, and to make such
repairs and replacements thereto as Franchisor may require. Without limiting the
generality of the foregoing, Franchise Owner specifically agrees:
(a) To keep all such premises at all times in a high degree of
sanitation, repair, order and condition, including, without limitation,
such periodic repainting of the exterior and interior of the premises, such
maintenance and repairs to all fixtures, furnishings, signs and equipment
as Franchisor may from time to time reasonably direct; and
(b) To meet and maintain at all times all governmental standards,
certifications and ratings applicable to the operation of the premises and
the Franchised Business or such higher minimum standards, certifications
and ratings as set forth by Franchisor from time to time in its
Confidential Operating Manual or otherwise in writing.
6.6. Operation in Conformity with Prescribed Methods, Standards and
Specifications. Franchise Owner agrees to operate the Franchised Business in
conformity with such methods, standards and specifications as Franchisor may
from time to time prescribe in its Confidential Operating Manual to insure that
Franchisor's required degree of quality, service and image is maintained; and to
refrain from deviating therefrom and from otherwise operating in any manner
which adversely reflects on Franchisor's name and goodwill, or on the Licensed
Marks.
6.7. Printed Materials; Marketing. Franchise Owner shall use only business
stationery, business cards, marketing materials, advertising materials, printed
materials or forms which have
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been approved in advance by Franchisor. Franchise Owner shall not employ any
person to act as a representative of Franchise Owner in connection with local
promotion of the Franchised Business in any public media without the prior
written approval of Franchisor. Any and all supplies or materials purchased,
leased or licensed by Franchise Owner shall always meet those standards
specified by Franchisor in the Confidential Operating Manual or otherwise in
writing.
6.8. Ownership Identification. In all advertising displays and materials
and at all premises from or at which the Franchised Business is conducted,
Franchise Owner shall, in such form and manner as may be specified by Franchisor
in the Confidential Operating Manual, notify the public that Franchise Owner is
operating the business licensed hereunder as a franchisee of Franchisor and
shall identify its business location in the manner specified by Franchisor in
the Confidential Operating Manual.
6.9. Patient Relations. Franchise Owner shall respond promptly to patient
complaints and shall take such other steps as may be required to insure positive
patient relations.
6.10. Right to Inspect. Franchise Owner hereby grants to Franchisor and its
agents the right to enter upon any premises from which Franchise Owner conducts
the Franchised Business, without notice, at any reasonable time for the purpose
of conducting inspections of the premises and Franchise Owner's books and
records; and Franchise Owner agrees to render such assistance as may reasonably
be requested and to take such steps as may be necessary to correct any
deficiencies upon the request of Franchisor or its agents.
6.11. Variation of Standards. Because complete and detailed uniformity
under many varying conditions may not be possible or practical, Franchisor
specifically reserves the right and privilege, in its sole discretion and as it
may deem in the best interests of all concerned in any specific instance, to
vary standards for any of its franchisees based upon the peculiarities of a
particular circumstance, or any other conditions which Franchisor deems to be of
importance to the successful operation of the Franchised Business. Franchise
Owner shall have no recourse against Franchisor on account of any variation from
standard specifications and practices granted to any franchise owner and shall
not be entitled to require Franchisor to grant Franchise Owner a like or similar
variation hereunder.
6.12. Accounting Equipment and Software. Franchise Owner agrees to
maintain, develop, update and replace any equipment and software as reasonably
necessary for the purpose of recording, collecting or otherwise supporting
revenues.
6.13. Discoveries and Ideas. Franchise Owner agrees to disclose promptly to
Franchisor all discoveries made or ideas conceived by Franchise Owner or a
person affiliated with Franchise Owner that pertain to the Charter System.
Franchise Owner hereby grants to Franchisor all right, title and interest to
such discoveries and ideas, and agrees to cooperate with Franchisor in securing
Franchisor's rights to such discoveries and ideas. "Discoveries" and "ideas"
shall be interpreted broadly and shall not be limited to those discoveries or
ideas which are potentially patentable or
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copyrightable. Franchisor shall not be obligated to compensate Franchise Owner
for any such discoveries or ideas and Franchise Owner has no expectation of any
such compensation.
7. CONFIDENTIAL OPERATING MANUAL
7.1. Compliance with Confidential Operating Manual. In order to protect the
reputation and goodwill of the businesses operating under the Charter System and
to maintain standards of operation under the Licensed Marks, Franchise Owner
shall conduct the Franchised Business operated under the Charter System in
accordance with various written instructions and confidential manuals
(hereinafter and previously referred to as the "Confidential Operating Manual"),
including such amendments thereto as Franchisor may publish from time to time,
all of which Franchise Owner acknowledges belong solely to Franchisor and shall
be on loan from Franchisor during the term of this Agreement. When any provision
in this Agreement requires that Franchise Owner comply with any standard,
specification or requirement of Franchisor, unless otherwise indicated such
standard, specification or requirement shall be such as is set forth in this
Agreement or as may, from time to time, be set forth by Franchisor in the
Confidential Operating Manual.
7.2. Confidentiality. Franchise Owner shall at all times use its best
efforts to keep the Confidential Operating Manual and any other manuals,
materials, goods and information created or used by Franchisor and designated
for confidential use, within the Charter System and the information contained
therein as confidential and shall limit access to employees of Franchise Owner
on a need-to-know basis. Franchise Owner acknowledges that the unauthorized use
or disclosure of Franchisor's confidential information or trade secrets will
cause irreparable injury to Franchisor and that damages are not an adequate
remedy. Franchise Owner accordingly covenants that it shall not at any time,
without Franchisor's prior written consent, disclose, use, permit the use
thereof (except as may be required by applicable law or authorized by this
Agreement), copy, duplicate, record, transfer, transmit or otherwise reproduce
such information, in any form or by any means, in whole or in part, or otherwise
make the same available to any unauthorized person or source. Any and all
information, knowledge and know-how not known about the Charter System and
Franchisor's products, services, standards, procedures, techniques and such
other information or material as Franchisor may designate as confidential shall
be deemed confidential for purposes of this Agreement.
7.3. Revisions. Franchise Owner understands and acknowledges that
Franchisor may, from time to time, revise the contents of the Confidential
Operating Manual to implement new or different requirements for the operation of
the Franchised Business, and Franchise Owner expressly agrees to comply at its
expense with all such changed requirements which are by their terms mandatory;
provided that such requirements shall also be applied in a reasonably
nondiscriminatory manner to comparable businesses operated under the Charter
System by other of Franchisor's franchisees.
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7.4. Current Copy. Franchise Owner shall at all times insure that its copy
of the Confidential Operating Manual is kept current and up to date. In the
event of any dispute as to the contents thereof, the terms and dates of the
master copy thereof maintained by Franchisor at its principal place of business
shall be controlling.
8. ADVERTISING AND MARKETING
Recognizing the value of standardized advertising and marketing programs to
the furtherance of the goodwill and public image of the Charter System, the
parties agree as follows:
8.1. Local Advertising. At its expense, Franchise Owner agrees to conduct
on an annual basis continuing local advertising in form, content and media
approved by Franchisor, in an amount equal to three percent (3%) of Gross
Revenues. Franchise Owner shall submit evidence of any such expenditures to
Franchisor on an annual basis not later than sixty (60) days after the close of
each fiscal year for the preceding fiscal year. In the event that Franchise
Owner shall fail to expend such sums on local advertising during any fiscal
year, the difference between the amount expended and the amount required to be
expended shall be paid to Franchisor, in addition to other amounts payable
pursuant to this Agreement.
8.2. Approval of Advertising. All advertising by Franchise Owner shall be
in such media, and of such type and format as Franchisor may approve; shall be
conducted in a dignified manner and shall conform to such standards and
requirements as Franchisor may specify. Advertising approved by Franchisor as
meeting the requirements of the preceding sentence shall continue to be deemed
approved unless and until Franchisor shall notify OpCo otherwise. Franchise
Owner shall not use any advertising or promotional plans or materials not
prepared by Franchisor unless and until Franchise Owner has received written
approval from Franchisor following the submission of samples thereof to
Franchisor. If written approval is not received by Franchise Owner from
Franchisor or its designee within fifteen (15) days of the date of receipt by
Franchisor of such samples, Franchisor shall be deemed to have disapproved such
advertising or promotional plans or materials.
8.3. Participation in Cooperative Advertising and/or Marketing Programs.
Franchise Owner shall participate in all cooperative advertising and/or
marketing programs as are from time to time prescribed by Franchisor, provided
however, that no such cooperative advertising and/or marketing programs shall
require Franchise Owner to adhere to any specific price(s). The terms and
conditions required for participation in any such cooperative advertising
program or programs shall be as specified in the Confidential Operations Manual.
8.4. Operation of Call Center. Franchisor agrees to operate or will provide
a toll free "800 telephone number" and related call center (the "800 Call
Center") to provide substantially the same services to Franchise Owner as those
provided by the 800 Call Center operating immediately prior to the execution of
this Agreement, subject to such modification as Franchisor deems advisable from
time to time to comply with applicable law or subject to such restructuring
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as Franchisor shall reasonably require to comply with applicable law. Franchise
Owner agrees to advertise the "800 telephone number" and otherwise cooperate
with Franchisor to use the 800 Call Center as a means of assisting customers to
locate the places of business of franchisees of Franchisor.
9. STATEMENTS, RECORDS AND FEE PAYMENTS
9.1. Maintenance of Records; Audit Rights. Franchise Owner shall, in a
manner satisfactory to Franchisor, maintain original, full and complete records,
accounts, books, data, licenses, contracts and invoices which shall accurately
reflect all particulars relating to Franchised Business and such statistical and
other information or records as Franchisor may require, and shall keep all such
information for not less than three (3) years, even if this Agreement is no
longer in effect. Franchise Owner shall compile and provide to Franchisor any
statistical or financial information regarding the operation of the Franchised
Business, the services and products sold by it, or data of a similar nature as
Franchisor may reasonably request. Franchisor and its designated agents shall
have the right to examine and audit such records, accounts, books and data at
all reasonable times to insure that Franchise Owner is complying with the terms
of this Agreement. If such inspection discloses and it is ultimately determined
that the Gross Revenues during any scheduled reporting period actually exceeded
the amount reported by Franchise Owner as its Gross Revenues by an amount equal
to two percent (2%) or more of the Gross Revenues originally reported to
Franchisor, Franchise Owner shall bear the cost of such inspection and audit
(not including any premium or contingent fee arrangement) and shall pay any such
deficiency with interest from the date due until paid at the lesser of the Prime
Rate, plus six percent (6%) per annum or the highest rate permitted by
applicable law, immediately upon the request of Franchisor.
9.2. Reports. Upon Franchisor's request, Franchise Owner shall furnish
Franchisor with a copy of each of Franchise Owner's reports required under
applicable federal and state laws, rules and regulations, including but not
limited to all such reports required under "Medicare" and "Medicaid" laws, rules
and regulations.
9.3. Tax Reports. Upon Franchisor's request, Franchise Owner shall furnish
Franchisor with a copy of each of its reports and returns of sales, use and
gross receipt taxes and complete copies of any state or federal income tax
returns covering the operation of the Franchised Business.
9.4. Unaudited Periodic Statements. Franchise Owner shall prepare and
deliver to Franchisor on a quarterly basis, no later than twenty-five (25) days
following the close of each fiscal quarter, an unaudited profit and loss
statement in a form reasonably satisfactory to Franchisor covering Franchise
Owner's business for the prior fiscal quarter and showing Gross Revenues for the
prior fiscal quarter and fiscal year to date, all of which shall be certified by
Franchise Owner to be true and correct. Franchise Owner shall also submit to
Franchisor no later
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than twenty-five (25) days following the close of each fiscal quarter, an
unaudited balance sheet reflecting the financial position of the Franchised
Business as of the preceding fiscal quarter end.
9.5. Annual Audited Statement. In addition to the foregoing unaudited
statements, within 75 days after the close of each fiscal year of Franchise
Owner, Franchise Owner shall furnish to Franchisor, at Franchise Owner's
expense, an audited statement of income and retained earnings of Franchise Owner
for such fiscal year and an audited balance sheet of Franchise Owner as of the
end of such fiscal year, all prepared in accordance with generally accepted
accounting principles and certified to by a certified public accountant.
10. ADDITIONAL COVENANTS
10.1. Covenant During Term. During the term of this Agreement, Franchise
Owner covenants not to engage in the United States as an owner, operator, or in
any managerial capacity in any Hospital/RTC Based Behavioral Healthcare
Business, other than as a franchisee of the Charter System; provided, however,
that Franchise Owner shall not be prohibited hereby from owning equity
securities of any Hospital/RTC Based Behavioral Healthcare Business whose shares
are traded on a stock exchange or on the over-the-counter market so long as said
ownership interest represents five percent (5%) or less of the total number of
outstanding shares of such business.
10.2. Covenant Not to Compete Post-Term. Following the termination or
expiration of this Agreement and for a period expiring on the earlier of three
(3) years following the expiration or termination of this Agreement, Franchise
Owner covenants not to engage in the Territory as an owner, operator, or in any
managerial capacity in any Hospital/RTC Based Behavioral Healthcare Business,
other than as a franchisee of the Charter System pursuant to this Agreement;
provided, however, that Franchise Owner shall not be prohibited hereby from
owning equity securities of any Hospital/RTC Based Behavioral Healthcare
Business whose shares are traded on a stock exchange or on the over-the-counter
market so long as said ownership interest represents five percent (5%) or less
of the total number of outstanding shares of such business.
10.3. Acknowledgment of Reasonableness. The parties hereto acknowledge that
the provisions of Sections 10.1 and 10.2 have been negotiated fully and fairly
by the parties, each being represented and advised by counsel. Franchise Owner
acknowledges that it is willingly and freely agreeing to the provisions of
Sections 10.1 and 10.2 as reasonable and necessary under the circumstances. One
of the acknowledged reasonable business purposes of Franchisor is to protect
Franchisor's goodwill and proprietary rights. Franchise Owner further
acknowledges that Franchisor would not enter into this Agreement without the
covenants of Sections 10.1 and 10.2 and that it is fair and reasonable to
Franchise Owner that Franchise Owner be subject to such covenants.
10.4. Confidential Information. During the term of this Agreement and
following the expiration or termination of this Agreement, Franchise Owner
covenants not to communicate
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directly or indirectly, nor to divulge to or use for its benefit or the benefit
of any other person or legal entity, any trade secrets which are proprietary to
Franchisor or any information, knowledge or know-how identified to Franchise
Owner by Franchisor in writing as confidential (including but not limited to the
Confidential Operating Manual), except as permitted by Franchisor.
Notwithstanding the foregoing, this obligation shall not apply to information:
(a) which at the time of disclosure is readily available to the trade or public;
(b) which after disclosure becomes readily available to the trade or public,
other than through breach of this Agreement; (c) which is subsequently lawfully
and in good faith obtained by such party from an independent third party without
breach of this Agreement; (d) which was in possession of such party prior to the
date of disclosure; or (e) which is disclosed to others in accordance with the
terms of a prior written authorization between the parties to this Agreement. In
the event of any termination, expiration or non-renewal of this Agreement,
Franchise Owner agrees that it will never use Franchisor's confidential
information, trade secrets, methods of operation or any proprietary components
of the Charter System in the design, development or operation of any behavioral
healthcare business, including, without limitation, any Hospital/RTC Based
Behavioral Healthcare Business. The protection granted hereunder shall be in
addition to and not in lieu of all other protections for such trade secrets and
confidential information as may otherwise be afforded in law or in equity.
10.5. Confidential Agreements with Certain Employees. Franchise Owner
agrees to require each of its management employees to execute employee
non-disclosure agreements in a form approved by Franchisor which shall prohibit
disclosure by such parties to any other person or legal entity of any trade
secrets or any other information, knowledge or know-how identified as
confidential by Franchisor in writing to Franchise Owner concerning the
operation of the Franchised Business. Franchisor shall be a third party
beneficiary of such agreements and Franchise Owner shall not amend, modify or
terminate any such agreement without Franchisor's prior written consent.
10.6. Severability. The parties agree that each of the foregoing covenants
shall be construed as independent of any other covenant or provision of this
Agreement. Should any part of one or more of these restrictions be found to be
unenforceable by virtue of its scope in terms of area, business activity
prohibited or length of time, and should such part be capable of being made
enforceable by reduction of any or all thereof, Franchise Owner and Franchisor
agree that the same shall be enforced to the fullest extent permissible under
the law. In addition, Franchisor may, unilaterally, at any time, in its sole
discretion, revise any of the covenants in this Article 10 so as to reduce the
obligations of Franchise Owner hereunder. The running of any period of time
specified in this Article 10 shall be tolled and suspended for any period of
time in which the Franchise Owner is found by a court of competent jurisdiction
to have been in violation of any restrictive covenant. Franchise Owner further
expressly agrees that the existence of any claim it may have against Franchisor
whether or not arising from this Agreement, shall not constitute a defense to
the enforcement by Franchisor of the covenants in this Article 10.
11. TRANSFER AND ASSIGNMENT
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11.1. Assignment by Franchisor. This Agreement and all rights and duties
hereunder may be freely assigned or transferred by Franchisor in its sole
discretion to any person or legal entity which agrees to assume Franchisor's
obligations hereunder, including a competitor of Franchisor, and shall be
binding upon and inure to the benefit of Franchisor's successors and assigns
including, without limitation, any entity which acquires all or a portion of the
capital stock of Franchisor or any entity resulting from or participating in a
merger, consolidation or reorganization in which Franchisor is involved, and to
which Franchisor's rights and duties hereunder are assigned or transferred.
11.2. Assignment by Franchisee. Franchise Owner understands and
acknowledges that the rights and duties created by this Agreement are personal
to Franchise Owner, and that Franchisor has granted this Franchise in reliance
on many factors, including, without limitation, the collective character, skill,
aptitude and business and financial capacity of Franchise Owner and any persons
owning an interest in Franchise Owner. Accordingly, Franchise Owner nor any
person owning any direct or indirect equity interest therein, shall, without
Franchisor's prior written consent, directly or indirectly sell, assign,
transfer, convey, give away, pledge, mortgage or otherwise encumber any
interest; (i) in this Agreement or any portion or aspect thereof, (ii) the
Franchised Business, or (iii) any equity or voting interest in Franchise Owner,
nor permit the Franchised Business to be operated, managed, directed or
controlled, directly or indirectly, by any person or entity other than Franchise
Owner (any such act or event is referred to as a "Transfer") without the prior
written approval of Franchisor. Any such purported Transfer occurring by
operation of law or otherwise, including any Transfer by a trustee in
bankruptcy, without Franchisor's prior written consent, shall be a material
default of this Agreement.
11.3. Conditions of Any Approval. Franchise Owner understands and
acknowledges the vital importance of the performance of Franchise Owner to the
market position and overall image of Franchisor. The consent of Franchisor to an
assignment or transfer by Franchise Owner shall be subject, but not be limited
to, the following conditions:
(a) The proposed transferee is a person or entity which meets the
Franchisor's standards of qualification then applicable with respect to all
new applicants for similar Charter System franchisees;
(b) The proposed transfer is upon terms and conditions which
Franchisor, in its sole judgment, shall deem reasonable;
(c) As of the effective date of the proposed transfer, all obligations
of Franchise Owner hereunder and under any other agreements between
Franchise Owner and Franchisor are fully satisfied;
(d) As of the effective date of the proposed transfer, all obligations
of the proposed transferee to the Franchisor under all other agreements of
any kind between the proposed transferee and Franchisor are fully
satisfied;
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(e) Franchise Owner must request that Franchisor provide the
prospective transferee with the Franchisor's current form of disclosure
document required by the Federal Trade Commission's Trade Regulation Rule
on Franchising and/or other applicable state franchise
registration/disclosure laws, and a receipt for such document shall be
delivered to Franchisor, acknowledging that Franchisor shall not be liable
for any representations other than those contained in such disclosure
document;
(f) The proposed transferee must execute a new franchise agreement,
namely, Franchisor's then-current form of facility franchise agreement,
which may contain terms and conditions substantially different from those
in this Agreement, for an initial term equal to the time remaining in the
term of this Agreement;
(g) The transferor and the transferee shall have executed a general
release under seal where required, in a form reasonably satisfactory to
Franchisor, of any and all claims (including, without limitation, claims
arising under federal, state, and local laws, rules, and ordinances)
against Franchisor, its parent, subsidiaries, affiliates and their
officers, directors, attorneys, shareholders, and employees, in their
corporate and individual capacities, arising out of, or connected with, the
performance of this Agreement or any other agreement; and
(h) The transferee shall demonstrate to Franchisor's reasonable
satisfaction that (i) it meets all of Franchisor's requirements for
becoming one of its franchisees, including, without limitation, that it
meets Franchisor's managerial and business standards then in effect for
similarly situated franchise owners; (ii) possesses a good moral character,
business reputation, and satisfactory credit rating; and (iii) is not a
competitor of Franchisor, will comply with all instruction and training
requirements of Franchisor and has the aptitude and ability to operate the
Franchised Business (as may be evidenced by prior related business
experience or otherwise).
11.4. Consent Not a Waiver. Franchisor's consent to an assignment by the
Franchise Owner granted herein shall not constitute a waiver of any claims it
may have against the transferring party, nor shall it be deemed a waiver of
Franchisor's right to demand exact compliance with any of the terms of this
Agreement by the transferee.
11.5. Parties Bound and Benefitted. This Agreement shall be binding on the
parties and their respective successors and assigns. This Agreement shall inure
to the benefit of the parties and their respective permitted successors and
assigns.
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12. DEFAULT AND TERMINATION
12.1. Franchisor's Right to Terminate. Franchisor may not terminate this
Agreement prior to the expiration of its term except for "good cause," which
shall mean the occurrence of any event of default described below. Upon the
occurrence of any event of default, Franchisor may, at its option, and without
waiving its rights hereunder or any other rights available at law or in equity,
including its rights to damages, terminate this Agreement and all of Franchise
Owner's rights hereunder effective immediately upon the date Franchisor gives
written notice of termination, upon such other date as may be set forth in such
notice of termination, or in those instances enumerated below in paragraph (a),
automatically upon the occurrence of an event of default. The occurrence of any
one or more of the following events shall constitute an event of default and
grounds for termination of this Agreement by Franchisor:
(a) Automatically, without notice or action required by Franchisor, if
Franchise Owner becomes insolvent or makes a general assignment for the
benefit of creditors, or, unless otherwise prohibited by law, if a petition
in bankruptcy is filed by Franchise Owner, or such a petition is filed
against and consented to by Franchise Owner or not dismissed within thirty
(30) days, or if a bill in equity or other proceeding for the appointment
of a receiver of Franchise Owner or other custodian for Franchise Owner's
business or assets is filed and consented to by Franchise Owner, or if a
receiver or other custodian (permanent or temporary) of Franchise Owner's
assets or property, or any part thereof, is appointed;
(b) If Franchise Owner fails to pay any financial obligation pursuant
to this Agreement within five (5) days of the date on which Franchisor
gives notice of such delinquency or immediately upon written notice if such
payment has not been made within sixty (60) days after the date on which it
is required to be paid, or immediately upon written notice if Franchise
Owner is determined to have underreported its Gross Revenues during any
period by three percent (3%) or more of the actual Gross Revenues during
such period on two or more occasions during the term of this Agreement,
whether or not Franchise Owner subsequently rectifies such deficiency;
(c) If there is any violation of any transfer and assignment provision
contained in Article 11 of this Agreement;
(d) If Franchise Owner receives from Franchise three (3) or more
notices to cure the same on similar defaults or violations of this
Agreement during any twelve (12) month period;
(e) If Franchise Owner fails, for a period of fifteen (15) days after
notification of non-compliance by appropriate authority to comply with any
law, rule or regulation applicable to the operation of the Franchised
Business; provided, however, that if such non-compliance is susceptible to
cure but such cure cannot be accomplished with
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due diligence within such period of time, and if, in addition, Franchise
Owner commences to cure such non-compliance within 15 days after
notification of non-compliance and thereafter prosecutes the curing of such
non-compliance with due diligence, such period of time shall be extended to
such period of time (not to exceed an additional ninety (90) days in the
aggregate) as may be necessary to cure such non-compliance with due
diligence; provided, however, that if such [revise "Franchise Owner" and
"Franchise"];
(f) If Franchise Owner violates any covenant of confidentiality or
non-disclosure contained in Article 10 of this Agreement;
(g) If Franchise Owner or any person controlling, controlled by or
under common control with Franchise Owner, or any principal officer or
employee of Franchise Owner or any such person, owning an interest in the
Franchise is convicted of a felony, or any other crime or offense (even if
not a crime) that is reasonably likely, in the sole opinion of Franchisor,
to affect adversely the Charter System, any Charter System unit, the
Licensed Marks or the goodwill associated therewith;
(h) If Franchise Owner fails to perform or breaches any covenant,
obligation, term, condition, warranty or certification herein or fails to
operate the Franchised Business as specified by Franchisor herein or in the
Confidential Operating Manual and fails to cure such noncompliance or
deficiency within thirty (30) days after Franchisor's written notice
thereof; provided, however, that if such non-compliance or deficiency is
susceptible to cure but such cure cannot be accomplished with due diligence
within such period of time, and if, in addition, Franchise Owner commences
to cure such non-compliance or deficiency within 30 days after notification
of non-compliance or deficiency and thereafter prosecutes the curing of
such non-compliance or deficiency with due diligence, such period of time
shall be extended to such period of time (not to exceed an additional one
hundred eighty (180) days in the aggregate) as may be necessary to cure
such non-compliance or deficiency with due diligence;
(i) If Franchise Owner abandons the operation of all or any
substantial part of the Franchised Business conducted under this Agreement
for twenty-four (24) hours or longer (except as otherwise provided herein
or agreed to by Franchisor) or defaults under any mortgage, deed of trust
or lease with Franchisor or any third party covering the Franchised
Business or of any premises from or at which the Franchised Business is
operated and Franchisor or such third party treats such act or omission as
a default, and Franchise Owner fails to cure such default to the
satisfaction of Franchisor or such third party within any applicable cure
period granted Franchise Owner by Franchisor or such third party;
12.2. Franchise Owner's Right to Terminate.
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(a) The Franchise Owner shall have the right to terminate this
Franchise Agreement, as provided herein, if: (1) the Franchise breaches any
material provision, term or condition of this Franchise Agreement; (2) the
Franchisor files for bankruptcy or is adjudicated a bankrupt under any
state or federal law; or (3) the Franchisor makes an assignment of its
assets for the benefit of creditors.
(b) The Franchise Owner shall not have the right to terminate this
Franchise Agreement or to commence an action or lawsuit against the
Franchisor for breach of this Franchise Agreement, injunctive relief,
violation of any state, federal or local law, violation of common law
(including allegations of fraud and misrepresentation), rescission, general
or punitive damages, or termination, unless and until: (1) written notice
by personal service or prepaid registered or certified United States mail
setting forth the alleged breach or violation in detail has been delivered
to the Franchisor by the Franchise Owner; and (2) the Franchisor fails to
correct the alleged breach or violation within thirty (30) days after
receipt of the written notice by personal service or prepaid registered or
certified United States mail; provided, however, that if such breach or
violation is susceptible to cure but such cure cannot be accomplished with
due diligence within such period of time, and if, in addition Franchisor
commences to cure such breach or violation within thirty (30) days after
receipt of the written notice from Franchise Owner and thereafter
prosecutes the curing of such breach or violation with due diligence, such
period of time shall be extended to such period of time (not to exceed an
additional one hundred eighty (180) days) as may be necessary to cure such
breach or violation with due diligence. If the Franchisor fails to correct
the alleged breach or violation as provided herein after receiving written
notice from the Franchise Owner, then this Franchise Agreement may be
terminated by the Franchise Owner as provided for in this Franchise
Agreement.
(c) The Franchise Owner must give the Franchisor immediate written
notice, as provided herein, of an alleged breach or violation of this
Franchise Agreement after the Franchise Owner has knowledge or determines,
or is of the opinion that there has been an alleged breach or violation of
this Franchise Agreement by the Franchisor. If the Franchise Owner fails to
give written notice to the Franchisor as provided herein of an alleged
breach or violation of this Franchise Agreement by the Franchisor within
one (1) year from the date the Franchise Owner has knowledge of,
determines, or is of the opinion that there has been an alleged breach by
the Franchisor, then the alleged breach or violation shall be deemed to be
condoned, approved and waived by the Franchise Owner, and the alleged
breach or violation shall not be deemed to be a breach or violation of this
Franchise Agreement by the Franchisor.
(d) Notwithstanding any of the foregoing provisions, if the Franchise
Owner gives the Franchisor any notice of an alleged breach or violation
that gives rise to the termination of this Franchise Agreement by the
Franchise Owner or of any laws that give rise to the termination of this
Franchise Agreement by the Franchise Owner, then the Franchisor shall have
the absolute right to immediately commence legal action against the
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Franchise Owner to enjoin and prevent the termination of this Franchise
Agreement by the Franchise Owner without giving the Franchise Owner any
notice and without regard to any waiting period that may be contained in
this Franchise Agreement. If the Franchisor commences such legal action
against the Franchise Owner, then the Franchise Owner will not have the
right to terminate this franchise Agreement unless and until a court of
competent jurisdiction has ruled on the merits that the Franchisor has
breached this Franchise Agreement in the manner alleged by the Franchise
Owner, and then only if the Franchisor fails to correct he breach or
violation determined by the court within thirty (30) days after a final
judgment has been entered against the Franchisor and all time for appeals
by the Franchisor has expired. If the Franchisor commences any legal action
against the Franchise Owner as contemplated by this provision, which shall
include legal actions for injunctive relief against the Franchise Owner to
enjoin the termination of this Franchise Agreement, then the Franchisor
shall not be required to post any bonds or security whatever in such legal
action.
13. POST TERM OBLIGATIONS
Upon the expiration or termination of this Agreement, Franchise Owner shall
immediately:
13.1. Cease Operations. Cease to be a franchisee of Franchisor under this
Agreement and cease to operate the former Franchised Business under the Charter
System. Franchise Owner shall not thereafter, directly or indirectly, represent
to the public that the former Franchised Business is or was operated or in any
way connected with the Charter System or hold itself out as a present (or,
publicly, as a former) franchisee of Franchisor at or with respect to any
premises from or at which the Franchised Business operated;
13.2. Pay All Sums Outstanding. Pay all sums owing to Franchisor. Upon
termination for any default by Franchise Owner, such sums shall include actual
and consequential damages, costs and expenses (including reasonable attorneys
fees incurred by Franchisor as a result of the default).
13.3. Return Confidential Operating Manual. Return to Franchisor the
Confidential Operating Manual and all trade secret and other confidential
materials, equipment and other property owned by Franchisor, and all copies
thereof, including all such provided to any third party by Franchise Owner.
(Franchisor shall not provide any such to any third parties without the written
consent of Franchisor in each instance.) Franchise Owner shall retain no copy or
record of any of the foregoing; provided Franchise Owner may retain its copy of
this Agreement, any correspondence between the parties, and any other document
which Franchise Owner reasonably needs for compliance with any applicable
provision of law.
13.4. Transfer of Certain Interests. Take such action as may be required by
Franchisor to transfer and assign to Franchisor or its designee or to disconnect
and forward all telephone numbers, white and yellow page telephone references
and advertisements, and all trade and similar
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name registrations and business licenses, and to cancel any interest which
Franchise Owner may have in the same.
13.5. Cease Use of System. Cease to use in advertising, or in any manner
whatsoever, any methods, procedures, protocols, programs, procedures or
techniques associated with the Charter System in which Franchisor has a
proprietary right, title or interest; cease to use the Licensed Marks and any
other marks and indicia of operation associated with the Charter System and
remove all trade dress, physical characteristics, color combinations and other
indications of operation under the Charter System from any premises from or at
which the Franchised Business operated. Without limiting the generality of the
foregoing, Franchise Owner agrees that in the event of any termination or
expiration of this Agreement, it will remove all signage bearing the Licensed
Marks, and, upon Franchisor's request, deliver the facia for such signs to
Franchisor, and will remove any items which are characteristic of the Charter
System "trade dress" from any premises from or at which the Franchised Business
operated. Franchise Owner agrees that Franchisor or a designated agent may enter
upon any premises from or at which the Franchised Business operated at any time
in a reasonable manner to make such changes at Franchise Owner's sole risk and
expense and without liability for trespass.
14. INSURANCE
14.1. Maintenance of Insurance. Throughout the term of this Agreement,
Franchise Owner shall maintain in effect at all times a policy or policies of
insurance, designating Franchisor as an additional insured at Franchise Owner's
sole cost and expense as described on Exhibit 4 hereto.
14.2. Notices of Claims. Franchise Owner shall promptly notify Franchisor
of any and all claims against Franchise Owner and/or Franchisor under said
policies of insurance and shall deliver to Franchisor certificates evidencing
that the insurance required by Section 14.1 is in full force and effect within
thirty (30) days after signing this Agreement and each year thereafter. Such
insurance certificates shall contain a statement that the insurance shall not be
canceled without thirty (30) days' prior written notice to Franchise Owner and
to Franchisor.
14.3. Notices of Other Claims/Events. Franchise Owner shall provide to
Franchisor notice of any and all demands, claims, suits, actions, causes of
action, proceedings and assessments (together "Claims") brought, made or
threatened in writing against Franchise Owner, and of the occurrence of any
events which might result in such a Claim, in each case within five (5) business
days after Franchise Owner becomes aware thereof, and will provide to Franchisor
information concerning such Claims or events as Franchisor may from time to time
reasonably request.
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15. TAXES, PERMITS AND INDEBTEDNESS
15.1. Payment. Franchise Owner shall promptly pay when due any and all
federal, state and local taxes, including without limitation unemployment and
sales taxes, levied or assessed with respect to any services or products
furnished, used or licensed pursuant to this Agreement and all accounts or other
indebtedness of every kind incurred by Franchise Owner in the operation of the
Franchised Business.
15.2. Compliance with all Laws and Regulations. Franchise Owner shall
comply with all federal, state and local laws, rules and regulations and timely
obtain any and all permits, certificates and licenses for the full and proper
conduct of the Franchised Business.
15.3. Full Responsibility. Franchise Owner hereby expressly covenants and
agrees to accept full and sole responsibility for any and all debts and
obligations incurred in the operation of the Franchised Business.
16. INDEMNIFICATION AND INDEPENDENT CONTRACTOR
16.1. Indemnification and Hold Harmless. Franchise Owner agrees to protect,
defend, indemnify, and hold Franchisor, and its respective directors, officers,
agents, attorneys and shareholders, jointly and severally, harmless from and
against all claims, actions, proceedings, damages, costs, expenses and other
losses and liabilities, directly or indirectly incurred (including without
limitation reasonable attorneys' and accountants' fees) as a result of, arising
out of, or connected with the operation of the Franchised Business.
16.2. Independent Contractor. In all dealings with third parties including,
without limitation, employees, suppliers and patients, Franchise Owner shall
disclose in an appropriate manner acceptable to Franchisor that it is an
independent entity licensed by Franchisor. Nothing in this Agreement is intended
by the parties hereto to create a fiduciary relationship between them nor to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee or servant of the other for any purpose whatsoever.
It is understood and agreed that Franchise Owner is an independent contractor
and is in no way authorized to make any contract, warranty or representation or
to create any obligation on behalf of Franchisor.
17. WRITTEN APPROVALS, WAIVERS, FORMS OF AGREEMENT AND AMENDMENT
17.1. Prior Approvals. Whenever this Agreement requires Franchisor's prior
approval, Franchise Owner shall make a timely written request. Unless a
different time period is specified in this Agreement, Franchisor shall respond
with its approval or disapproval within fifteen (15) days of receipt of such
request. If Franchisor has not specifically approved a request within such
fifteen (15) day period, such failure to respond shall be deemed disapproval of
any such request.
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17.2. No Waiver. No failure of Franchisor to exercise any power reserved to
it by this Agreement and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Franchisor's right to demand exact
compliance with any of the terms herein. No waiver or approval by Franchisor of
any particular breach or default by Franchise Owner, nor any delay, forbearance
or omission by Franchisor to act or give notice of default or to exercise any
power or right arising by reason of such default hereunder, nor acceptance by
Franchisor of any payments due hereunder shall be considered a waiver or
approval by Franchisor of any preceding or subsequent breach or default by
Franchise Owner of any term, covenant or condition of this Agreement.
17.3. Form of Agreements. No warranty or representation is made by
Franchisor that all Charter System franchise agreements heretofore or hereafter
issued by Franchisor do or will contain terms substantially similar to those
contained in this Agreement. Further, Franchise Owner recognizes and agrees that
Franchisor may, in its reasonable business judgment, due to local business
conditions or otherwise, waive or modify comparable provisions of other
franchise agreements heretofore or hereafter granted to other Charter System
franchise owners in a non-uniform manner.
17.4. Written Amendments. Except as otherwise specifically provided in this
Agreement, no amendment, change or variance from this Agreement shall be binding
upon either Franchisor or Franchise Owner except by mutual written agreement. If
an amendment of this Agreement is executed at Franchise Owner's request, any
legal fees or costs of preparation in connection therewith shall, at the option
of Franchisor, be paid by Franchise Owner.
18. ENFORCEMENT
18.1. Inspections. In order to ensure compliance with this Agreement and to
enable Franchisor to carry out its obligation under this Agreement, Franchise
Owner agrees that Franchisor and its designated agents shall be permitted, with
or without notice, full and complete access during business hours to inspect all
premises from or at which the Franchised Business is conducted and all records
thereof, including, but not limited to, records relating to Franchise Owner's
patients, suppliers, employees and agents. Franchise Owner shall cooperate fully
with Franchisor and its designated agents requesting such access.
18.2. Injunctive Relief. Franchisor or its designee shall be entitled to
obtain, without bond, declaratory judgments, temporary and permanent
injunctions, and orders of specific performance, in order to enforce the
provisions of this Agreement relating to Franchise Owner's use of the Licensed
Marks, the obligations of Franchise Owner upon termination or expiration of this
Agreement, and assignment of this Agreement and/or ownership interests in
Franchise Owner or to prohibit any act or omission by Franchise Owner or its
employees which constitutes a violation of any applicable law or regulation,
which is dishonest or misleading to prospective or current customers of
businesses operated under the Charter System, which constitutes a danger
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to other franchise owners, employees, patients or the public, or which may
impair the goodwill associated with the Licensed Marks.
18.3. Costs and Expenses. If Franchisor secures any declaratory judgment,
injunction or order of specific performance pursuant to this Article 18, or
otherwise, if any provision of this Agreement is enforced at any time by
Franchisor or if any amounts due from Franchise Owner to Franchisor are, at any
time, collected by or through an attorney at law or collection agency, Franchise
Owner shall be liable to Franchisor for all costs and expenses of enforcement
and collection including, but not limited to, court costs and reasonable
attorneys' fees.
18.4. No Right to Offset. Franchise Owner will not, for any reason,
withhold payment of any monthly payment, fee or any other fees or payments due
to the Franchisor under this Agreement or pursuant to any other contract,
agreement or obligation to the Franchisor. Franchise Owner shall not have the
right to "offset" any liquidated or unliquidated amounts, damages or other funds
allegedly due to the Franchise Owner from the Franchisor against any monthly
payment, fee or any other fees or payments due to the Franchisor under this
Agreement or otherwise.
19. ENTIRE AGREEMENT
THIS AGREEMENT AND THE SCHEDULES ATTACHED HERETO AND MADE A PART HEREOF
CONTAIN THE ENTIRE AGREEMENT OF THE PARTIES. NO OTHER AGREEMENTS, WRITTEN OR
ORAL, SHALL BE DEEMED TO EXIST, AND ALL PRIOR AGREEMENTS AND UNDERSTANDINGS ARE
SUPERSEDED HEREBY. THERE ARE NO CONDITIONS TO THIS AGREEMENT WHICH ARE NOT
EXPRESSED HEREIN. NO OFFICER, EMPLOYEE OR AGENT OF FRANCHISOR HAS ANY AUTHORITY
TO MAKE ANY REPRESENTATION OR PROMISE NOT CONTAINED IN THIS AGREEMENT, AND
FRANCHISE OWNER AGREES THAT IT HAS EXECUTED THIS AGREEMENT WITHOUT RELIANCE UPON
ANY SUCH REPRESENTATION OR PROMISE. THIS AGREEMENT SHALL NOT BE BINDING UPON
FRANCHISOR UNTIL EXECUTED BY AN AUTHORIZED OFFICER THEREOF.
20. NOTICES
Any notice required to be given hereunder shall be in writing and shall be
either mailed by certified mail, return receipt requested or delivered by a
recognized courier service, receipt acknowledged. Notices to Franchise Owner
shall be addressed to it at the address listed in Article 1 of this Agreement.
Notices to Franchisor shall be addressed to it at the address listed in Article
1 of this Agreement. Attention: President. Any notice complying with the
provisions hereof shall be deemed to be given three (3) days after mailing, or
on the date of receipt, whichever is earlier. Each party shall have the right to
designate any other address for such notices by giving notice thereof in the
foregoing manner, and in such event all notices to be mailed after receipt of
such notice shall be sent to such other address.
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21. GOVERNING LAW AND DISPUTE RESOLUTION
21.1. Governing Law. This Agreement shall be interpreted, construed,
applied and enforced in accordance with the laws of the State of Georgia
applicable to contacts among residents of Georgia which are to be performed
entirely within Georgia, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required to be made;
or (iii) where any breach of any provision of this Agreement occurs, or any
cause of action otherwise accrues; or (iv) where any action or other proceeding
is instituted or pending; or (v) the nationality, citizenship, domicile,
principal place of business or jurisdiction of organization or domestication of
any party; or (vi) whether the laws of the forum jurisdiction otherwise would
apply the laws of a jurisdiction other than the State of Delaware; or (vii) any
combination of the foregoing.
Subject to Section 21.2 below, to the maximum extent permitted by
applicable law, any action to enforce, arising out of, or relating in any way
to, any of the provisions of this Agreement may be brought and prosecuted in
such court or courts located in the State of Georgia as is provided by law; and
the parties consent to the jurisdiction of said court or courts located in the
State of Georgia and to service of process by registered mail, return receipt
requested, or by any other manner provided by law.
21.2. Arbitration Litigation. (a) Any dispute, controversy or claim arising
out of or relating to this Agreement or any contract or agreement entered into
pursuant hereto or the performance by the parties of its or their terms shall be
settled by binding arbitration held in Atlanta, Georgia, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Judgment upon the award rendered by the arbitrator(s) may be entered in
any court having in personam and subject matter jurisdiction. The parties hereby
submit to the in personam jurisdiction of the federal and state courts in
Georgia, for the purpose of confirming any such award and entering judgment
thereon; and
(b) Notwithstanding the foregoing, Franchisor may, in its discretion,
apply to a court of competent jurisdiction for equitable relief from any
violation or threatened violation of the covenants of Franchise Owner in
this Agreement, including but not limited to, as provided in Section 18.2.
Franchise Owner acknowledges that its violation or threatened violation of
the provisions of Article 10 would cause irreparable injury and, in
addition to any other remedies to which Franchisor may be entitled, that
Franchisor shall be entitled to injunctive relief.
22. SEVERABILITY, CONSTRUCTION AND OTHER MATTERS
22.1. Severability. Should any provision of this Agreement be for any
reason held invalid, illegal or unenforceable by a court of competent
jurisdiction, such provision shall be deemed restricted in application to the
extent required to render it valid; and the remainder of this Agreement shall in
no way be affected and shall remain valid and enforceable for all purposes. In
the event that any provision of this Agreement should be for any reason held
invalid, illegal
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or unenforceable by a court of competent jurisdiction, or in the event the
performance or compliance by any party with any provision of this Agreement
shall result in such party being in violation of any law, rule or regulation of
any governmental authority, then in any of such events the parties agree to use
commercially reasonable best efforts to amend in a manner reasonably consistent
with each party's economic interests the obligations of the parties under and
pursuant to this Agreement so as to cause the parties' obligations hereunder to
be enforceable and not in violation of any law, rule or regulation of any
governmental authority. In the event such total or partial invalidity or
unenforceability of any provision of this Agreement exists only with respect to
the laws of a particular jurisdiction, this paragraph shall operate upon such
provision only to the extent that the laws of such jurisdiction are applicable
to such provision. Each party agrees to execute and deliver to the other any
further documents which may be reasonably required to effectuate fully the
provisions hereof. Franchise Owner understands and acknowledges that Franchisor
shall have the right, in its sole discretion, on a temporary or permanent basis,
to reduce the scope of any covenant or provision of this Agreement binding upon
Franchise Owner, or any portion hereof, without Franchise Owner's consent,
effective immediately upon receipt by Franchise Owner of written notice thereof,
and Franchise Owner agrees that it will comply forthwith with any covenant as so
modified, which shall be fully enforceable.
22.2. Regulatory Reports. Each party agrees to reasonably cooperate with
the other in providing on a timely basis all documents and information in its
possession or reasonably available to it, reasonably required by the other for
reports or filings required by any governmental or other regulatory authority.
22.3. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but such counterparts together shall constitute one and the same
instrument.
22.4. Table of Contents, Headings and Captions. The table of contents,
headings and captions contained herein are for the purposes of convenience and
reference only and are not to be construed as a part of this Agreement. All
terms and words used herein shall be construed to include the number and gender
as the context of this Agreement may require. The parties agree that each
section of this Agreement shall be construed independently of any other section
or provision of this Agreement.
23. MANAGEMENT CONTRACTS/JOINT VENTURES/CONSULTING AGREEMENTS
Franchise Owner agrees during the continuance of this Agreement that it
will not enter into any management agreements, joint ventures or consulting or
other agreements relating to a Hospital/RTC Based Behavioral Healthcare Business
("New Arrangements") except (i) in the event a Franchise Agreement is entered
into by Franchisor with respect to such business, or (ii) with the written
consent of Franchisor in each instance, and in each such instance they shall be
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included in Gross Revenues, the Business Gross Revenues of any such joint
venture or managed business.
24. ACKNOWLEDGMENTS
24.1. FRANCHISE OWNER ACKNOWLEDGES THAT FRANCHISOR OR ITS AGENT HAS
PROVIDED FRANCHISE OWNER WITH A FRANCHISE OFFERING CIRCULAR NOT LATER THAN THE
EARLIER OF THE FIRST PERSONAL MEETING HELD TO DISCUSS THE SALE OF A FRANCHISE,
TEN (10) BUSINESS DAYS BEFORE THE EXECUTION OF THIS AGREEMENT, OR TEN (10)
BUSINESS DAYS BEFORE ANY PAYMENT OF ANY CONSIDERATION. FRANCHISE OWNER FURTHER
ACKNOWLEDGES THAT FRANCHISE OWNER HAS READ SUCH FRANCHISE OFFERING CIRCULAR AND
UNDERSTANDS ITS CONTENTS.
24.2. FRANCHISE OWNER ACKNOWLEDGES THAT FRANCHISOR HAS PROVIDED FRANCHISE
OWNER WITH A COPY OF THIS AGREEMENT AND ALL RELATED DOCUMENTS, FULLY COMPLETED,
AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO FRANCHISE OWNER'S EXECUTION HEREOF.
24.3. FRANCHISE OWNER IS AWARE OF THE FACT THAT OTHER PRESENT OR FUTURE
FRANCHISE OWNERS OF FRANCHISOR MAY OPERATE UNDER DIFFERENT FORMS OF
AGREEMENT(S), AND CONSEQUENTLY THAT FRANCHISOR'S OBLIGATIONS AND RIGHTS WITH
RESPECT TO ITS VARIOUS DEVELOPERS AND FRANCHISE OWNERS MAY DIFFER MATERIALLY IN
CERTAIN CIRCUMSTANCES.
24.4. FRANCHISE OWNER ACKNOWLEDGES THAT THIS INSTRUMENT AND THE TRANSACTION
DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES. EXCEPT AS SET FORTH IN
THE TRANSACTION DOCUMENTS, THIS AGREEMENT TERMINATES AND SUPERSEDES ANY PRIOR
AGREEMENT BETWEEN THE PARTIES CONCERNING THE SAME SUBJECT MATTER.
24.5. FRANCHISE OWNER ACKNOWLEDGES THAT COMPUTER SOFTWARE LICENSED
HEREUNDER IS FURNISHED "AS IS". FRANCHISOR MAKES NO WARRANTIES, WHETHER EXPRESS
OR IMPLIED WITH RESPECT TO SUCH SOFTWARE AND DOCUMENTATION DESCRIBING SUCH
SOFTWARE, ITS QUALITY, ITS PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF
SOFTWARE AND DOCUMENTATION DESCRIBING SUCH SOFTWARE IS WITH FRANCHISE OWNER.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal on the date first written above.
FRANCHISOR:
--------------------------------------
By:___________________________________
Title: _______________________________
(Affix Corporate Seal)
FRANCHISE OWNER:
By:___________________________________
Title:________________________________
(Affix Corporate Seal)
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SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is made as of the ____
day of ___________, 1997, among CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC, a
Delaware limited liability company ("OpCo"), CRESCENT REAL ESTATE EQUITIES LIM
ITED PARTNERSHIP, a Delaware limited partnership ("Crescent"), and MAGELLAN
HEALTH SERVICES, INC., a Delaware corporation ("Magellan").
RECITALS:
A. Crescent, as landlord, and OpCo and each of certain wholly-owned
subsidiaries of OpCo (collectively, the "Initial OpCo Subs"), collectively as
tenant, are parties to that certain Master Lease Agreement of even date herewith
(as the same may be amended or modified, the "Lease").
B. Magellan, as franchisor, and OpCo, as franchisee, are parties to
that certain Master Franchise Agreement of even date herewith, and each of the
Initial OpCo Subs, as a franchisee, and Magellan, as franchisor, is a party to
an individual franchise agreement as described in the Master Franchise Agreement
(the Master Franchise Agreement and such individual franchise agreements,
together with any new franchise agreements now or hereafter entered into between
Magellan, as franchisor, and OpCo, any Initial OpCo Sub, or any other subsidiary
of OpCo now or hereafter in existence, as such Master Franchise Agreement,
individual franchise agreements or other franchise agreements may be amended or
modified, are referred to herein collectively as the "Franchise Agreement").
C. OpCo and Magellan desire to subordinate, to the extent set forth
herein, the payment and performance of the Franchise Agreement to the payment
and performance of certain obliga tions under the Lease upon the terms and
conditions set forth below, and Magellan and Crescent desire to establish
certain duties, rights and responsibilities among themselves with respect to the
obligations of the OpCo, the Initial OpCo Subs, and any other subsidiary of OpCo
now or hereafter in existence that enters into a franchise agreement with
Magellan (the Initial OpCo Subs and such other subsidiaries of OpCo being
hereinafter referred to collectively as the "OpCo Subs").
NOW, THEREFORE, in consideration of the foregoing and other valuable
consideration hereby acknowledged, and in order to induce Crescent to enter into
the Lease with OpCo, OpCo, Crescent and Magellan agree as follows:
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ARTICLE 1
DEFINITIONS
1.1 "Additional Charges" shall have the meaning given such term in the
Lease payable with respect to the Term.
1.2 "Additional Rent" shall have the meaning given such term in the Lease
payable with respect to the Term.
1.3 "Business Day" shall mean any day other than Saturday, Sunday, or any
other day on which banking institutions in the states of Texas,
Georgia, and the State are authorized by law or executive action to
close.
1.4 "Collective Leased Properties" shall have the meaning given such term
in the Lease.
1.5 "Debtor Relief Laws" shall mean any applicable liquidation,
conservatorship, bank ruptcy, moratorium, rearrangement, insolvency,
reorganization or similar laws relating to the relief of debtors,
readjustment of indebtedness or composition, and affecting the rights
of creditors generally, which may from time to time be in effect.
1.6 "Franchise Agreement" shall have the meaning given such term in the
Recitals to this Agreement.
1.7 "Franchise Fees" shall mean, collectively, the franchise fees payable
to Magellan under the Franchise Agreement, including interest and late
charges, as well as any fees payable to Magellan by OpCo or any OpCo
Sub with respect to Joint Ventures and/or Managed Businesses (as such
terms are defined in the Master Franchise Agreement) pursuant to
Section 10 of the Master Franchise Agreement to the extent not already
included in the calculation of "Franchise Fees" as defined in the
Master Franchise Agreement.
1.8 "Lease" shall have the meaning given such term in the Recitals to this
Agreement.
1.9 "Lease Year" shall have the meaning given such term in the Lease.
1.10 "Leased Property" shall have the meaning given such term in the Lease.
1.11 "Minimum Rent" shall have the meaning given such term in the Lease
payable with respect to the Term.
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1.12 "Non-Priority Additional Rent" shall mean the amount of additional rent
with respect to any Lease Year in excess of the Priority Additional
Rent Base Amount.
1.13 "Non-Priority Additional Rent Monthly Amount" shall mean, for each
month in a Lease Year, the monthly installment of Additional Rent
payable for such month equal to one-twelfth (1/12th) of the difference
between (a) the total Additional Rent payable for such Lease Year minus
(b) the Priority Additional Rent Base Amount for such Lease Year
calculated for such month as provided below in the definition of
"Priority Addi tional Rent Base Amount."
1.14 "Permitted Payments" shall have the meaning given such term in Section
2.2.
1.15 "Plan" shall have the meaning given such term in Section 2.4(c).
1.16 "Priority Additional Rent Base Amount" for any Lease Year shall mean an
amount of Additional Rent equal to Ten Million Dollars ($10,000,000);
provided, however, that if Crescent, as landlord, funds, or makes an
irrevocable commitment to fund, Capital Expenditures (as defined in the
Lease) for any Lease Year in an amount in excess of Ten Million Dollars
($10,000,000) at OpCo's request, then the Priority Additional Rent Base
Amount for such Lease Year shall be increased to the amount of Capital
Expenditures funded or committed to be funded by Crescent for such
Lease Year. Notwithstanding the foregoing, in the event that, and for
so long as, the accrued and unpaid Franchise Fees equal or exceed
Fifteen Million Dollars ($15,000,000), then the Priority Additional
Rent Base Amount for any such Lease Year shall be reduced to $0.00;
provided, however, that if Crescent funds, or makes an irrevocable
commitment to fund, Capital Expenditures for any Lease Year in any
amount at OpCo's request, then the Priority Additional Rent Base Amount
for such Lease Year shall be increased from $0.00 to the amount of
Capital Expenditures funded or committed to be funded by Crescent for
such Lease Year. The Priority Additional Rent Base Amount shall be
computed monthly in advance of the payment of Rent required to be made
under the Lease for the next succeeding month. Such calculation shall
be made on the 25th day of the month, unless the 25th day of the month
is not a Business Day, in which event such calculation for such month
shall be made on the first Business Day following such 25th day.
Notwithstanding anything set forth above to the contrary, if any
request by OpCo to Crescent to fund Capital Expendi tures under the
Lease is for an amount in excess of the amount budgeted therefor in
OpCo's approved Annual Budget (as defined in OpCo's Operating
Agreement), then the Priority Additional Rent Base Amount shall not be
increased as provided above to the extent that the amount of such
request is above the budgeted amount unless such request
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is accompanied by OpCo's certification that Magellan has approved such
requested amount. Magellan acknowledges and agrees that Crescent shall
be entitled to rely upon OpCo's certification that any amount requested
either (i) is within the approved Annual Budget of OpCo or (ii) has
been approved by Magellan, and in the latter event such certification
by OpCo shall be accompanied by Magellan's written consent to such re
quested amount.
1.17 "Rent" shall mean, collectively, all Minimum Rent, including late
charges and default rate interest, and Additional Rent, but shall
exclude Additional Charges except to the extent that Additional Charges
include late charges and default rate interest.
1.18 "Rescission Event" shall have the meaning given such term in Section
3.4.
1.19 "Returned Payment" shall have the meaning given such term in Section
3.4.
1.20 "State" shall mean, as to each Leased Property, the state in which such
Leased Property is located.
1.21 "Term" shall have the meaning given such term in the Lease.
ARTICLE 2
SUBORDINATION
2.1 Agreement to Subordinate. Notwithstanding any provision in the
Franchise Agreement or any other agreement between Magellan and OpCo or
between Magellan and any OpCo Sub to the contrary, the Franchise Fees
(including any increases thereto effected from time to time by
amendments to the Franchise Agreement adding new Leased Properties to
the facilities covered thereby) are and shall be, to the extent and in
the manner hereinafter set forth, subject, subordinate and junior in
right of payment and liquidation to the prior irrevocable payment in
full of the Rent (other than Non-Priority Additional Rent), as the Rent
(other than Non-Priority Additional Rent) may be increased from time to
time by amendments to the Lease adding new Leased Properties that are
also covered by the Franchise Agreement to the Collective Leased
Properties. Magellan acknowledges receipt of a true and complete copy
of the Lease. Unless and until all Rent (other than Non-Priority
Additional Rent) shall have been fully paid and the Term shall have
expired, Magellan will not, except as otherwise expressly provided
herein, take or receive, or retain, from OpCo, any OpCo Sub, or any
other person or entity, by setoff or in any other
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manner, payment of all or any part of the Franchise Fees, or accept any
security therefor, and neither OpCo nor any OpCo Sub shall make, give
or permit, directly or indirectly, any such payment, and Magellan shall
not demand or sue for any such payment to the extent prohibited in
Section 2.3. Notwithstanding the foregoing payment subordination, but
subject to the provisions of Sections 2.3 and 2.4, OpCo may pay, and
Magellan may receive, the Permitted Payments, as defined in Section
2.2.
2.2 Permitted Payments. Notwithstanding any provision contained in this
Agreement to the contrary, so long no "Default" or "Event of Default"
(as defined therein) under or within the meaning of the Lease has
occurred and is continuing with respect to the payment of Rent (other
than Non-Priority Additional Rent), or would be created by making the
payments to Magellan hereinafter described, and so long as none of OpCo
or any OpCo Sub is the subject of any proceeding under any Debtor
Relief Laws, OpCo may pay to Magellan, and Magellan may accept from
OpCo, the regularly scheduled monthly install ment of the Franchise
Fees in any month, when due, as well as any accrued and unpaid monthly
installments of the Franchise Fees (collectively, the "Permitted
Payments"), after payment by OpCo of all Rent due for such month,
excluding the Non-Priority Additional Rent Monthly Amount for such
month. Further, notwithstanding any provi sion contained in this
Agreement to the contrary, except in the case of a Rescission Event,
Crescent shall not be entitled to recover from Magellan any Permitted
Payment or any portion thereof that has been properly made to Magellan
in accordance with the terms of this Section 2.2.
2.3 Agreement Not to Enforce Payment or Commence Action.
(a) Notwithstanding any provision contained in this Agreement, the
Franchise Agreement or any other agreement to the contrary, prior to
the payment in full of all Rent (other than Non-Priority Additional
Rent) payable under the Lease and the expiration of the Term, (i)
Magellan shall not object to, challenge, hinder or delay the exercise
by Crescent of any right or remedy it may have under or with respect
to the Lease or any other agreement, or otherwise at law or in equity,
against OpCo, any OpCo Sub or any of its or their assets or
properties, and (ii) Magellan shall have no right to file an
involuntary proceeding against OpCo or any OpCo Sub under any Debtor
Relief Laws or otherwise to enforce payment of any of the Permitted
Payments or any other portion of the Franchise Fees against OpCo or
any OpCo Sub, or to otherwise take any action against OpCo or any OpCo
Sub (including, without limitation, any proceeding under Debtor Relief
Laws), or against any property or assets of OpCo or any OpCo Sub, in
order to collect the Permitted Payments or any other portion of the
Franchise Fees, without the prior written consent of Crescent,
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if such action could reasonably be expected to lead to OpCo's or any
OpCo Sub's filing of a voluntary proceeding, or other creditors of OpCo
or any OpCo Sub filing an involuntary proceeding against OpCo or any
OpCo Sub, under any Debtor Relief Laws. However, so long as no
"Default" or "Event of Default" under the Lease has occurred and is
continuing with respect to the payment of Rent (other than Non-Priority
Additional Rent), and so long as none of OpCo or any OpCo Sub is the
subject of any proceeding under any Debtor Relief Laws, Magellan may
pursue any default remedy available under the Fran chise Agreement or
at law or in equity or otherwise, except as provided above in this
Section 2.3.
(b) Each of Crescent and Magellan covenants to the other that it shall use
commercially reasonable best efforts to provide in a timely fashion
written notice of the commencement and progress of any remedial action
undertaken against OpCo or any OpCo Sub, includ ing providing to such
party copies of any and all correspondence to OpCo or any OpCo Sub
from such party with respect to any of such party's rights or remedies
and any plead ings or similar material; provided, however, that
failure to provide any such written notice or any such copies shall
not affect the validity of any action undertaken or render either
Crescent or Magellan liable to the other or to any other person or
entity.
2.4 In Furtherance of Subordination.
(a) In the event (i) of any distribution, division or application,
voluntary or involuntary, by operation of law or otherwise, of all or
any substantial part of the assets or business of OpCo or any OpCo Sub
to creditors of OpCo or any OpCo Sub, or (ii) upon any indebt edness
of OpCo or any OpCo Sub becoming due and payable by reason of any
dissolu tion, liquidation or other winding up of OpCo or any OpCo Sub
or its business, or by reason of any sale, receivership, insolvency,
reorganization or bankruptcy proceedings, assignment for the benefit
of creditors, or any arrangement or proceeding by or against OpCo or
any OpCo Sub for any relief under any Debtor Relief Laws (whether
voluntary or involuntary), or any other marshaling of the assets and
liabilities of OpCo or any OpCo Sub, until the Rent (other than
Non-Priority Additional Rent) has been paid in full (sub ject,
however, to the terms of Section 3.4 below) (A) all payments and
distributions of any kind or character (whether in cash, property or
securities) in respect of the Franchise Fees to which Magellan would
be entitled if the Franchise Fees were not subordinated as provided
herein shall be made directly to Crescent for application in
accordance with the terms of the Lease, and (B) Magellan shall not
seek the lifting, for its own benefit, of any automatic stay or
similar restriction imposed by reason of any such arrangement or
proceeding.
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(b) All payments or distributions on or with respect to the Franchise Fees
which are received by Magellan contrary to the provisions of this
Agreement, whether in cash, properties or securities (including
without limitation any distributions received on account of any
security interests, liens, or other encumbrances), shall be received
in trust for the benefit of Crescent, shall be segregated from other
funds and property held by Magellan and shall be forthwith paid over
to Crescent in the same form as so received (with any neces sary
endorsement) to be applied (in the case of cash) to, or held as
collateral (in the case of non-cash property or securities) for, the
payment or prepayment of the Rent (other than Non-Priority Additional
Rent) in accordance with the terms of the Lease. In the event of any
failure by Magellan to make any such endorsement or assignment,
Crescent is hereby irrevocably authorized to make the same.
(c) Magellan shall file in a timely manner a claim or claims, in the form
required in any proceeding described in subsection (a) above, for the
full outstanding amount of the Franchise Fees and shall use
commercially reasonable best efforts to cause said claim or claims to
be approved and all payments and other distributions in respect
thereof to be made directly to Crescent until all Rent (other than
Non-Priority Additional Rent) pay able under the Lease has been paid
in full. Magellan irrevocably authorizes and empow ers Crescent, in
connection with any proceeding or distribution described in subsection
(a) above, in the name of Magellan or otherwise, to demand, sue for,
collect and receive and receipt for any and all such payments or
distributions, and file, prove, and vote or consent in any such
proceedings with respect to any and all claims of Magellan relating to
the Franchise Fees if Magellan shall not have duly filed such claim or
proof of claim at least ten (10) days prior to the last day on which
such claim or proof of claim may be filed. Magellan agrees that (i)
without the prior written consent of Crescent, which consent shall not
be unreasonably withheld, it will not vote such claim in favor of any
plan of reorganization or similar structure (a "Plan") under which the
terms of the Lease are changed in any way, and (ii) it will not vote
against any Plan if Crescent votes in favor of the same unless, under
such Plan, the Franchise Fees, or any portion thereof, would not be
subordinate in right of payment to distributions to Crescent on
account of the Rent (other than Non-Priority Additional Rent).
Magellan further agrees that, in view of the difficulty of estimating
damages from any violation by Magellan of the terms of this subsection
(c), Crescent shall be entitled to injunctive relief to prevent or
rescind any action taken by Magellan in violation of this subsection
(c), as well as damages and other forms of relief available for breach
of contract.
(d) Crescent shall be entitled to enforce specific performance of this
Agreement at any time when Magellan shall have failed to comply with
any of the provisions of this Agreement
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applicable to it. Magellan hereby irrevocably waives any defense based
on the adequacy of a remedy at law which might be asserted as a bar to
such remedy of specific perfor mance.
(e) Nothing provided in this Agreement is intended to relieve OpCo of its
obligation to pay Franchise Fees due under the Franchise Agreement.
2.5 Application of Payments Received. All payments and distributions
received by Crescent in respect of the Franchise Fees, to the extent
received in or converted into cash, may be applied by Crescent first to
the payment of any and all expenses (including reasonable attorneys'
fees and legal expenses) paid or incurred by Crescent in enforcing this
Agree ment or in endeavoring to collect or realize upon any of the
Franchise Fees or any secu rity therefor, and any balance shall, solely
as between Magellan and Crescent, be applied by Crescent, in such order
of application as Crescent may from time to time select, toward the
payment of Rent (other than Non-Priority Additional Rent) remaining
unpaid, but as between OpCo or any OpCo Sub and its creditors, no such
payments or distribu tions of any kind or character shall be deemed to
be payments or distributions in respect of Rent.
ARTICLE 3
MISCELLANEOUS
3.1 Notices. Whenever any notice is required or permitted hereunder, such
notice shall be in writing and (a) sent by certified mail, postage
prepaid, return receipt requested, (b) given by established overnight
commercial courier for delivery on the next Business Day with delivery
charges prepaid or duly charged, (c) personally hand-delivered or (d)
sent by facsimile transmission with confirmation of receipt received,
to the applicable address or facsimile number set forth below:
As to Crescent: Gerald W. Haddock
President and Chief Executive Officer
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
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with copies to: David M. Dean, Esq.
Senior Vice President, Law
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
Wendelin A. White, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
Facsimile: (202) 663-8007
As to OpCo or any
OpCo Sub: Charter Behavioral Health Systems, LLC
3414 Peachtree Road, N.E.
Suite 900
Atlanta, Georgia 30326
Attn: Chief Legal Counsel
Facsimile: (404) 814-5793
with a copy to:
As to Magellan: Steve J. Davis, Esq.
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
with a copy to: Robert W. Miller
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Facsimile: (404) 572-5100
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<PAGE>
Notices which are mailed shall be deemed effective upon receipt. Notices which
are hand-delivered shall be deemed effective upon tender to a natural person at
the address shown. Notices which are delivered by overnight courier shall be
deemed given on the next Business Day after delivery to such courier. Notices
which are delivered by facsimile transmission shall be deemed received upon
electronic confirmation of delivery.
3.2 No Waivers. No failure or delay on the part of any party to exercise,
and no course of dealing with respect to, any right, power or privilege
under this Agreement or any docu ment or instrument relating to the
Lease or the Franchise Agreement shall operate as a waiver thereof. No
single or partial exercise of any such right, power or privilege shall
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies herein provided are
cumulative and not exclusive of any reme dies provided by law.
3.3 Amendments, Supplements and Waivers. The provisions of this Agreement
may not be amended, modified or waived except by the written agreement
of Magellan and Crescent (without any necessity for notice to or
consent by OpCo or any OpCo Sub, which notice and consent are expressly
WAIVED by OpCo). The provisions of this Agreement shall be solely for
the benefit of Crescent and Magellan and may not be relied upon or
enforced by OpCo, any OpCo Sub or any other person or entity other than
Crescent and Magellan.
3.4 Continuing Agreement; Successors and Assigns. This Agreement is a
continuing agree ment and shall be binding upon and, except as provided
in Section 3.3, inure to the benefit of each of the parties hereto, and
their respective successors and assigns. Further, this Agreement shall
remain in full force and effect until the Rent shall have been irrevo
cably paid in full and shall continue to be effective, or be
reinstated, as the case may be, if at any time any payment of all or
any part of the Rent (a "Returned Payment") is re scinded or must
otherwise be returned upon the insolvency, bankruptcy or reorganization
of OpCo or any OpCo Sub, or by reason of the operation of any other
applicable law or order of court (a "Rescission Event"), all as though
such payment had not been made. No party hereto shall sell, assign,
pledge, encumber or otherwise dispose of the Franchise Agreement or the
Lease, as the case may be, or any amounts payable thereunder, unless
such sale, assignment, pledge, encumbrance or disposition is made
expressly subject to the terms and provisions of this Agreement.
Nothing herein is intended or shall be construed to give any other
person any right, remedy or claim with respect to this Agree ment, the
Lease, or the Franchise Agreement. Notwithstanding the foregoing,
Magellan shall be entitled to collaterally assign its rights but not
its obligations under the Franchise Agreement, subject to the terms and
provisions of this Agreement, as well as its rights but not its
obligations under this Agreement, to any of its lenders.
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<PAGE>
3.5 Severability. If any provision of this Agreement is held to be illegal,
invalid or unen forceable under present or future laws during the term
hereof, such provision shall be fully severable, this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof, and the remaining provi
sions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as a part of
this Agreement a legal, valid and enforceable provision as similar in
terms to the illegal, invalid or unenforceable provision as may be
possible.
3.6 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the
same instrument. In making proof of this Agreement it shall not be
necessary to produce or account for more than one such counterpart.
3.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND GOV
ERNED BY THE LAWS OF THE STATE OF DELAWARE AND THE UNITED
STATES OF AMERICA.
3.8 WAIVER OF JURY TRIAL. EACH OF OPCO, MAGELLAN AND CRESCENT hereby
irrevocably waives, to the full extent permitted by applicable law, any
right to have a jury participate in resolving any dispute arising out
of, in connection with, related to, or incidental to this Agreement.
3.9 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MAT
TER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PAR
TIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES.
3.10 Amendment of Franchise Agreement. Magellan agrees that, unless and
until all Rent (other than Non-Priority Additional Rent) shall have
been irrevocably paid in full (sub ject, however, to the terms of
Section 3.4 above) and the Term shall have expired, with out Crescent's
prior written consent the Franchise Agreement shall not be amended,
modified, or supplemented by any of the parties thereto in any manner
that would in crease or accelerate payment of the Franchise Fees or any
installment thereof, except for an increase in the Franchise Fees in
connection with the addition of a new Leased Prop erty to the
facilities covered by the Franchise Agreement or in connection with the
imple mentation of New Products (as defined in the Franchise
Agreement). If the Franchise Agreement is amended without Crescent's
prior written consent in a manner that violates the provisions of this
Section 3.10, then the increased or accelerated portion of the Fran
chise Fees shall be subordinate and junior in right of payment and
liquidation to the prior irrevocable payment in full of all Rent,
Additional Rent (including all Non-Priority Additional Rent), and all
Additional Charges.
3.11 No Subrogation Until Payment in Full. Without Crescent's prior written
consent, Magel lan shall not be entitled to be subrogated to any of the
rights of Crescent against OpCo, any OpCo Sub, or any other person or
entity, or any liens, security interests or assign ments now or
hereafter securing the Lease, until all of the Rent (other than
Non-Priority Additional Rent) shall have been irrevocably paid in full
(subject, however, to the terms of Section 3.4 above) and the Term
shall have expired.
3.12 Amendment of Lease. Crescent may, at any time and from time to time,
without the consent of or notice to Magellan, and without impairing or
releasing the obligations of Magellan hereunder, (a) enter into any
amendment or modification of the Lease, includ ing, without limitation,
any amendment which extends the maturity of the Fixed Term or any
Extended Term, except the fourth Extended Term (as such terms are
defined in the Lease), of the Lease (whether or not in accordance with
the renewal options set forth therein) or extends or reduces any
installment of Rent or waives any Default or Event of Default
thereunder; (b) exercise or refrain from exercising any rights against
OpCo, any OpCo Sub or any other person or entity; (c) subject to the
terms and provisions of Section 2.5 hereof, apply any sums by
whomsoever paid or however realized to the Lease; (d) sell, exchange,
release, surrender, realize upon or otherwise deal with, in any manner
and in any order, any property whatsoever and by whomsoever at any time
pledged or mort gaged to secure the Lease; (e) release anyone liable in
any manner for the payment or collection of any Rent, and (f) settle or
compromise all or any part of the Rent and subor dinate the payment of
any part of the Rent to the payment of any other indebtedness.
Notwithstanding the foregoing, Crescent shall not, without prior notice
to and written consent of Magellan, amend or modify the Lease in any
manner that would increase the amount or accelerate the payment of Rent
or any installment thereof (other than Non-Priority Additional Rent and
other than an increase in Rent in connection with the addition of new
Leased Properties to the Collective Leased Properties) or that would
extend the Term beyond the fourth Extended Term. In the event that
Crescent, OpCo and the OpCo Subs amend the Lease to increase the amount
or accelerate the payment of the Rent or any installment thereof (other
than Non-Priority Additional Rent and other than
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an increase in Rent in connection with the addition of new Leased
Properties to the Collective Leased Properties) payable thereunder, or
to extend the Term beyond the fourth Extended Term, this Agreement
shall remain in full force and effect and the Franchise Fees shall
continue to be subject, subordinate and junior in right of payment and
liquidation to the prior irrevocable payment of the Rent (other than
Non-Priority Additional Rent) to the extent and in the manner set forth
herein as though the Rent payable under the Lease had not been so
increased or the Term so extended beyond the fourth Extended Term;
provided, however, that in the event that Crescent, OpCo and the OpCo
Subs, without the prior written consent of Magellan, so amend the Lease
to in crease the amount or accelerate the payment of Minimum Rent or
Additional Rent (other than Non-Priority Additional Rent), then the
portion of the Rent constituting such in crease or the portion of the
Rent or any installment thereof so accelerated, as applicable, shall be
subordinate and junior in right of payment and liquidation to the prior
irrevocable payment of the Franchise Fees to the extent and in the
manner that the Franchise Fees are subordinated pursuant to this
Agreement.
3.13 Further Assurances. Each of Magellan and OpCo will, at its expense and
at any time and from time to time, promptly execute and deliver all
further instruments and documents (including without limitation
assignments and proofs of claim), and promptly take all further action
(including, without limitation, filing proofs of claim and taking other
actions to collect the Franchise Fees), or cause such instruments and
documents to be executed and delivered and such actions to be taken,
that may be necessary or desirable, or that Crescent may reasonably
request, in order to protect any right or interest granted or purported
to be granted hereby or to enable Crescent to exercise and enforce its
rights and remedies hereunder. For purposes of this Section 3.13,
"promptly" shall be deemed to mean within five (5) Business Days after
written request therefor unless in the judg ment of Crescent, exercised
in good faith, faster action is required to achieve the intended
purpose.
3.14 Representations and Warranties. Each of Magellan, Crescent and OpCo
hereby repre sents and warrants as to itself that (i) the execution,
delivery and performance by such party of this Agreement have been duly
and validly authorized by all necessary action and (ii) this Agreement
has been duly and validly executed and delivered by such party and
constitutes the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms, except as
such enforcement may be limited by bank ruptcy, conservatorship,
receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or by general principles of equity.
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<PAGE>
3.15 Expenses, Etc. OpCo agrees to pay, upon demand, to Crescent the amount
of any and all losses, costs and expenses, including the fees and
expenses of Crescent's counsel, which Crescent may incur as a result of
any breach by OpCo of its obligations hereunder or in connection with
the exercise or enforcement of any of Crescent's rights or interests
hereunder, which exercise or enforcement results directly or indirectly
from, or arises by reason of, any action or any failure to take an
action required of OpCo hereunder. Magel lan agrees to pay, upon
demand, to Crescent the amount of any and all losses, costs and
expenses, including the fees and expenses of Crescent's counsel, which
Crescent may incur as a result of any breach by Magellan of its
obligations hereunder or in connection with the exercise or enforcement
of any of Crescent's rights or interests hereunder, which exercise or
enforcement results directly or indirectly from, or arises by reason
of, any action or any failure to take any action required of Magellan
hereunder. Crescent shall not have any obligation to make demand of, or
take any action against, OpCo under this Section 3.15 prior to making
demand of, or taking action against, Magellan pursuant to this Section
3.15.
3.16 Arbitration in Some Events. Disputes between Magellan and Crescent
relating to amounts owing to Magellan or Crescent under the Franchise
Agreement or the Lease, as such agreements are affected by this
Agreement, will be subject to resolution by binding arbitration in
Delaware before the American Arbitration Association and governed by
the Commercial Arbitration Rules then in effect. Nothing set forth in
this Section 3.16, however, shall impair or restrict in any way either
party's right to seek equitable relief in connection with the
enforcement of this Agreement.
3.17 Consent to Assumption of Franchise Agreement. Magellan hereby consents
to the assumption by Crescent or Crescent's designee of the Franchise
Agreement and all rights and obligations of the franchisee thereunder
from the date of such assumption in the event of an Event of Default by
OpCo under the Lease and exercise by Crescent of its election, in its
sole and absolute discretion, under the remedies provisions of the
Lease to assume or have its designee assume all of the revenue
producing contracts relating to the Collec tive Leased Properties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
WITNESS: CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation
By: By: _______________________________
Name: ________________________ Gerald Haddock
Title: _________________________ President and Chief Executive Officer
CHARTER BEHAVIORAL HEALTH
SYSTEMS, LLC
By: [Magellan Member]
By: ___________________________ By: ________________________________
Name: _________________________ Name: ______________________________
Title: _________________________ Title: _______________________________
By: [Crescent Member]
By: __________________________ By: ________________________________
Name: ________________________ Name: ______________________________
Title: _________________________ Title: _______________________________
MAGELLAN HEALTH SERVICES, INC.
By: ___________________________ By: ________________________________
Name: ________________________ Name: ______________________________
Title: _________________________ Title: _______________________________
[ADD ACKNOWLEDGMENTS]
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OPERATING AGREEMENT
OF
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
This OPERATING AGREEMENT (this "Agreement") is entered into by and
between Magellan Health Services, Inc. ("Magellan"), a Delaware corporation, and
__________________ ("New Crescent"), a ________ [corporation/LLC/partnership]
and a designee of Crescent Real Estate Equities Limited Partnership
("Crescent"), a Delaware limited partnership (Magellan and New Crescent being
referred to individually as a "Member" and collectively as the "Members"), and
shall be effective as of the ____ day of April, 1997 (the "Effective Date").
W I T N E S S E T H:
WHEREAS, Charter Behavioral Health Systems, Inc.("Charter Behavioral"), a
wholly owned subsidiary of Magellan, is currently engaged in the business of
operating acute care psychiatric hospitals and certain related activities;
WHEREAS, Magellan and Crescent are parties to that certain Real Estate
Purchase and Sale Agreement, dated January ___, 1997 (the "Real Estate Purchase
and Sale Agreement"), pursuant to which Magellan has agreed to cause Charter
Behavioral and certain subsidiaries of Charter Behavioral to sell to Crescent
substantially all of the real property and related improvements, furniture,
fixtures and equipment (including medical office buildings located on such real
property) owned by Charter Behavioral and used in the operation of Charter
Behavioral's acute care psychiatric hospitals (the "Purchased Facilities");
WHEREAS, Magellan and Crescent have agreed that, upon closing of the
Real Estate Purchase and Sale Agreement, Crescent and Charter Behavioral Health
Systems, LLC shall enter into a master lease (the "Facilities Lease"), pursuant
to which Crescent shall lease the Purchased Facilities and certain other
applicable property (collectively, the "Facilities") to Charter Behavioral
Health Systems, LLC;
WHEREAS, Magellan and Crescent are parties to that certain OpCo
Contribution Agreement, dated January __, 1997 (the "OpCo Contribution
Agreement"), pursuant to which, among other things, Magellan agreed to
contribute certain assets, and Crescent agreed to cause New Crescent to
contribute cash, to Charter Behavioral Health Systems, LLC and to enter into
this Agreement;
WHEREAS, the Members desire to establish, operate and maintain a
limited liability company to be known as Charter Behavioral Health Systems, LLC,
formed under the laws of the
<PAGE>
2
State of Delaware, which shall operate the Facilities (and certain leased
facilities) and engage in the business of hospital-based behavioral healthcare.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1.
DEFINITIONS
1.1 Definitions.
Capitalized words and phrases used in this Agreement have the following
meanings:
"Act" means the Delaware Limited Liability Company Act, 6 Del. C.
ss.18-101, et seq., as amended from time to time (or any corresponding
provisions of succeeding law).
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any governmental authority or other
authority with jurisdiction and power to adjudicate such Action.
"Additional Capital Contribution" has the meaning specified in Section
3.2(e) hereof.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Allocation Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account of any amounts which such Member is
deemed to be obligated to restore pursuant to the penultimate sentences in
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(b) Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-2(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
"Affiliate" means, with respect to any Person (i) any individual,
corporation, partnership, trust or other legal entity directly or indirectly
controlling, controlled by or under common control with such Person, (ii) any
officer, director, general partner, member or trustee of such Person or (iii)
any individual who is an officer, director, general partner, member or
<PAGE>
3
trustee of any Person described in clauses (i) or (ii) of this sentence. For
purposes of this definition, the terms "controlling," "controlled by" or "under
common control with" shall mean the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise, or
the power to elect at least 50% of the directors, general partners, members or
persons exercising similar authority with respect to such Person.
"Agreement" or "Operating Agreement" means this Operating Agreement of
Charter Behavioral Health Systems, LLC, as amended from time to time, which
shall constitute the limited liability company agreement of the Company for all
purposes of the Act. Words such as "herein," "hereinafter," "hereof," "hereto"
and "hereunder" refer to this Agreement as a whole, unless the context otherwise
requires.
"Allocation Year" means (i) the period commencing on the Effective Date
and ending on September 30, 1997, (ii) any subsequent twelve (12) month period
commencing on October 1 and ending on September 30 (except as may be required by
Regulations promulgated under Section 706 of the Code), or (iii) any portion of
the period described in clauses (i) or (ii) for which the Company is required to
allocate Profits, Losses and other items of Company income, gain, loss or
deduction pursuant to Section 6 hereof.
"Annual Budget" has the meaning specified in Section 8.3(a).
"Bankruptcy" means, with respect to any Person, a "Voluntary
Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with
respect to any Person (i) the inability of such Person generally to pay its
debts as such debts become due, or an admission in writing by such Person of its
inability to pay its debts generally or a general assignment by such Person for
the benefit of creditors, (ii) the filing of any petition or answer by such
Person seeking to adjudicate itself as bankrupt or insolvent, or seeking for
itself any liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of such Person or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking, consenting to, or acquiescing in the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
such Person or for any substantial part of its property or (iii) corporate or
other action taken by such Person to authorize any of the actions set forth
above. An "Involuntary Bankruptcy" means, with respect to any Person, without
the consent or acquiescence of such Person, (i) the entering of an order for
relief or approving a petition for relief or reorganization or any other
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or other similar relief under any present or future
bankruptcy, insolvency or similar statute, law or regulation, (ii) the filing of
any such petition against such Person which petition shall not be dismissed
within ninety (90) days, or (iii) without the consent or acquiescence of such
Person, the entering of an order appointing a trustee, custodian, receiver or
liquidator of such Person or of all or any substantial part of the property of
such Person which order shall not be dismissed within ninety (90) days. The
foregoing is intended to supersede and replace the events listed in Sections
18-304(a) and (b) of the Act.
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4
"Bridge Loan" means all amounts outstanding pursuant to that certain
Bridge Loan Agreement, dated April __, 1997 between Magellan and the Company.
"Business" means (i) the operation of an acute care psychiatric
hospital, part of an acute care general hospital operating an acute care
psychiatric unit, a behavioral healthcare residential treatment center, a part
of a facility operating a behavioral healthcare residential treatment center, or
other similar facility providing 24-hour behavioral healthcare, and the delivery
of behavioral healthcare from such facility and other affiliated facilities;
such behavioral healthcare to include inpatient hospitalization, partial
hospitalization programs, outpatient therapy, intensive outpatient therapy,
ambulatory detoxification, behavioral modification programs and related
services; and (ii) additional services, concepts or products undertaken pursuant
to the Franchise Agreement.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Atlanta, Georgia or Dallas, Texas.
"Capital Account" means, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:
(a) To each Member's Capital Account there shall be credited
(i) such Member's Capital Contributions, (ii) such Member's
distributive share of Profits and any items in the nature of income or
gain which are specially allocated pursuant to Section 6.3 or Section
6.4 hereof and (iii) the amount of any Company liabilities assumed by
such Member or which are secured by any Property distributed to such
Member;
(b) To each Member's Capital Account there shall be debited
(i) the amount of money and the Gross Asset Value of any Property
distributed to such Member pursuant to any provision of this Agreement,
(ii) such Member's distributive share of Losses and any items in the
nature of expenses or losses which are specially allocated pursuant to
Section 6.3 or Section 6.4 hereof and (iii) the amount of any
liabilities of such Member assumed by the Company or which are secured
by any Property contributed by such Member to the Company;
(c) In the event a Member's Interest is Transferred in
accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it
relates to the Transferred Interest; and
(d) In determining the amount of any liability for purposes of
subparagraphs (a) and (b) above there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the
<PAGE>
5
Governing Board determines that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed Property or which are assumed by the Company or any
Members), are computed in order to comply with such Regulations, the Governing
Board may make such modification, provided that such modification is not likely
to have a material effect on the amounts distributed to any Person pursuant to
Section 13 hereof upon the dissolution of the Company. The Governing Board also
shall (i) make any adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the Members and the amount of capital
reflected on the Company's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).
"Capital Contributions" means, with respect to any Member, the amount
of money and the initial Gross Asset Value of any Property (other than money)
contributed to the Company with respect to such Member's Interest.
"Certificate" means the certificate of formation filed with the
Secretary of State of the State of Delaware pursuant to the Act to form the
Company, as originally executed and as amended, modified, supplemented or
restated from time to time, as the context requires.
"Charter Behavioral" has the meaning specified in the recitals.
"Chief Executive Officer" has the meaning specified in Section 15.2
hereof.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Company" means the limited liability company, known as Charter
Behavioral Health Systems, LLC, formed pursuant to this Agreement and the
Certificate.
"Company Minimum Gain" has the meaning given the term "partnership
minimum gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Crescent" has the meaning specified in the introductory statement.
"Crescent Director" means a Director designated by New Crescent in
accordance with Section 8.1 hereof.
"Deadlock" has the meaning specified in Section 15.1 hereof.
"Debt" of a Person means (iii) any indebtedness for borrowed money or
the deferred purchase price of Property as evidenced by a note, bonds, or other
instruments, (ii) obligations
<PAGE>
6
as lessee under capital leases, (iii) to the extent of the fair market value of
any asset owned or held by such Person, obligations secured by any mortgage,
pledge, security interest, encumbrance, lien or charge of any kind existing on
any such asset whether or not the Company has assumed or become liable for the
obligations secured thereby, (iv) any obligation under any interest rate swap
agreement (the amount of such obligation shall be deemed to be the amount that
would be required to be paid by such Person to sell, unwind or terminate the
swap transaction), (v) trade credit incurred other than in the ordinary course
of business and (vi) obligations under direct or indirect guarantees of
(including obligations (contingent or otherwise) to assure a creditor against
loss in respect of) indebtedness or obligations of the kinds referred to in
clauses (i), (ii), (iii), (iv) and (v) above.
"Depreciation" means, for each Allocation Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable for
United States federal income tax purposes with respect to an asset for such
Allocation Year, except that if the Gross Asset Value of an asset differs from
its adjusted basis for United States federal income tax purposes at the
beginning of such Allocation Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the United States federal
income tax depreciation, amortization, or other cost recovery deduction for such
Allocation Year bears to such beginning adjusted tax basis; provided, however,
that if the adjusted basis for United States federal income tax purposes of an
asset at the beginning of such Allocation Year is zero (0), Depreciation shall
be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Governing Board.
"Director" means any of the individuals provided in Section 8.1 hereof
or otherwise designated by the Members to serve on the Governing Board pursuant
to this Agreement and "Directors" means all of such individuals.
"Dissolution Event" has the meaning specified in Section 14.1 hereof.
"Effective Date" has the meaning specified in the introductory
statement.
"Election Notice" has the meaning specified in Section 12.8 hereof.
"Encumbrances" has the meaning specified in Section 4.2 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Liabilities" has the meaning specified in Section 9.7(a)
hereof.
"Executive Officer" means each of the Chairman of the Governing Board,
the Vice Chairman of the Governing Board, the President, any Vice President
designated as an "Executive Vice President" of the Company by the Governing
Board, the Chief Financial Officer and the Treasurer.
<PAGE>
7
"Facilities Lease" means (i) that certain Master Lease Agreement, dated
as of April ___, 1997, between Crescent, as landlord, and the Company and its
subsidiaries, as lessees, and any amendment or renewal thereof, and (ii) any
other real estate lease agreements between Crescent, as landlord, and the
Company or a subsidiary of the Company, as lessee.
"Fair Market Value" has the meaning specified in Section 12.9 hereof.
"First Offer Period" shall mean a period commencing upon delivery of an
Offer Notice and expiring at 5:00 p.m., New York time, on the 15th Business Day
following delivery of such Offer Notice; provided, however, if the Proposed
Transfer involves Non-Cash Consideration, the First Offer Period shall not
expire until the 10th Business Day after a binding determination of the Fair
Market Value of such Non-Cash Consideration has been made in accordance with
Section 12.9 hereof.
"Fiscal Quarter" means (i) the period commencing on the Effective Date
and ending on June 30, 1997, (ii) any subsequent three-month period commencing
on each of January 1, April 1, July 1 and October 1 and ending on the last date
before the next such date and (iii) the period commencing on the immediately
preceding January 1, April 1, July 1 or October 1, as the case may be, and
ending on the date on which all Property is distributed to the Members pursuant
to Section 12 hereof.
"Fiscal Year" means (i) the period commencing on the Effective Date and
ending on September 30, 1997, (ii) any subsequent twelve (12) month period
commencing on October 1 and ending on September 30 (except as may be required by
Regulations promulgated under Section 706 of the Code), or (iii) the period
commencing on the immediately preceding October 1 and ending on the date on
which all Property is distributed to the Members pursuant to Section 14 hereof.
"Franchise Agreement" means (i) the Master Franchise Agreement, dated
April ___, 1997 between Magellan and the Company and any amendment or renewal
thereof and (ii) any Franchise Agreement entered into between Magellan and the
Company or its Affiliates.
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"Governing Board" has the meaning specified in Section 8.1 hereof.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for United States federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such
asset, as determined by the Governing Board; provided that the initial
Gross Asset Values of the assets contributed to
<PAGE>
8
the Company pursuant to Section 3.1 hereof shall be the Net Asset
Values of such assets as set forth in such Section, increased by any
liabilities either treated as assumed by the Company upon the
contribution of such assets or to which such assets are treated as
subject when contributed pursuant to the provisions of Code Section
752;
(b) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values (taking
Code Section 7701(g) into account), as determined by the Governing
Board as of the following times: (i) the acquisition of an additional
interest in the Company by any new or existing Member in exchange for
more than a de minimis Capital Contribution; (ii) the distribution by
the Company to a Member of more than a de minimis amount of Company
property as consideration for an interest in the Company; and (iii) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses
(i) and (ii) of this paragraph shall be made only if the Governing
Board reasonably determines that such adjustment is necessary to
reflect the relative economic interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross fair
market value (taking Code Section 7701(g) into account) of such asset
on the date of distribution as determined by the Governing Board; and
(d) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), and subparagraph (vi) of the definition of
"Profits" and "Losses" provided, however, that Gross Asset Values shall
not be adjusted pursuant to this subparagraph (d) to the extent that an
adjustment pursuant to subparagraph (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subparagraph (b) or (d), such Gross Asset Value shall thereafter be adjusted by
the Depreciation taken into account with respect to such asset, for purposes of
computing Profits and Losses.
"Interest" means a Member's ownership interest in the Company,
including all rights attributable to a member of a limited liability company
under the Act.
"Involuntary Bankruptcy" has the meaning set forth in the definition
of Bankruptcy.
"Issuance Items" has the meaning specified in Section 6.3(h) hereof.
<PAGE>
9
"Lender" has the meaning set forth in Section 8.2(11) hereof.
"Liquidator" has the meaning specified in Section 14.5(a) hereof.
"Magellan" has the meaning specified in the introductory statement.
"Magellan Director" means a Director designated by Magellan in
accordance with Section 8.1 hereof.
"Major Decision" has the meaning specified in Section 8.2 hereof.
"Member" means New Crescent, Magellan or any Person who is admitted as
a Member pursuant to the terms of this Agreement. "Members" means all such
Persons.
"Member Advance" has the meaning specified in Section 3.2(e) hereof.
"Member Commitment" has the meaning specified in Section 3.2(e) hereof.
"Member Nonrecourse Debt" has the same meaning as the term "Member
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"Member Note" has the meaning specified in Section 3.2(e) hereof.
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
"Member Nonrecourse Deductions" has the same meaning as the term
"Member nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"Net Asset Value" means, with respect to any asset contributed by a
Member to the Company, the Gross Asset Value of such asset at the time of its
contribution, reduced by any liabilities either treated as assumed by the
Company upon the contribution of such asset or to which such asset is treated as
subject when contributed pursuant to the provisions of Code Section 752;
provided that the initial Net Asset Value of the assets contributed to the
Company pursuant to Section 3.1 hereof shall be as set forth in such Section.
"New Crescent" has the meaning specified in the introductory statement.
"New Crescent Contract" has the meaning specified in Section 5.4
hereof.
"Non Cash Consideration" has the meaning specified in Section 12.8(e)
hereof.
<PAGE>
10
"Nonrecourse Deductions" has the meaning set forth in Section 1.704-2
(b)(1) of the Regulations.
"Nonrecourse Liability" has the meaning set forth in Section 1.704-2
(b)(3) of the Regulations.
"Non-Selling Member" has the meaning specified in Section 12.8 hereof.
"Offer Notice" has the meaning specified in Section 12.8 hereof.
"Offer Percentage" has the meaning specified in Section 12.8 hereof.
"Offering Party" has the meaning specified in Section 15.3(a) hereof.
"OpCo Contribution Agreement" has the meaning specified in the
recitals.
"Original Capital Contribution" means, with respect to any Member, any
Capital Contribution provided by such Member as of the Effective Date.
"Percentage Interest" means the Interest of each Member expressed as a
percentage as initially set forth in Section 3.1 hereof, or as subsequently
established by the Members in accordance with the provisions of this Agreement.
"Percentage Interests" means the entire percentage interest of
ownership in the Company.
"Permitted Transfer" has the meaning set forth in Section 12.2 hereof.
"Person" means any individual, partnership (whether general or
limited), limited liability company, corporation, trust, estate, association,
nominee or other entity.
"Profits" and "Losses" mean, for each Allocation Year, an amount equal
to the Company's taxable income or loss for such Allocation Year, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(a) Any income of the Company that is exempt from United States Federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition of "Profits" and "Losses" shall be added to such
taxable income or loss;
(b) Any expenditures of the Company described in Code Section 705
(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i),
<PAGE>
11
and not otherwise taken into account in computing Profits or Losses pursuant to
this definition of "Profits" and "Losses" shall be subtracted from such taxable
income or loss;
(c) In the event that the Gross Asset Value of any Company asset is
adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross Asset
Value, the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the Gross Asset Value of the asset) or an item of loss (if
the adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for purposes of
computing gain or loss;
(d) Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for United States federal income tax
purposes shall be computed by reference to the Gross Asset Value of the Property
disposed of, notwithstanding that the adjusted tax basis of such Property
differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Allocation Year, computed in
accordance with the definition of Depreciation;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) is required, pursuant to
Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Interest in the Company, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis) from the disposition
of such asset and shall be taken into account for purposes of computing Profits
or Losses;
(g) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 6.3 or Section 6.4 hereof
shall not be taken into account in computing Profits or Losses; and
(h) The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 6.3 and 6.4 hereof
shall be determined by applying rules analogous to those set forth in
subparagraphs (a) through (f) above.
"Property" means all real and personal property acquired by the
Company, including cash, and any improvements thereto, and shall include both
tangible and intangible property.
"Proposed Transfer" has the meaning specified in Section 12.8 hereof.
"Protected Information" means trade secrets, confidential or
proprietary information, intellectual property, knowledge or know-how pertaining
primarily to the operation of the Company or the Business or any confidential or
proprietary information concerning any Member,
<PAGE>
12
including, without limitation, research and development information, inventions,
formulas, methods, techniques, processes, protocols, plans, procedures,
contracts, financial information, computer models and know-how. Protected
Information shall not include Protected Information which at the time of its
disclosure was in the public domain other than as result of a breach hereof by
any of the parties hereto.
"Purchasing Party" has the meaning specified in Section 15.3(b) hereof.
"Real Estate Purchase and Sale Agreement" has the meaning specified in
the recitals.
"Reconstitution Period" has the meaning specified in Section 14.1(b).
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations are amended from
time to time.
"Regulatory Allocations" has the meaning specified in Section 6.4
hereof.
"Responding Party" has the meaning specified in Section 15.3(a) hereof.
"Right of First Refusal" has the meaning specified in Section 12.8
hereof.
"Second Offer Period" shall mean a period commencing on the first
Business Day following the First Offer Period and expiring at 5:00 p.m., New
York time on the 10th Business Day thereafter.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Member" has the meaning specified in Section 12.8 hereof.
"Selling Party" has the meaning set forth in Section 15.3(b) hereof.
"Senior Facility" has the meaning set forth in Section 8.2(13) hereof.
"Stated Value" has the meaning specified in Section 15.3(a) hereof.
"Third Party Purchaser" has the meaning specified in Section 12.8
hereof.
"Transaction Agreements" means the Real Estate Purchase and Sale
Agreement, the OpCo Contribution Agreement, the Facilities Lease, the Franchise
Agreement, the Warrant Agreement, the Bridge Loan Agreement and this Agreement,
collectively.
<PAGE>
13
"Transfer" means, as a noun, any voluntary or involuntary transfer,
sale, pledge or hypothecation or other disposition and, as a verb, voluntarily
or involuntarily to transfer, sell, pledge or hypothecate or otherwise dispose
of.
"Voluntary Bankruptcy" has the meaning set forth in the definition of
"Bankruptcy."
"Warrant Agreement" means that certain Warrant Agreement, dated January
__, 1997 between Magellan and Crescent.
"Warrants" means those Warrants of Magellan, issued to Crescent,
pursuant to the Warrant Agreement.
SECTION 2.
THE COMPANY
2.1 Formation.
The Members hereby agree to form the Company as a for-profit limited
liability company and as described in the Certificate attached hereto as Exhibit
A. The fact that the Certificate is on file in the office of the Secretary of
State of the State of Delaware shall constitute notice that the Company is a
limited liability company. Simultaneously with the execution of this Agreement
and the formation of the Company, each of the Members shall be admitted as
members of the Company and each of the Directors designated in Section 8.1 shall
be admitted as Directors of the Company. The rights and liabilities of the
Members and Directors shall be as provided under the Act, the Certificate and
this Operating Agreement.
2.2 Name.
The name of the Company shall be Charter Behavioral Health Systems,
LLC. and all business of the Company shall be conducted in such name or in such
other name as the Governing Board may designate. The Governing Board may change
the name of the Company upon ten (10) Business Days notice to the Members and
shall change it to eliminate the name "Charter" upon expiration of the Franchise
Agreement in accordance with the terms thereof.
2.3 Purpose; Powers.
(a) The purposes of the Company are to (i) operate the Business, (ii)
make such additional investments and engage in such additional activities as the
Governing Board may approve pursuant to Section 8.2 and (iii) engage in any and
all activities and exercise any power permitted to limited liability companies
under the laws of the State of Delaware, as applicable, related or incidental to
the purposes set forth in clauses (i) and (ii).
<PAGE>
14
(b) The Company shall have the power to do any and all acts necessary,
appropriate, proper, advisable, incidental or convenient to or in furtherance of
the purposes of the Company set forth in this Section 2.3 and has, without
limitation, any and all powers that may be exercised on behalf of the Company by
the Governing Board pursuant to Section 8 hereof.
2.4 Principal Place of Business; Agent for Service of Process.
(a) The principal place of business of the Company shall be
located at such place as is determined by the Governing Board.
(b) The registered agent for service of process on the Company in the
State of Delaware shall be Prentice Hall or any successor as appointed by the
Governing Board in accordance with the Act. The initial registered office for
the registered agent shall be:
____________________
Wilmington, Delaware _____
(c) The initial registered office of the Company in the State of
Delaware is:
Charter Behavioral Health Systems, LLC
c/o ________________
-------------------
Wilmington, Delaware _____
The Company may maintain other offices, as determined by the Governing
Board. The Company shall maintain a registered agent for service of process in
the State of _______ at ________________, ________________ and _____________;
(d) The principal place of business of Magellan is:
Magellan Health Services, Inc.
3414 Peachtree Road, N.E., Suite 1400
Atlanta, Georgia 30326
Attention: __________________________
(e) The principal place of business of New Crescent is:
-----------------------------------
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Attention: __________________________
<PAGE>
2.5 Term.
The term of the Company shall commence on the date the Certificate is
filed in the office of the Secretary of State of the State of Delaware in
accordance with the Act. The Members intend that the existence of the
Company shall continue until the earlier to occur of (i) the winding up and
liquidation of the Company and the completion of its business following a
Dissolution Event, as provided in Section 14 hereof or (ii) ninety-nine (99)
years from the date on which the term of the Company commences. Prior to the
time that the Certificate is filed, no Person shall represent to third
parties the existence of the Company or hold itself out as a Member or
Director.
2.6 Title to property.
All Property owned by the Company shall be owned by the ompany as an
entity, and no Member shall have any ownership interest in such Property in its
individual name, and each Member's interest in the Company shall be personal
property for all purposes. At all times after the Effective Date, the Company
shall hold title to all of its Property in the name of the Company or a wholly
owned subsidiary and not in the name of any Member.
2.7 Payments of individual obligations.
The Company's credit and assets shall be used solely for the benefit
of the Company, and no asset of the Company shall be transferred or encumbered
for, or in payment of, any individual obligation of any Member.
SECTION 3.
MEMBER SHARES, CAPITAL CONTRIBUTIONS AND FUNDING
3.1 Original capital contributions.
On the Effective Date, Magellan and New Crescent shall each make an
Original Capital Contribution to the Company, with the initial Net Asset Value
of each such Original Capital Contribution (which shall also constitute the
initial Capital Account balance of the Member making the Original Capital
Contribution) immediately after the date of the Original Capital Contributions
being as follows:
Initial Net Asset
Property Value of Original Percentage
Name Contributed Capital Contribution Interest
- -------------- ------------- ---------------------- -------------
15
<PAGE>
16
Magellan Property set
forth on
Schedule 3.1 $5.0 million 50.0%
New Crescent Cash $5.0 million 50.0%
Documents evidencing the Original Capital Contributions of the Members
are attached hereto as Exhibits B(1) and B(2), respectively.
3.2 Other Matters.
(a) Except as otherwise provided in this Agreement, no Member shall
demand or receive a return on or of its Capital Contributions or withdraw from
the Company without the consent of all Members. Under circumstances requiring a
return of any Capital Contributions, no Member has the right to receive Property
other than cash except as may be specifically provided herein.
(b) No Member shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Company, or otherwise, in its capacity as a Member,
except as otherwise provided in this Agreement or approved by the Governing
Board, or except as provided in the Transaction Agreements.
(c) No Member shall be liable for the Debts or any other
obligations of the Company.
(d) A Member shall not be required to restore a deficit balance in its
Capital Account or to lend any funds to the Company, except as otherwise
provided herein or in the Transaction Agreements.
(e) Each of Magellan and New Crescent will contribute an additional
$2.5 million to the capital of the Company within five (5) days after Closing
("Additional Capital Contribution"). Additionally, on the Effective Date, (i)
each of Magellan and New Crescent shall agree to loan the Company up to an
aggregate of $17.5 million each (a "Member Commitment"), which Member
Commitments shall terminate on the fifth anniversary of the Effective Date, and
(ii) the Company shall execute two notes (the "Member Notes"), one to Magellan
and one to New Crescent, as security for each such Member Commitment. Magellan,
in its sole discretion, shall have the right to require OpCo, from time to time,
to draw down a portion of the Member Commitments by providing written notice
specifying the total amount to be drawn, and the date (which shall not be less
than thirty Business Days after the date of such notice)of such draw. Each such
draw (a "Member Advance") shall be funded 50% by Magellan from its Member
Commitment and 50% by New Crescent from its Member Commitment. Each Member
Advance shall bear interest at a rate of 10% per annum and have a term of five
years (notwithstanding any termination of the Member Commitment after the Member
Advance is made). Notwithstanding
<PAGE>
17
anything to the contrary, neither Magellan nor OpCo shall have the right to
require a Member Advance from New Crescent unless Magellan is required to make a
Member Advance in the same amount as that required for New Crescent. Until the
Company secures a Senior Facility in an amount of at least $55 million supported
by the Company without a guarantee from New Crescent, payments under any Member
Advances which are required to be made to Magellan shall be subordinated to
payments under any Member Advances which are required to be made to New
Crescent. If either Magellan or New Crescent shall fail to make a Member Advance
pursuant to this paragraph within fifteen Business Days of the date specified
above, with respect to the Additional Capital Contribution, or in such notice
from Magellan requiring a Member Advance and such failure continues for an
additional ten Business Days after notice from the other Member, then such
defaulting Member shall be deemed to have sold its membership interest in the
Company to the other Member upon delivery of payment by such other Member to the
defaulting Member of the sum of $100. Except for the foregoing, the Members
shall not be required to make any additional capital contributions or loans to
the Company. Such obligation to make Additional Capital Contributions or loans
is solely for the benefit of the Members, and no Person shall be considered a
third-party beneficiary of such obligation. The Company shall use all Additional
Capital Contributions and Member Advances for the benefit of the Company in such
manner as Magellan, in its sole discretion, directs.
(f) The Directors shall not have any personal liability for the
repayment of any Capital Contributions of any Member.
(g) Notwithstanding any other provision of this Agreement, each Member
agrees to approve such amendments to this Agreement as are necessary to allocate
up to 10% of the Percentage Interests in the Company, equally from each Member,
for future incentive payments to management.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF MAGELLAN
Magellan represents and warrants to New Crescent as of the date hereof
as follows:
4.1 Organization and Authority of Magellan.
Magellan is a corporation duly formed, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Magellan, and (assuming due execution and
delivery by New Crescent) constitutes the legal, valid and binding obligation of
Magellan enforceable against Magellan in accordance with its terms, except as
<PAGE>
18
enforceability may be limited by bankruptcy, conservatorship, receivership,
insolvency, moratorium or similar laws affecting creditors' rights generally or
by general principles of equity.
4.2 No Conflict.
The execution, delivery and performance by Magellan of this Agreement
does not and will not (i) violate or conflict with the certificate of
incorporation or bylaws of Magellan, (ii) conflict with or violate any law,
rule, regulations, order, writ, judgment, injunction, decree, determination or
award applicable to Magellan or (iii) result in any breach of, or constitute a
default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
pledge, lien, security interest, mortgage, charge, adverse claim or ownership or
use, or other encumbrance of any kind (collectively "Encumbrances") on any of
the assets or properties of Magellan pursuant to, any note, bond, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
relating to such assets or properties to which Magellan is a party or by which
any of such assets or properties is bound or affected, except, in the case of
(ii) or (iii), any conflict, violation, breach or default which would not
individually or in the aggregate have a material adverse effect on Magellan or
the Company.
4.3 Consents and Approvals.
Except as set forth on Schedule 4.3, the execution and delivery by
Magellan of this Agreement does not and will not, and the performance by
Magellan of this Agreement does not and will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority.
SECTION 5.
REPRESENTATIONS AND WARRANTIES OF NEW CRESCENT
New Crescent represents and warrants to Magellan as of the date hereof
as follows:
5.1 Organization and Authority of New Crescent.
New Crescent is a _________ duly formed, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by New Crescent and (assuming due execution and
delivery by Magellan) constitutes its legal, valid and binding obligation
enforceable against New Crescent in accordance with its terms, except as
enforceability may be limited by bankruptcy, conservatorship, receivership,
insolvency, moratorium or similar laws affecting creditors' rights generally or
by general principles of equity.
<PAGE>
19
5.2 No Conflict.
The execution, delivery and performance by New Crescent of this
Agreement does not and will not (i) violate or conflict with the organizational
documents of New Crescent, (ii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to New Crescent or (iii) result in any breach of, or constitute a
default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
Encumbrance on any of the assets or properties of New Crescent pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument relating to such assets or properties to which New
Crescent is a party or by which any of such assets or properties is bound or
affected, except, in the case of (ii) or (iii), any conflict, violation, breach
or default which would not individually or in the aggregate have a material
adverse effect on New Crescent or the Company.
5.3 Consents and Approvals.
Except as set forth in Schedule 5.3, the execution and delivery of this
Agreement by New Crescent does not and will not, and the performance of this
Agreement by New Crescent does not and will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority. New Crescent is in compliance in all
material respects with all laws and regulations of all governmental or
quasi-governmental authorities having jurisdiction over the business of New
Crescent. New Crescent has no knowledge of material violations of laws or
regulations relating to the business of New Crescent and no written notice of
any material violation of any such law, regulation or ordinance has been
received by New Crescent except for violations or alleged violations that are
being corrected in the ordinary course of business pursuant to an approved plan
of correction and are listed on Schedule 5.3.
SECTION 6.
ALLOCATIONS
6.1 Profits.
After giving effect to the special allocations set forth in Sections
6.3 and 6.4, Profits for any Allocation Year shall be allocated to the Members
in proportion to their Percentage Interests.
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20
6.2 Losses.
After giving effect to the special allocations set forth in Sections
6.3 and 6.4 and subject to Section 6.5, Losses for any Allocation Year shall be
allocated to the Members in proportion to their Percentage Interests.
6.3 Special Allocations.
The following special allocations shall be made in the following order:
(a) Minimum Gain Charge Back. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Section 6, if there is a net decrease in Company Minimum Gain during any
Allocation Year, each Member shall be specially allocated items of Company
income and gain for such Allocation Year (and, if necessary, subsequent
Allocation Years) in an amount equal to such Member's share of the net decrease
in Company Minimum Gain, as determined in accordance with Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section
6.3(a) is intended to comply with the minimum gain charge back requirement in
Section 1.704-2(f) of the Regulations and shall be interpreted consistently
therewith.
(b) Member Minimum Gain Charge Back. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Section 6, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Section
1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company
income and gain for such Allocation Year (and, if necessary, subsequent
Allocation Years) in an amount equal to such Member's share of the net decrease
in Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section
6.3(b) is intended to comply with the minimum gain charge back requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit of the Member
as quickly as possible; provided that an allocation pursuant to this Section
6.3(c) shall
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21
be made only if and to the extent that the Member would have an Adjusted Capital
Account Deficit after all other allocations provided for in Section 6 have been
tentatively made as if this Section 6.3(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any Allocation Year which is in excess of the sum
of the amount such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Member shall be specially allocated items of Company income and gain
in the amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 6.3(d) shall be made only if and to the extent that
such Member would have a deficit Capital Account in excess of such amount after
all other allocations provided for in this Section 6 have been made as if
Section 6.3(c) and this Section 6.3(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Allocation
Year shall be specially allocated to the Members in proportion to their
respective Percentage Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions
for any Allocation Year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).
(g) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of such Member's interest in the Company, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom
such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Company Interest. Any
income, gain, loss or deduction realized as a direct or indirect result of the
issuance of Interests by the Company to a Member (the "Issuance Items") shall be
allocated among the Members so that, to the extent possible, the net amount of
such Issuance Items, together with all other allocations under this Agreement to
each Member, shall be equal to the net amount that would have been allocated to
each such Member if the Issuance Items had not been realized.
<PAGE>
22
6.4 Curative Allocations.
The allocations set forth in Sections 6.3(a) to (g) and 6.5 (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss or deduction pursuant to this Section 6.4. Therefore, notwithstanding any
other provision of this Section 6 (other than the Regulatory Allocations), the
Governing Board shall make such offsetting special allocations of Company
income, gain, loss or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all Company items were allocated pursuant to Sections 6.1 and 6.2;
provided, however, that the Governing Board shall not make offsetting special
allocations if and to the extent that such Regulatory Allocations were or likely
will be offset with Regulatory Allocations in prior or future years.
6.5 Loss Limitation.
Losses allocated pursuant to Section 6.2 hereof shall not exceed the
maximum amount of Losses that can be allocated without causing any Member to
have an Adjusted Capital Account Deficit at the end of any Allocation Year. In
the event some but not all of the Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses pursuant to Section 6.2
hereof, the limitation set forth in this Section 6.5 shall be applied on a
Member by Member basis and Losses not allocable to any Member as a result of
such limitation shall be allocated to the other Members in accordance with the
positive balances in such Members' Capital Accounts so as to allocate the
maximum permissible Losses to each Member under Section 1.704- 1(b)(2)(ii)(d) of
the Regulations.
6.6 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Governing
Board, using any permissible method under Code Section 706 and the Regulations
thereunder.
(b) The Members are aware of the income tax consequences of the
allocations made by this Section 6 and hereby agree to be bound by the
provisions of this Section 6 in reporting their shares of Company income and
loss for income tax purposes.
(c) For purposes of making all allocations pursuant to this Section 6
for any Allocation Year, cash distributed within thirty (30) days after the last
day of such Allocation Year shall be treated as having been distributed on such
last day pursuant to Section 7.1 hereof.
<PAGE>
23
(d) Solely for purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company within the meaning of
Regulations Section 1.752-3(a)(3), the Members' interests in Company profits
shall be in proportion to their Percentage Interests.
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Governing Board shall endeavor to treat distributions of cash
as having been made from the proceeds of a Nonrecourse Liability or a Member
Nonrecourse Debt only to the extent that such distributions would cause or
increase an Adjusted Capital Account Deficit for any Member.
6.7 Tax Allocations: Code Section 704(c).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any Property contributed to
the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such Property to the Company for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with the definition of Gross Asset
Value). Any such variation with respect to the Contributed Assets (as defined in
the OpCo Contribution Agreement) shall be calculated using the remedial
allocation method described in Regulation Section 1.704-3(d).
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by a supermajority (of at least 80%) of the Governing Board in any manner
that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 6.7 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into account
in computing, any Member's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.
SECTION 7.
DISTRIBUTIONS
7.1 Distribution of Available Cash. Subject to the provisions of this
Section 7, the Company's available cash shall be distributed to the Members, in
such amounts and only at such times as determined by the Governing Board, in
proportion to their respective Percentage Interests. In no event shall any cash
distribution be made to the Members unless and until rent due under the
Facilities Lease and fees due under the Franchise Agreement are fully paid in
the year of any distribution.
<PAGE>
24
7.2 Amounts Withheld. Each Member hereby authorizes the Company to
withhold from or pay on behalf of or with respect to such Member any amount of
federal, state, local, or foreign taxes that the Governing Board determines that
the Company is required to withhold or pay with respect to any amount
distributable or allocable to such Member pursuant to this Agreement, including,
without limitation, any taxes required to be withheld or paid by the Company
pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any amount paid on
behalf of or with respect to a Member shall constitute a loan by the Company to
such Member, which loan shall be repaid by such Member within fifteen (15) days
after notice from the Governing Board that such payment must be made unless (i)
the Company withholds such payment from a distribution which would otherwise be
made to the Member, or (ii) the Governing Board determines, in its sole and
absolute discretion, that such payment may be satisfied out of the available
funds of the Company which would, but for such payment, be distributed to the
Member. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall
be treated as having been distributed to such Member. Each Member hereby
unconditionally and irrevocably grants to the Company a security interest (which
shall be subordinate to any pledge granted to a financial institution as
contemplated by Section 12.2) in such Member's Percentage Interest to secure
such Member's obligation to pay to the Company any amounts required to be paid
pursuant to this Section 7.2. In the event that a Member fails to pay any
amounts owed to the Company pursuant to this Section 7.2 when due, the Governing
Board may, in its sole and absolute discretion, elect to make the payment to the
Company on behalf of such defaulting Member and, until repayment of such loan,
shall succeed to all rights and remedies of the Company against such defaulting
Member (including, without limitation, the right to receive distributions). Any
amounts payable by a Member hereunder shall bear interest at the base rate on
corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four percentage
points (but not higher than the maximum lawful rate) from the date such
<PAGE>
25
amount is due (i.e., fifteen (15) days after demand) until such amount is paid
in full. Each Member shall take such actions as the Company or the Governing
Board shall request in order to perfect or enforce the security interest created
hereunder.
SECTION 8.
MANAGEMENT
8.1 Directors; Governing Board.
(a) The management of the Company shall be vested in the four-member
Governing Board (the "Governing Board") designated by the Members as provided in
Sections 8.1(c) and (d) hereof.
(b) The number of Persons, each of whom shall be an individual
(hereinafter referred to as "Directors") on the Governing Board shall be four
(4) unless otherwise provided herein. Each Director shall be a "Manager," as
defined in the Act, who shall have authority to act on behalf of the Company as
set forth herein. The Directors shall serve without compensation but shall be
entitled to reimbursement for their out-of-pocket costs for their services
hereunder.
(c) Simultaneously with the execution hereof, Magellan hereby
designates the individuals set forth in Items (1) through (2) as Magellan
Directors and New Crescent hereby designates the individuals set forth in Items
(3) through (4) as Crescent Directors, such that the name and address of the
Directors who shall serve until their respective successors shall have been
designated and qualified are as follows:
Name Business Address and Telephone Number
- ----------------------- -----------------------------------------------
1. [Magellan Director]
2. [ " ]
3. [Crescent Director]
4. [ " ]
(d) No vote of the Members shall be required to designate Directors.
Rather, Magellan shall have the right to designate two (2) Magellan Directors,
and New Crescent shall have the right to designate two (2) Crescent Directors. A
Director shall remain in office until removed by the Member designating such
Director. With respect to any Director other than the initial Directors set
forth in Section 8.1(c) hereof, Magellan or New Crescent, as the case may be,
shall
<PAGE>
26
designate such Director by delivering to the Company the Member's written
statement designating such Director and setting forth such Director's business
address and telephone number.
(e) A Director may be removed at any time, with or without cause,
solely by the Member originally designating such Director. Removal shall be
accomplished by delivery of written notice to the Company demanding such removal
and designating the Person who shall fill the position of the removed Director.
(f) In the event any Director dies or is unwilling or unable to serve
as such or is removed from office by the Member that designated such Director,
the appropriate Member shall promptly designate a successor to such Director. A
Director chosen to fill a vacancy shall be designated by the Member whose
previously designated Director shall have been removed or shall have resigned.
(g) Each Director shall have one (1) vote. Except as otherwise provided
in Sections 8.2 and 8.3 hereof, the Governing Board shall act by the affirmative
vote of a majority of the total number of Directors on the Governing Board. A
Director may authorize any other Director to act for him by proxy on all matters
in which a Director is entitled to participate, including waiving notice of any
meeting, or voting or participating at a meeting. Every proxy must be signed by
the Director or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the Director
executing it.
(h) The Governing Board shall have the power to delegate authority to
such committees of Directors, officers, employees, agents and representatives of
the Company as it may from time to time deem appropriate. Any delegation of
authority to take any action must be approved in the same manner as would be
required for the Governing Board to approve such action directly.
(i) A Director shall not be liable under a judgment, decree or order of
court, or in any other manner, for a debt, obligation or liability of the
Company.
8.2 Major Decisions.
Notwithstanding the other provisions of this Section 8, no officer or
employee of the Company shall have any authority to cause or permit the Company
or any of its subsidiaries or Affiliates to take any of the following actions or
make any of the following decisions (each, a "Major Decision") without the prior
express action and approval of at least eighty percent (80%) of the Governing
Board:
(1) any sale, lease, transfer or other disposition of any
asset of the Company or any subsidiary of the Company in an amount in
excess of $50,000, to the extent such sale, lease, transfer, other
disposition or granting of security interest was not previously
approved in the Annual Budget for the then current Fiscal Year;
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27
(2) the acquisition from any Person of any stock or interest
in any corporation, company, partnership, association, business or
business division, whether by stock purchase, asset purchase,
contribution, merger or other business combination or joint venture, or
otherwise causing or permitting the Company to be a party to a merger,
transfer of assets, consolidation or reorganization with any other
Person, provided, however, that the Company shall have the right to
invest in short-term, highly liquid investments (which mature in no
more than 60 days) with appropriate safety of principal including,
without limitation, U.S. Government securities;
(3) the filing of a voluntary petition for bankruptcy,
insolvency or the making of any assignment for the benefit of creditors
by or of the Company or any other action which would constitute a
Bankruptcy of the Company, or the substantial equivalent thereof;
(4) the election to dissolve and terminate the Company;
(5) causing or permitting the Company to engage in any
business or activities other than the Business.
(6) except as provided in the Transaction Agreements, the
Company's entry into any agreement or contract that is proposed to be
entered into between the Company and any Member or Affiliate of a
Member or any amendment thereof;
(7) any entering into, modification, amendment, extension or
termination by the Company of any contract which delegates the
management of any significant part of the business of the Company to
any Person not employed by the Company;
(8) the selection of any Person to act as Liquidator in
connection with the liquidation and termination of the Company in
accordance with Section 14;
(9) approval of a commitment for any capital expenditure
(to the extent not previously approved in the Annual Budget for the
then current Fiscal Year);
(10) entering into any (i) contract of any sort not in the
ordinary course of business or (ii) contract or series of related
contracts calling for payments by the Company of more than the contract
limit authorized by the Governing Board, or, in the absence of such
express authorization, $10,000 in any one Fiscal Year (to the extent
not previously approved in the Annual Budget for the then current
Fiscal Year);
(11) incurring any indebtedness by the Company or granting any
security interest in any asset of the Company to the extent not
previously approved in the Annual Budget; provided, however, that if
requested by a bank or group of banks (the "Lender") which has
committed to provide the Company with a credit facility of at least $55
million (the
<PAGE>
28
"Senior Facility"), the Company shall (i) cause any subsidiaries of the
Company designated by the Lender to guarantee the debt incurred by the
Company under the Senior Facility, (ii) pledge its ownership interest
in any subsidiaries of the Company designated by the Lender to the
Lender as security for the debt incurred by the Company under the
Senior Facility, and (iii) grant a security interest in its accounts
receivables to the Lender as security for the debt incurred by the
Company under the Senior Facility.
(12) except as may be expressly provided hereunder, the
admission of any Person to the Company as an additional Member or
substitute Member or the issuance of any additional Interests or rights
to acquire Interests in the Company;
(13) making a loan of Company funds to any Person, or
guaranteeing any obligation or indebtedness of any Person, to the
extent not previously approved in the Annual Budget;
(14) making a loan of Company funds to or guaranteeing any
obligation or indebtedness of any Member or any Affiliate of any
Member;
(15) approval of the Annual Budget for the Company for any
Fiscal Year and approval of any changes (as described in Section 8.3)
to such Annual Budget;
(16) the employment or retention of any Person (including,
without limitation, counsel, auditors and consultants) whose gross
annual compensation (including benefits) or fees are reasonably likely
to exceed $150,000 in any fiscal year (unless previously approved in
the Annual Budget);
(17) the establishment, amendment or termination of any
employee pension, profit sharing or other benefit plan;
(18) any change of the Company's fiscal year;
(19) any distributions to the Members;
(20) entering into any employment agreement with any
employee of the Company;
(21) selecting any Executive Officer or removing either
the Chairman of the Governing Board or the President of the Company;
(22) any change in accounting principles used by the
Company, except to the extent required by GAAP;
<PAGE>
29
(23) closing any hospital or Facility which the Governing
Board has determined is in the financial best interests of the Company;
(24) the decision to renew any Facilities Lease;
(25) the decision to renew any Franchise Agreement;
(27) the decision to make an initial public offering of
any interest (debt or equity) in the Company;
(28) the Company's decision to exercise its right of
purchase of an interest during the Second Offer Period in accordance with
Section 12;
(29) any amendment of this Agreement or the Certificate;
and
(30) any capital contribution by any Member other than the
Additional Capital Contribution; and
(31) certain tax matters as provided in Sections 6.7 and
9.5.
Notwithstanding the foregoing or any other provision hereof (i) Magellan shall
have the approval and other rights relating to OpCo's business and operations
specified in Section 15 of the Franchise Agreement in the event that Magellan is
the Selling Party pursuant to an exercise of the buy-sell option pursuant to
Section 15.3 and (ii) nothing in this Section 8.2 shall require the approval of
the Governing Board for the performance, by the Company, of any of its
obligations under the Transaction Agreements.
8.3 Annual Budget.
(a) Within forty-five (45) days after the date of this Agreement, the
President and the Treasurer of the Company shall prepare or cause to be prepared
a proposed annual operating and capital budget for the Company for the Fiscal
Year ending December 31, 1997 (for such Fiscal Year and each subsequent Fiscal
Year, the "Annual Budget") containing the information set forth on Schedule 8.3.
The proposed annual operating and capital budget shall be submitted to the
Governing Board for consideration and approval. Upon approval by the Governing
Board, the proposed Annual Budget shall become the 1997 Annual Budget.
(b) After the adoption of the initial Annual Budget for the Company,
the President and the Treasurer of the Company shall similarly prepare or cause
to be prepared a proposed Annual Budget for the Company for the succeeding
Fiscal Year which shall be submitted to the Governing Board for consideration
and approval on or before the December 31 immediately preceding the next Fiscal
Year. Upon approval by the Governing Board, the proposed Annual Budget shall
become the Annual Budget for the next succeeding Fiscal Year.
<PAGE>
30
(c) If the Governing Board is unable to agree on the Annual Budget,
then until such time as the Governing Board is able to adopt and approve an
Annual Budget, the Annual Budget shall consist of the items in the proposed
Annual Budget which are not in dispute and, with respect to those items in
dispute, the items and amounts in the prior year's Annual Budget shall be deemed
to constitute the approved amounts in the Annual Budget, as the case may be;
provided, however, that the amount budgeted for acquisitions or financing for
the then-current Fiscal Year shall be the amount that the parties are able to
agree upon or, if they are unable to agree, then these amounts shall be zero for
the then-current Fiscal Year unless necessary for ongoing operations.
Notwithstanding anything contained herein to the contrary, to the extent that an
expenditure is required to be made pursuant to a legally binding obligation of
the Company which has been previously approved by the Governing Board or the
Members (or not required to be approved pursuant to this Agreement) or to the
extent that any such expenditure is beyond the Company's control, such as
utility costs, taxes and insurance premiums, then the approved Annual Budget for
the current fiscal year shall be deemed to include such expenditure.
(d) Upon approval of an Annual Budget by the Governing Board, the
Company shall, and the officers of the Company shall cause the Company to,
conduct its operations in accordance therewith, and no modifications shall be
made except in accordance with Section 8.2.
8.4 Meetings of the Governing Board.
(a) The Governing Board shall hold regular meetings no less frequently
than once every Fiscal Quarter and shall establish meeting times, dates and
places and requisite notice requirements (not shorter than those provided in
Section 8.5(b)) and adopt rules or procedures consistent with the terms of this
Agreement. At such meetings the Governing Board shall transact such business as
may properly be brought before the meeting, whether or not the notice of such
meeting referenced the action taken at such meeting.
(b) Special meetings of the Governing Board may be called by any
Director. Notice of each such meeting shall be given to each Director on the
Governing Board by telephone, telecopy, telegram or similar method (in each
case, notice shall be given at least five (5) Business Days before the time of
the meeting) or sent by first-class mail (in which case notice shall be given at
least ten (10) days before the meeting), unless a longer notice period is
established by the Governing Board. Each such notice shall state (i) the time,
date, place (which shall be at the principal office of the Company unless
otherwise agreed to by all Directors) or other means of conducting such meeting
and (ii) the purpose of the meeting to be so held. No actions other than those
specified in the notice may be considered at any special meeting unless
unanimously approved by the Directors. Any Director may waive notice of any
meeting in writing before, at or after such meeting. The attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting,
except when a Director attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting was not properly called.
<PAGE>
31
(c) A majority of the Governing Board as constituted at a particular
time shall constitute a quorum for the transaction of business at such time.
(d) Any action required to be taken at a meeting of the Governing
Board, or any action that may be taken at a meeting of the Governing Board, may
be taken at a meeting held by means of telephone conference or other
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
presence in person at such meeting.
(e) Notwithstanding anything to the contrary in this Section 8.4, the
Governing Board may take without a meeting any action that may be taken by the
Governing Board under this Agreement if such action is approved by the unanimous
written consent of the Directors.
8.5 Governing Board Powers.
(a) Except as otherwise provided in this Agreement, the Governing Board
shall have the right and authority to take all actions which the Governing Board
deems necessary, useful or appropriate for the management and conduct of the
Business.
(b) Except as otherwise provided in this Agreement, all powers to
control and manage the Business and affairs of the Company shall be exclusively
vested in the Governing Board, and the Governing Board may exercise all powers
of the Company and do all such lawful acts as are not by statute, the
Certificate or this Agreement directed or required to be exercised or done by
the Members, and no Member shall have any right or power to control or manage
the Business.
(c) The Governing Board will establish policies and guidelines for the
hiring of employees to permit the Company to act as an operating company with
respect to its Business. The Governing Board may adopt appropriate management
incentive plans and employee benefit plans in accordance with Section 8.2.
8.6 Independent Activities; Transactions with Affiliates.
(a) Each Director shall be required to devote such time to the affairs
of the Company as may be necessary to manage and operate the Company and its
subsidiaries and shall be free to serve any other Person or enterprise in any
capacity that such Director may deem appropriate in his, her or its discretion.
(b) To the extent permitted by applicable law and subject to the
provisions of this Agreement, in furtherance of the purposes of the Company set
forth in Section 2.3, the Governing Board is hereby authorized to cause the
Company to purchase or lease property (whether real, personal or mixed) from,
sell or lease such property to or otherwise deal with any Member or Director,
acting on its own behalf, or any Affiliate of any Member or Director; provided
that any
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32
such purchase, sale, lease, dealing or other transaction shall be made in
accordance with Section 8.2.
(c) Each Member and Director and any Affiliate thereof may also lend
money to, borrow money from, act as a surety, guarantor or endorser for,
guarantee or assume one or more specific obligations of, provide collateral for,
and transact other business with the Company and, subject to other applicable
law, have the same rights and obligations with respect thereto as a Person who
is not a Member, subject to Section 8.2.
8.7 Officers.
(a) The officers of the Company initially shall be those listed on
Exhibit C. Thereafter, the Executive Officers shall be chosen by the Governing
Board as provided in Section 8.2. The Company may also have, at the discretion
of the Governing Board, such other officers as are desired, including one or
more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers, and such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Governing Board. In the event there are two
or more Vice Presidents, then one or more may be designated as Executive Vice
President, Senior Vice President, or other similar or dissimilar title. At the
time of the election of officers, the Governing Board may determine the order of
their rank. Any number of offices may be held by the same person.
(b) The officers of the Company shall hold office until their
successors are chosen by the Governing Board and commence to perform their
respective duties, provided that the initial Chairman of the Governing Board and
the initial President of the Company shall serve until resignation or
termination by the Governing Board in accordance with Section 8.2. Any other
officer elected or appointed by the Governing Board may be removed at any time
with or without cause by the Governing Board in accordance with Section 8.2. If
the office of any officer or officers becomes vacant for any reason, such
vacancy shall be filled by the Governing Board in accordance with Section 8.2
and this Section 8.7.
(c) The officers of the Company shall include:
(1) The Chairman of the Governing Board. The Chairman of the
Governing Board shall, if present, preside at all meetings of the
Governing Board and all meetings of the Members and exercise and
perform such other powers and duties as may be from time to time
assigned to him by the Governing Board. All Executive Officers engaged
in strategic planning and development and in capital functions,
including without limitation, the Treasurer, Chief Financial Officer
and the senior officers responsible for acquisitions, shall report to
the Chairman of the Governing Board with respect to those functions,
but shall continue to report to the President with respect to other
functions. If there is no President, the Chairman of the Governing
Board shall in addition be the Chief Executive
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33
Officer of the Company and shall have the powers and duties prescribed
in clause (3) below. The initial Chairman of the Governing Board shall
be John C. Goff.
(2) Vice Chairman of the Governing Board. The Vice Chairman of
the Governing Board shall exercise and perform such other powers and
duties as may be from time to time assigned to him by the Governing
Board. In the absence of the Chairman of the Governing Board, he or she
shall preside at all meetings of the Governing Board.
(3) President. Subject to such supervisory powers, if any, as
may be given by the Governing Board to the Chairman of the Governing
Board, the President shall be the Chief Executive Officer of the
Company and shall, subject to the control of the Governing Board, have
general supervision, direction and control of the Business and officers
of the Company. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested
in the office of President and chief executive officer of corporations
organized under the laws of the State of Delaware, and shall have such
other powers and duties as may be prescribed by the Governing Board.
The initial President shall be John M. DeStefanis.
(4) Vice President. In the absence or disability of the
President and the Chairman of the Governing Board, the Vice Presidents
in order of their rank as fixed by the Governing Board, or if not
ranked, the Vice President designated by the Governing Board, shall
perform all the duties of the President, and when so acting shall have
all the powers and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from
time to time may be prescribed for them, respectively, by the Governing
Board.
(5) Assistant Vice President. The Assistant Vice President, or
if there be more than one, the Assistant Vice Presidents, shall have
such duties as from time to time may be prescribed for them,
respectively, by the Governing Board.
(6) Secretary. The Secretary shall attend all sessions of the
Governing Board and all meetings of the Members and record all votes
and the minutes of all proceedings in a book to be kept for that
purpose and shall perform like duties for the standing committees when
required by the Governing Board. The Secretary shall give, or cause to
be given, notice of all meetings of the Members and of the Governing
Board and shall perform such other duties as may be prescribed by the
Governing Board.
(7) Assistant Secretary. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by
the Governing Board, of if there be no such determination, the
Assistant Secretary designated by the Governing Board, shall, in the
absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and
have such other powers as the Governing Board may from time to time
prescribe.
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(8) Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
Company and shall deposit all moneys and other valuable effects in the
name and to the credit of the Company, in such depositories as may be
designated by the Governing Board. The Treasurer shall disburse the
funds of the Company as may be ordered by the Governing Board, taking
proper vouchers for such disbursements, and shall render to the
Governing Board, at its regular meetings, or when the Governing Board
so requires, an account of all of his transactions as Treasurer and of
the financial condition of the Company.
(9) Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order
determined by the Governing Board, or if there be no such
determination, the Assistant Treasurer designated by the Governing
Board, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Governing Board may
from time to time prescribe.
8.8 Indemnification of the Directors.
(a) Unless otherwise provided in Section 8.8(d) hereof, the Company,
its receiver, or its trustee (in the case of its receiver or trustee, to the
extent of Property contributed to the Company) shall indemnify, save harmless,
and pay all judgments and claims against any Director relating to any liability
or damage incurred by reason of any act performed or omitted to be performed by
any Director in connection with the Business, including reasonable attorneys'
fees incurred by the Director in connection with the defense of any action based
on any such act or omission, which attorneys' fees may be paid as incurred.
(b) Unless otherwise provided in Section 8.8(d) hereof, in the event of
any action by a Member against any Director, including a Company derivative
suit, the Company shall indemnify, save harmless, and pay all expenses of such
Director, including reasonable attorneys' fees, incurred in the defense of such
action.
(c) Unless otherwise provided in Section 8.8(d) hereof, the Company
shall indemnify, save harmless, and pay all expenses, costs, or liabilities of
any Director, if for the benefit of the Company and in accordance with this
Agreement said Director makes any deposit or makes any other similar payment or
assumes any obligation in connection with any Property proposed to be acquired
by the Company and suffers any financial loss as the result of such action.
(d) Notwithstanding the provisions of Sections 8.8(a), 8.8(b) and
8.8(c) above, such Sections shall be enforced only to the maximum extent
permitted by law and no Director shall be indemnified from any liability for the
fraud, intentional misconduct, gross negligence or a knowing violation of the
law which was material to the cause of action.
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35
(e) The obligations of the Company set forth in this Section 8.8 are
expressly intended to create third party beneficiary rights of each of the
Directors and any Member is authorized, on behalf of the Company, to give
written confirmation to any Director of the existence and extent of the
Company's obligations to such Director hereunder.
8.9 Filings.
(a) Each Director is hereby authorized to and shall execute and cause
the Certificate to be filed in the office of the Secretary of State of the State
of Delaware as an authorized person within the meaning of the Act. The Governing
Board shall take any and all other actions reasonably necessary to perfect and
maintain the status of the Company as a limited liability company under the laws
of the State of Delaware, including the preparation and filing of such
amendments to the Certificate and such other assumed name certificates,
documents, instruments and publications as may be required by law, including,
without limitation, action to reflect:
(1) a change in the Company name; or
(2) a correction of false or erroneous statements in the
Certificate or the desire of the Members to make a change in any
statement therein in order that it shall accurately represent the
agreement among the Members.
(b) The Members and the Governing Board shall execute and cause to be
filed original or amended certificates and shall take any and all other actions
as may be reasonably necessary to perfect and maintain the status of the Company
as a limited liability company or similar type of entity under the laws of any
other jurisdictions in which the Company engages in business.
(c) Upon the dissolution and completion of the winding up and
liquidation of the Company in accordance with Section 14, the Liquidator, as an
authorized person within the meaning of the Act, shall promptly execute and
cause to be filed statements of intent to dissolve and certificate of
cancellation in accordance with the Act and the laws of any other jurisdictions
in which the Liquidator deems such filing necessary or advisable.
8.10 Other Agreements.
(a) Bridge Loan. Each Member agrees to use its commercially reasonable
best efforts to cause the Company to refinance the Bridge Loan prior to its
expiration. If either Member obtains a commitment from a third party lender to
refinance the bridge loan on commercially reasonable terms (taking into account
the Company's history and financial condition), the Member shall cause the
Company to approve and obtain such financing.
(b) Franchise Fees. Notwithstanding any other provision herein,
each of New Crescent and Magellan agrees that if franchise fees due Magellan
pursuant to the Franchise Agreement are past due for any reason in the amounts
set forth below, the Magellan Directors shall have the right
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36
to prohibit the Company from taking one or more of the following actions, and to
exercise one or more of the following rights:
Amount in Arrears Rights of Magellan/Prohibited Actions By the
Company
$6 million to $18 million 1. No incentive compensation to management
2. No vesting of management equity
Above $18 million to $24 million 1. No salary increases for key personnel
2. No additional hiring
3. No new hospital acquisitions/joint ventures
Above $24 million 1. 5% cutback on expenses provided for in the
Annual Budget
2. Monthly approval of expenditures by
Magellan (capital and operating)
3. Rights to require transfer of management
and control of OpCo and its SubCos to
Magellan
SECTION 9.
ROLE OF MEMBERS
9.1 Rights or Powers.
The Members shall not have any right or power to take part in the
management or control of the Company or its Business and affairs or to act for
or bind the Company in any way, except the Members have all the rights and
powers specifically set forth in this Agreement and, to the extent not
inconsistent with this Agreement, in the Act. A Member, any Affiliate thereof or
an employee, stockholder, agent, director or officer of a Member or any
Affiliate thereof, may also be an employee or be retained as an agent of the
Company. The existence of these relationships and acting in such capacities will
not result in the Member's being deemed to be participating in the control of
the Business of the Company or otherwise affect the limited liability of the
Member. A Member shall not, in its capacity as a Member, take part in the
operation, management or control of the Company's business, transact any
business in the Company's name or have the power to sign documents for or
otherwise bind the Company.
9.2 Voting Rights.
No Member has any voting right except with respect to those matters
specifically reserved for a Member vote as set forth in this Agreement or as
required in the Act. A Member shall have one vote for each Percentage Interest
such Member has in the Company (for example, initially,
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37
Magellan and New Crescent will each hold a 50% Interest in the Company and each
have fifty votes). The approval of Members owning eighty percent (80%) or more
of the Percentage Interests in the Company is required to act on any matter
submitted to a vote of the Members.
9.3 Meetings of the Members.
(a) Meetings of the Members may be called upon the written request of
any Member. Such notice of meeting shall state the location of the meeting and
the nature of the business to be transacted. Notice of any such meeting shall be
given to all Members not less than seven (7) Business Days nor more than thirty
(30) days prior to the date of such meeting. Members may vote in person, by
proxy or by telephone at such meeting and may waive advance notice of such
meeting. Members which own in the aggregate eighty percent (80%) or more of the
Percentage Interests in the Company constitute a quorum for the transaction of
business at a meeting of the Members. Whenever the vote or consent of Members is
permitted or required under the Agreement, such vote or consent may be given at
a meeting of the Members or may be given in accordance with the procedure
prescribed in this Section 9.3.
(b) Each Member may authorize any Person or Persons to act for it by
proxy on all matters in which a Member is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. Every
proxy must be signed by the Member or its attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Member executing it.
(c) Notwithstanding this Section 9.3, the Company may take any action
contemplated under this Agreement as approved by the consent of the Members,
such consent to be provided in writing, or by telephone or facsimile, if such
telephone conversation or facsimile is followed by a written summary of the
telephone conversation or facsimile communication sent by registered or
certified mail, postage and charges prepaid, addressed as described in Section
16.2 hereof, or to such other address as such Person may from time to time
specify by notice to the Members and Directors.
9.4 Required Member Consents.
Notwithstanding any other provision of this Operating Agreement, no
action may be taken by the Company (whether by the Governing Board or otherwise)
in connection with the following matters without the approval of Members owning
at least 80% of the outstanding Percentage Interest:
(a) Cause or permit the Company to engage in any activity that is
not consistent with the purposes of the Company as set forth in Section 2.3
hereof;
(b) Knowingly do any act in contravention of this Agreement;
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38
(c) Cause the Company to reorganize, recapitalize, merge or
consolidate with another Person;
(d) Elect to dissolve or liquidate the Corporation;
(e) Cause the Company to take any action that would cause a
Bankruptcy of theCompany;
(f) Possess Company assets, or assign rights in any Company
assets, for other than a Company purpose;
(g) Confess a judgment against the Company;
(h) Change the Percentage Interest of any Member without the
consent of the affected Member; or
(i) Amend this Agreement.
9.5 Tax Elections.
The Governing Board by supermajority (at least 80%) vote (except as
provided below) shall, without any further consent of the Members being required
(except as specifically required herein), make any and all elections for United
States federal, state, local, and foreign tax purposes including, without
limitation, any election, if permitted by applicable law: (i) to adjust the
basis of Property pursuant to Code Sections 754, 734(b) and 743(b), or
comparable provisions of state, local or foreign law, in connection with
Transfers of Interests and Company distributions and (ii) with the consent of
all of the Members, to extend the statute of limitations for assessment of tax
deficiencies against the Members with respect to adjustments to the Company's
United States federal, state, local or foreign tax returns. Magellan is
specifically authorized to act as the "Tax Matters Member" under Section 6231 of
the Code and in any similar capacity under state or local law; provided,
however, that the Tax Matters Member shall not, without the consent of the
Members holding at least 80% of the Percentage Interests, file a request for
administrative review of any Partnership item (as defined in Section 6231 of the
Code) which may be expected to result in the material assessment of tax against
a Member, initiate judicial review of any adjustment with respect to any
Partnership item, or enter into any agreement with the Internal Revenue Service
(or any state and local taxing authority) that would result in any material
change in any item of income, gain, loss, deduction, or credit or Profits or
Losses as previously reported or in the allocation of such items of Profits or
Losses. The Tax Matters Member shall be responsible for preparing and filing, or
causing to be prepared and filed, all federal, state, and local tax returns and
shall submit all federal, state, and local income tax returns and any other
material federal, state, and local tax returns to the Governing Board for review
and supermajority (at least 80%) approval at least fifteen days prior to the
filing of such returns. The Company shall reimburse
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39
the Tax Matters Member for all direct expenses incurred by the Tax Matters
Member in fulfilling its duties hereunder.
9.6 Members' Liability.
No Member shall be liable under a judgment, decree or order of a court,
or in any other manner for the Debts or any other obligations or liabilities of
the Company solely by reason of being a Member of the Company. A Member shall be
liable only to make the Capital Contributions described in Section 3, on the
terms therein described, and shall not be required to lend any funds to the
Company, or to make any other contributions, assessments or payments to the
Company; provided that a Member may be required to repay distributions made to
it as provided in Section 18-607 of the Act.
9.7 Company's Liabilities.
(a) Notwithstanding any other provision of this Agreement and except
for those liabilities assumed by the Company pursuant to the OpCo Contribution
Agreement, the Company shall not assume, or otherwise be responsible for, any
liabilities or obligations of any Member whether actual or contingent, or
liquidated or unliquidated, arising or occurring prior to the date hereof
("Excluded Liabilities"), which Excluded Liabilities shall include, without
limitation:
(1) Any liability or obligation of any Member (other than as
provided in the Facilities Lease) in respect of any federal, state,
local, foreign or other tax, levy, impost, fee, assessment or other
governmental charge, including, without limitation, income, estimated
income, business, occupation, franchise, property, payroll, personal
property, sales, transfer, use, employment, commercial rent, occupancy,
franchise or withholding taxes, and any premium, including, without
limitation, interest, penalties and additions in connection therewith;
(2) Any liability (to the extent not covered by insurance)
arising from any injury to or death of any person or damage to or
destruction of any property, whether based on negligence, breach of
warranty, strict liability, enterprise liability or any other legal or
equitable theory arising from services performed by or on behalf of any
Member prior to the date hereof;
(3) Any liability or obligation of any Member resulting from
entering into, performing its obligations pursuant to or consummating
the transactions contemplated by, this Agreement.
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40
9.8 Partition.
While the Company remains in effect or is continued, each Member agrees
not to have any Company Property partitioned or file a complaint or institute
any suit, action or proceeding at law or in equity to have any Company Property
partitioned, and each Member, on behalf of itself, its successors and its
assigns hereby waives any such right.
9.9 Other Instruments.
Each Member hereby agrees to execute and deliver to the Company within
five (5) Business Days after receipt of a written request therefor, such other
and further documents and instruments, statements of interest and holdings,
designations, powers of attorney and other instruments and to take such other
action as the Governing Board deems necessary to comply with any laws, rules or
regulations as may be necessary to enable the Company to carry out fully the
provisions of this Agreement in accordance with its terms.
SECTION 10.
ACCOUNTING, BOOKS AND RECORDS;
CONFIDENTIALITY
10.1 Accounting, Books and Records.
(a) The Company shall keep on site at its principal place of
business each of the following:
(1) Separate books of account for the Company which shall show
a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received, and all income derived in
connection with the conduct of the Company and the operation of its
business in accordance with this Operating Agreement;
(2) A current list of the full name and last known business,
residence, or mailing address of each Member and Director, both past
and present;
(3) A copy of the Certificate and all amendments thereto,
together with executed copies of any powers of attorney pursuant to
which any amendment has been executed;
(4) Copies of the Company's federal, state, and local
income tax returns and reports, if any, for the three most recent
years;
(5) Copies of this Operating Agreement; and
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41
(6) Unless contained in this Operating Agreement, a statement
prepared and certified as accurate by the Governing Board of the
Company which describes:
(a) The amount of cash and a description and
statement of the agreed value of the other property
contributed by each Member and which each Member has agreed to
contribute in the future;
(b) Any right of a Member to receive
distributions, and the relative preferences and designations
of the Member's Interest.
(b) The Company shall use the accrual method of accounting in
preparation of its financial reports and for tax purposes and shall keep its
books and records accordingly. Any Member or its designated representative has
the right at its own cost and expense, at any reasonable time, to have access to
and inspect and copy the contents of such books or records. The Governing Board
shall be reimbursed by such Member for reasonable costs incurred as a result of
such inspection. Notwithstanding anything in the Act (including Section
18-305(c) of the Act) or this Agreement to the contrary, the Governing Board
shall not have the right to keep confidential from any Member any information
concerning the Company.
10.2 Reports.
The Governing Board shall be responsible for causing the preparation of
(i) monthly financial reports of the Company, and (ii) annual audited financial
statements in conformity with SEC standards, if required, within 75 days of the
Company's year end, and (iii) the coordination of financial matters of the
Company with the Company's accountants.
10.3 Confidentiality.
Except as required by law, each Member shall cause each of its
affiliates to treat and safeguard as confidential and secret any Protected
Information. None of the Members hereto or any of their respective affiliates
shall use or disclose, furnish or make accessible to any Person any Protected
Information.
SECTION 11.
AMENDMENTS
Amendments to this Agreement may be proposed by any Director or any
Member. Following such proposal, the Governing Board shall submit to the Members
a verbatim statement of any proposed amendment, providing that counsel for the
Company shall have approved of the same in writing as to form, and the Governing
Board shall include in any such submission a recommendation as to the proposed
amendment. The Governing Board shall seek the written vote
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42
of the Members on the proposed amendment or shall call a meeting to vote thereon
and to transact any other business that it may deem appropriate.
SECTION 12.
TRANSFERS
12.1 Restrictions on Transfers.
Except as otherwise permitted by this Agreement, no Member shall
Transfer all or any portion of its Interest.
12.2 Permitted Transfers.
Subject to the conditions and restrictions set forth in Section 12.3
hereof, a Member may at any time Transfer all (but not less than all) of its
Interest to (i) a wholly owned subsidiary of that Member, provided that the
transferee subsidiary agrees to retransfer all of such Interest to such
transferring Member if such transferee subsidiary ceases to be a wholly owned
subsidiary of the transferring Member, (ii) the transferor's administrator or
trustee to whom such Interest is transferred involuntarily by operation of law,
(iii) any transferee if the transfer is approved by all Members which own twenty
percent (20%) or more of the outstanding Percentage Interests, in their sole
discretion, (iv) in the case of New Crescent, to a single transferee if such
transfer is necessary for Crescent Real Estate Equities Company ("CEI"), as
currently operated or as operated or proposed to be operated in the future to
avoid jeopardizing its status as a real estate investment trust (a "REIT") under
the Code, provided that prior to any transfer made by New Crescent pursuant to
this clause (iv), New Crescent shall provide Magellan with a written opinion of
counsel that such transfer is necessary to avoid jeopardizing the qualification
of CEI as a REIT, subject to Magellan's right of first refusal under Section
12.8; provided that Magellan will notify New Crescent within 15 days after
receiving notice from New Crescent of its intent to transfer pursuant to this
clause (iv) and a written opinion of counsel referred to above, whether it will
exercise such rights, and, if it elects to exercise such right, shall complete
the purchase of such Interest within 25 days after the original notice from New
Crescent (subject to the right of Magellan to extend the date for completion of
the purchase for up to an additional 20 days if necessary to obtain any
regulatory approvals required in connection therewith) and (v) to any Person
upon compliance with the provisions of Section 12.8 hereof (any such Transfer
being referred to in this Agreement shall be a "Permitted Transfer"). A
permitted transferee or other transferee shall be admitted as a substituted
Member of the Company in accordance with Section 12.6.
In addition, a Member may also transfer its Interest, except for any
voting rights associated with such Interest (other than voting rights in respect
of the matters listed in Section 9.4) and the right to designate Directors on
the Governing Board (each of which rights will remain with such
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Member), in the form of a pledge to a bona fide financial institution, which,
immediately prior to the creation of such pledge, is not an Affiliate of such
Member, to secure bona fide arms' length recourse indebtedness of such Member
and/or its subsidiaries if the pledgee thereof agrees (i) to provide the Company
with all notices of foreclosure by such pledgee and (ii) in the event such
pledgee becomes a Member, to be bound by the provisions of this Agreement
applicable to its transferor, it being understood that both (x) the making of
such pledge and (y) such financial institution's becoming a Member as the result
of foreclosure on such pledge in full or partial satisfaction of all or any part
of the indebtedness secured thereby or otherwise as a result of the exercise by
it of its rights and remedies with respect thereto shall each constitute a
Permitted Transfer and such financial institution shall be a "Member" for the
purposes of this Agreement, subject to the limitations described above. If such
financial institution transfers any portion of a Member's Interest pursuant to
the terms of this Agreement, including pursuant to Section 15.3 in the event of
an Unresolved Deadlock, then, upon the consummation of such transfer, the
transferee shall have all of the rights associated with such transferred
Interest prior to its transfer to such financial institution (including all
voting rights and the right to designate Directors related to such transferred
Interest or a portion thereof), and the Member which initially transferred its
Interest to such financial institution shall have no more rights in such
Interest (to the extent transferred by the financial institution).
12.3 Conditions to Permitted Transfers.
A Transfer shall not be treated as a Permitted Transfer under Section
12.2 hereof unless and until the following conditions are satisfied:
(a) Except in the case of a Transfer involuntarily by operation of law,
the transferor and transferee shall execute and deliver to the Company such
documents and instruments of conveyance as may be necessary or appropriate in
the opinion of counsel to the Company to effect such Transfer and to confirm the
agreement of the transferee to be bound by the provisions of this Section 12,
and to comply with the requirements of Code Section 6050K. In the case of a
Transfer of Interests involuntarily by operation of law, the Transfer shall be
confirmed by presentation to the Company of legal evidence of such Transfer, in
form and substance satisfactory to counsel to the Company. In all cases, unless
the requirements of this sentence have been waived by the Governing Board, the
Company shall be reimbursed by the transferor and/or transferee for all costs
and expenses that it reasonably incurs in connection with such Transfer.
(b) The transferor and transferee shall furnish the Company with the
transferee's taxpayer identification number, sufficient information to determine
the transferee's initial tax basis in the Interest transferred, and any other
information reasonably necessary to permit the Company to file all required
federal and state tax returns and other legally required information statements
or returns. Without limiting the generality of the foregoing, the Company shall
not be required to make any distribution otherwise provided for in this
Agreement with respect to any transferred Interest until it has received such
information.
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(c) Either (i) the Transfer occurs pursuant to an effective
registration statement under the Securities Act and any applicable state
securities law or (ii) the Transfer is exempt from registration or is otherwise
in compliance with the Securities Act and applicable state securities law, and
the transferor has furnished to the Company evidence (which may but need not in
the discretion of the Governing Board include an opinion of counsel) reasonably
satisfactory to the Governing Board.
(d) The Transfer will not cause the Company to be deemed to be an
"investment company" under the Investment Company Act of 1940, as amended, and
the transferor shall provide an opinion of counsel to such effect, unless the
Governing Board waives the requirement that such opinion be provided. Such
opinion and counsel shall be reasonably satisfactory to the Governing Board.
(e) The Transfer will not cause the Company to be deemed to be a
publicly traded partnership under Code Section 7704.
12.4 Prohibited Transfers.
Any purported Transfer of an Interest that is not a Permitted Transfer
shall be null and void and of no force or effect whatever; provided that, if the
Company is required to recognize a Transfer that is not a Permitted Transfer (or
if the Company, in its sole discretion, elects to recognize a Transfer that is
not a Permitted Transfer), the Interest transferred shall be strictly limited to
the transferor's rights to allocations and distributions as provided by this
Agreement with respect to the transferred Interest, which allocations and
distributions may be applied (without limiting any other legal or equitable
rights of the Company) to satisfy any debts, obligations, or liabilities for
damages that the transferor or transferee of such Interest may have to the
Company.
In the case of a Transfer or attempted Transfer of an Interest that is
not a Permitted Transfer, the parties engaging or attempting to engage in such
Transfer shall be liable to indemnify and hold harmless the Company and the
other Members from all cost, liability, and damage that the Company or any of
such indemnified Members may incur (including, without limitation, incremental
tax liabilities, lawyers' fees and expenses) as a result of such Transfer or
attempted Transfer and efforts to enforce the indemnity granted hereby. Any
indemnification payments made to the Company under this Section 12.4, to the
extent paid with respect to costs, liabilities or other damages incurred by a
Member, shall immediately be paid by the Company to such Member.
12.5 Rights of Unadmitted Assignees.
A Person who acquires an Interest but who is not admitted as a
substituted Member pursuant to Section 12.6 hereof shall be entitled only to
allocations and distributions with respect
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45
to such Interest in accordance with this Agreement, and shall not have any of
the rights of a Member under the Act or this Agreement.
12.6 Admission of Substituted Members.
Subject to the other provisions of this Section 12, a transferee of an
Interest may be admitted to the Company as a substituted Member only upon
satisfaction of each of the conditions set forth in this Section 12.6:
(a) (i) The non-transferring Members consent to such admission, which
consent may be given or withheld in the sole and absolute discretion of each
such Member, or (ii) the Interest with respect to which the transferee is being
admitted was acquired by means of a Permitted Transfer;
(b) The transferee of an Interest shall, by written instrument in form
and substance reasonably satisfactory to the Director (and, in the case of
clause (ii) below, the transferor Member), (i) accept and adopt the terms and
provisions of this Agreement, including this Section 12 and (ii) assume the
obligations of the transferor Member under this Agreement with respect to the
transferred Interest. The transferor Member shall be released from all such
assumed obligations except (i) those obligations or liabilities of the
transferor Member arising out of a breach of this Agreement and (ii) in the case
of a Transfer to any Person other than a Member, those obligations or
liabilities of the transferor Member based on events occurring, arising or
maturing prior to the date of Transfer;
(c) Unless the requirements of this Section 12.6(c) have been waived by
the Governing Board, the transferee pays or reimburses the Company for all
reasonable legal, filing, and publication costs that the Company incurs in
connection with the admission of the transferee as a Member with respect to the
Transferred Interest; and
(d) If required by the Governing Board, the transferee (other than a
transferee that was a Member prior to the Transfer) shall deliver to the Company
evidence of the authority of such Person to become a Member and to be bound by
all of the terms and conditions of this Agreement, and the transferee and
transferor shall each execute and deliver such other instruments as the
Governing Board reasonably deems necessary or appropriate to effect, and as a
condition to, such Transfer, including amendments to the Certificate or any
other instrument filed with the State of Delaware or any other state or
governmental authority.
12.7 Distributions and Allocations in Respect of Transferred
Interests.
If all or any portion of an Interest is Transferred during any
Allocation Year in compliance with the provisions of this Section 12, Profits,
Losses, each item thereof, and all other items attributable to the Transferred
Interest for such Allocation Year shall be divided and allocated between the
transferor and the transferee by taking into account their varying Percentage
Interests
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46
during the Fiscal Year in accordance with Code Section 706(d), using any
conventions permitted by law and agreed to by the transferor and transferee. All
distributions on or before the date of such Transfer shall be made to the
transferor, and all distributions thereafter shall be made to the transferee.
Solely for purposes of making such allocations and distributions, the Company
shall recognize such Transfer not later than the end of the calendar month
during which it is given notice of such Transfer; provided that, if the Company
is given notice of a Transfer at least ten (10) Business Days prior to the
Transfer, the Company shall recognize such Transfer as of the date of such
Transfer; and provided further that if the Company does not receive a notice
stating the date such Interest was transferred and such other information as the
Director may reasonably require within thirty (30) days after the end of the
Allocation Year during which the Transfer occurs, then all such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Company, was the owner of the Interest on the last
day of such Allocation Year. Neither the Company nor the Director shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 12.7, whether or not the Director or the Company has
knowledge of any Transfer of ownership of any Interest.
12.8 Right of First Refusal
(a) In the event that any Member has a binding, written offer from an
unrelated Person for the Transfer of its Interest other than pursuant to a
Permitted Transfer and desires to accept such offer to purchase (a "Proposed
Transfer"), such Member (the "Selling Member") shall deliver to the Company and
the remaining Members (the "Non-Selling Members") written notice of the material
terms of such offer, including the proposed purchaser thereof, the amount,
nature and payment schedule of the consideration to be received, the conditions,
if any, associated therewith and any other material terms of such offer (an
"Offer Notice"). The Offer Notice shall constitute an irrevocable offer by the
Selling Member to sell all (but not less than all) of its Interest subject to
the Proposed Transfer (i) first, to the Non-Selling Members and (ii) second, if
and only if at that time there are more than two (2) Members, to the Company on
terms and conditions of the Proposed Transfer, except that a purchaser under
this Section 12.8 shall have the right to pay cash in an amount equal to the
Fair Market Value of any Non-Cash Consideration (the "Right of First Refusal").
(b) During the First Offer Period, each Non-Selling Member may elect to
purchase all or any portion of such Non-Selling Member's Offer Percentage (as
hereinafter defined) of the Interest subject to the Proposed Transfer by
delivering written notice of such election stating the percentage of the
Interest to be purchased (an "Election Notice") to the Company and the Selling
Member prior to the expiration of the First Offer Period. As used herein, a
Member's Offer Percentage shall be a fraction, the numerator of which is equal
to the Percentage Interest of the Company held by such Member on the date of the
Offer Notice and the denominator of which is the Percentage Interests held on
such date by all Non-Selling Members (the "Offer Percentage"); provided that a
Member shall have the right in an Election Notice to agree to purchase all or
any portion of the Interest that could be purchased by other Members; and, if
one or more Members do not deliver an Election
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47
Notice or elect to purchase less than their respective Offer Percentages, then
the portion of the Interest that could have been purchased by such Members shall
be purchased by Members that, in an Election Notice, agreed to purchase such
portion of the Interest, and each such Member shall purchase the portion of the
Interest indicated in an Election Notice, unless the sum of the portions of the
Interest exceeds the Interest so available for purchase, in which case the
portions of the Interest shall be purchased pro rata on the basis of the
proportionate amount of the Offer Percentage of such Members that deliver an
Election Notice. The failure by any Non-Selling Member to deliver an Election
Notice during the First Offer Period shall be deemed to be an election by such
Member not to purchase any of the Interest subject to the Proposed Transfer.
(c) If the Non-Selling Members do not elect during the First Offer
Period to purchase all of the Interest subject to the Proposed Transfer, during
any Second Offer Period, the Company may elect to purchase all (but not less
than all) of the Interest that the Non-Selling Members did not elect to purchase
during the First Offer Period by delivering an Election Notice to the Selling
Member prior to the expiration of the Second Offer Period. The failure by the
Company to deliver an Election Notice during any Second Offer Period shall be
deemed to be an election by the Company not to purchase any of the Interest
subject to the Proposed Transfer.
(d) If the Non-Selling Members and, if applicable, the Company (either
individually or collectively) do not elect to purchase all of the Interest
subject to the Proposed Transfer, the Selling Member may, Transfer to the
purchaser named in the Offer Notice (the "Third Party Purchaser") all (but not
less than all) of the Interest subject to the Proposed Transfer in accordance
with the terms and conditions set forth in the Offer Notice; provided, however,
that if the Selling Member has not consummated the Transfer of such Interest
within the 45 Business Day period following any Second Offer Period, all of the
restrictions on Transfer contained in this Agreement shall again be in effect
with respect to such Interest.
(e) If the consideration for the sale of Interest pursuant to this
Right of First Refusal is cash consideration, the purchase price to be paid by
each of the Non-Selling Members and the Company, as applicable, shall be equal
to the total consideration set forth in the Offer Notice multiplied by the
percentage of such Interest being purchased by such Non-Selling Member or the
Company, as applicable. If the consideration for the Proposed Transfer consists
of consideration that is other than cash consideration payable in immediately
available funds at the closing thereunder ("Non-Cash Consideration") or consists
of a combination of cash consideration and Non-Cash Consideration, the purchase
price shall be cash in an amount equal to the total of the cash consideration,
if any, and the Fair Market Value of the Non-Cash Consideration as determined in
accordance with Section 12.9 hereof.
(f) The purchase and sale of Interest pursuant to this Right of First
Refusal shall be consummated at a closing that shall occur at the principal
business office of the Company within 20 Business Days following the expiration
of the relevant Offer Period, or at such other place or time as may be mutually
acceptable to the parties. At such closing, the Selling Member shall deliver a
certificate or other instrument representing the Interest being purchased, free
and clear of all liens,
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48
claims, encumbrances (other than as a result of this Agreement) and defects in
title and duly endorsed for Transfer to the appropriate purchaser and, in
exchange therefor, the purchaser of such Interest shall pay the purchase price,
as provided in Section 12.8(e) hereof, at such closing by bank wire transfer of
immediately available funds to a bank account designated in writing by the
Selling Member at least three Business Days prior to such closing.
12.9 Determination of Fair Market Value.
In the event that a determination of the fair market value of Non-Cash
Consideration is required pursuant to the Right of First Refusal, the Selling
Member shall specify in the applicable Offer Notice its good faith estimate of
the fair market value of any Non-Cash Consideration to be paid in connection
with the proposed transfer. If a majority of the disinterested members of the
Governing Board agrees with the estimated fair market value of such Non-Cash
Consideration, the estimate shall be deemed to be the Fair Market Value (the
"Fair Market Value") thereof for purposes of this Agreement. If a majority of
the disinterested members of the Governing Board does not agree with the
estimated fair market value, the Governing Board shall, within 10 Business Days
of receipt of the Offer Notice, deliver to the Selling Member written notice of
its disagreement and shall, for a period of 10 Business Days after delivering
such notice, negotiate with the Selling Member for the purpose of determining
the fair market value of the Non-Cash Consideration that is acceptable to the
Governing Board and the Selling Member. If the Governing Board and the Selling
Member are unable to agree on a fair market value during the aforementioned
negotiation period, the Company and the Selling Member shall appoint a mutually
agreeable appraiser of recognized standing with respect to the nature of the
property constituting the Non-Cash Consideration to complete an appraisal of the
property constituting the Non-Cash Consideration. Such appraiser shall render a
binding and non-appealable appraisal of the Fair Market Value of the property
constituting the Non-Cash Consideration within 10 Business Days of such
appraiser's appointment or, if it is not reasonably possible to complete such
appraisal in such time period, such longer period as shall be reasonably
necessary to complete such appraisal (not to exceed 30 Business Days). The
Company and the Selling Member each shall bear one-half of the costs of such
appraisal.
12.10 Tag-Along and Bring-Along Rights.
(a) Exercise of "Tag-Along Right."
(i) Transfers by the Majority Member. In the event that
Magellan's or Crescent's Percentage Interest in the Company decreases to less
than 25%, the other party (the "Majority Member") shall not Transfer all or part
of its Interest without complying with the provisions of this Section 12.10(a).
If the Majority Member desires to Transfer all or part of its Interest (the
"Offered Interest") to a proposed transferee, each of the other Members (a
"Remaining Member") may elect (the "Tag-Along Right") to sell to such proposed
transferee, on the same terms, consideration (on a Percentage Interest basis)
and conditions as were offered to the Majority Member, all of the Interest then
owned by each Remaining Member (if the Majority
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49
Member is proposing to sell all of its Interest) or a portion of its Interest
(if the Majority Member is proposing to sell less than all of its Interest) in
the same proportion as the Interest proposed to be sold by the Majority Member.
(ii) Notification of Proposed Transfers. In the event of a
proposed Transfer subject to this Section 12.10(a), the Majority Member shall
notify in writing all Remaining Members of the proposed Transfer. Such notice
shall set forth: (i) the name of the proposed transferee and the portion of the
Interest that is to be transferred by the Majority Member, (ii) the proposed
amount and form of consideration and terms and conditions of payment offered by
such proposed transferee, and (iii) that the proposed transferee has been
informed of the Tag-Along Right provided for in this Section 12.10(a) and has
agreed to purchase additional Interests in accordance with the terms hereof. The
Tag-Along Right may be exercised by any Remaining Member by delivery of a
written notice to the Company (the "Tag-Along Notice") within 30 days following
receipt of the notice specified in the immediately preceding sentence stating
that the Remaining Member wishes to participate in such transfer to the proposed
transferee by including such Remaining Member's Interest (or a portion thereof).
The Tag-Along Notice shall also specify, in the event that only a portion of the
Majority Member's Interest is being purchased, whether or not the Remaining
Member wishes to have any additional portion (up to all) of his Interest
purchased if any other Remaining Member does not exercise such Member's
Tag-Along Right. In the event that any proposed transferee does not purchase the
Interest of the Majority Member or Remaining Member who has exercised such
Member's Tag-Along Right on the same terms, consideration (if applicable, on a
Percentage Interest basis) and conditions as those set forth in the notice
delivered by the Majority Member then the sale by the Majority Member to the
proposed transferee shall be void ab initio and of no force and effect, and the
Company shall not recognize or give effect to such transfer. Notwithstanding the
foregoing, if any Remaining Member shall not exercise its Tag-Along Right
provided for herein, the other Remaining Members shall have the right, upon
receipt of written confirmation from the Remaining Members not participating in
the Tag-Along Right, to include in their respective Tag-Along Notices, and to
have purchased by the proposed transferee, an additional Interest equal to each
such Member's pro rata portion of the Interest not included in the Tag-Along
Right by the non-electing Remaining Member.
(b) Exercise of "Bring-Along Right"
(i) Transfers by the Majority Member. In the event that
Magellan's or New Crescent's Percentage Interest in the Company decreases to
less than 25% and the Majority Member proposes to Transfer its Interest to a
proposed third party transferee in an arms-length transaction, then the Majority
Member may, at its option, require (the "Bring-Along Right") each other Member
to sell all of its Interest (the "Designated Interest") to the proposed
transferee, at the same time and on the same terms, consideration (on a
Percentage Interest basis) and conditions at which the Majority Member is
selling its Interest.
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(ii) Notification of Proposed Transfer. The Majority Member
shall exercise its Bring-Along Right by sending written notice of the exercise
of the Bring-Along Right to each of the other Members. Such notice shall set
forth: (i) the name and address of the proposed transferee and the proposed
amount and form of consideration to be paid by the proposed transferee and (ii)
the terms and conditions of such transaction. Such notice shall be accompanied
by copies of all documents required to be executed by the Members in connection
with such transaction. Within 10 days following receipt of the notice, each of
the other Members shall deliver to a representative of the Majority Member,
designated in the notice, instruments (or other appropriate documents necessary
to transfer the Designated Interest) representing the Designated Interest held
by such Member, duly endorsed, together with fully executed copies of all other
documents required to be executed in connection with such transactions,
including (if requested) customary legal opinions from the counsel to such
Member. In the event that a Member should fail to deliver such instruments to
the Majority Member, the Company shall cause its books and records to show that
such Designated Interest is bound by the provisions of this Section 12.10(b) and
that such Designated Interest shall be transferred only to the third party
purchaser upon surrender for transfer by the holder thereof. If requested by the
Majority Member, each Member shall also cause a representative that is duly
authorized to execute documents and to act on behalf of such Member to attend
the closing of the transaction and to take such actions as are reasonably
requested by the Majority Member.
(iii) Return of Designated Interest. If, within 120 days after
the Majority Member gives such notice, the sale of the Designated Interest by
the Majority Member in accordance herewith has not been completed, the Majority
Member shall return to each Member all instruments or other documentation
representing the Designated Interest that such Member delivered for sale
pursuant hereto.
(iv) Payment for Designated Interest. Simultaneously with the
consummation of the sale of the Designated Interest by the Majority Member and
the other Members pursuant to this Section 12.10(b), the Majority Member shall
remit, or cause the transferee to remit, to each of the Members the total sales
price of the Designated Interest sold pursuant thereto (net of the other
Members' pro rata share of any transaction expenses), and shall furnish such
other evidence of the completion and time of completion of such sale or other
disposition and the terms thereof as may be reasonably requested by such
Members.
SECTION 13.
POWER OF ATTORNEY
13.1 Directors as Attorneys-In-Fact.
Each Member hereby makes, constitutes, and appoints each of the
Directors, severally, with full power of substitution and resubstitution, its
true and lawful attorney-in-fact for it and in
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51
its name, place, and stead and for its use and benefit, to sign, execute,
certify, acknowledge, swear to, file, publish and record (i) all certificates of
formation, amended name or similar certificates, and other certificates and
instruments (including counterparts of this Operating Agreement) which the
Governing Board may deem necessary to be filed by the Company under the laws of
the State of Delaware or any other jurisdiction in which the Company is doing or
intends to do business in order to preserve its status as a limited liability
company or conduct business in such state; (ii) any and all duly authorized
amendments, restatements or changes to this Operating Agreement and the
instruments described in clause (i), as now or hereafter amended, which the
Governing Board may deem necessary to effect a change or modification of the
Company in accordance with the terms of this Operating Agreement, including,
without limitation, amendments, restatements or changes to reflect the admission
of any substituted Member and the disposition by any Member of its interest in
the Company; (iii) all certificates of cancellation and other instruments which
the Liquidator deems necessary or appropriate to effect the dissolution and
termination of the Company pursuant to the terms of this Operating Agreement;
and (iv) any other instrument which is now or may hereafter be required by law
to be filed on behalf of the Company or is deemed necessary by the Governing
Board to comply with any laws, rules or regulations or as may be necessary to
enable the Company to carry out fully the provisions of this Operating Agreement
in accordance with its terms. Each Member authorizes each such attorney-in-fact
to take any further action which such attorney-in-fact shall consider necessary
in connection with any of the foregoing, hereby giving each such
attorney-in-fact full power and authority to do and perform each and every act
or thing whatsoever requisite to be done in connection with the foregoing as
fully as such Member might or could do personally, and hereby ratify and confirm
all that any such attorney-in-fact shall lawfully do, or cause to be done, by
virtue thereof or hereof.
13.2 Nature of Special Power.
The power of attorney granted to each Director pursuant to this Section
13:
(a) Is a special power of attorney coupled with an interest and is
irrevocable;
(b) May be exercised by any such attorney-in-fact by listing the
Members executing any agreement, certificate, instrument, or other document with
the single signature of any such attorney-in-fact acting as attorney-in-fact for
such Members; and
(c) Shall survive and not be affected by the subsequent Bankruptcy,
insolvency, dissolution, or cessation of existence of a Member and shall survive
the delivery of an assignment by a Member of the whole or a portion of its
interest in the Company (except that where the assignment is of such Member's
entire interest in the Company and the assignee, with the consent of the other
Members, is admitted as a substituted Member, the power of attorney shall
survive the delivery of such assignment for the sole purpose of enabling any
such attorney-in-fact to effect such substitution) and shall extend to such
Member's or assignee's successors and assigns.
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52
SECTION 14.
DISSOLUTION AND WINDING UP
14.1 Dissolution Events.
(a) Dissolution. The Company shall dissolve and shall commence
winding up and liquidating upon the first to occur of any of the following
(each a "Dissolution Event"):
(1) The unanimous vote of the Members to dissolve, wind
up, and liquidate the Company;
(2) A judicial determination that an event has occurred
that makes it unlawful, impossible or impractical to carry on the
Business;
(3) The expiration of the Company's term;
(4) The entry of a decree of judicial dissolution; or
(5) The Bankruptcy, retirement, resignation or expulsion of
any Member; provided that any such event will not be deemed a
Dissolution Event if within ninety (90) days after such Dissolution
Event if the Company has one (1) or more remaining Members and such
Member or Members agree to continue the business and affairs of the
Company.
(b) Reconstitution. If it is determined, by a court of competent
jurisdiction, that the Company has dissolved prior to the occurrence of a
Dissolution Event, then within an additional ninety (90) days after such
determination (the "Reconstitution Period"), all of the Members may elect to
reconstitute the Company and continue its Business on the same terms and
conditions set forth in this Agreement by forming a new limited liability
company on terms identical to those set forth in this Agreement. Unless such an
election is made within the Reconstitution Period, the Company shall liquidate
and wind up its affairs in accordance with Section 14.2 hereof. If such an
election is made within the Reconstitution Period, then:
(1) The reconstituted limited liability company shall
continue until the occurrence of a Dissolution Event as provided in
this Section 14.1(a);
(2) All necessary steps shall be taken to cancel this
Agreement and the Certificate and to enter into a new operating
agreement and certificate of organization; provided that the right of
the Members to select successor Directors and to reconstitute and
continue the Business shall not exist and may not be exercised unless
the Company has received an opinion of counsel that the exercise of the
right would not result in the loss of limited liability of any Member
and neither the Company nor the reconstituted limited
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53
liability company would cease to be treated as a partnership for U.S.
federal income tax purposes upon the exercise of such right to
continue.
14.2 Winding Up.
Upon the occurrence of a Dissolution Event, the Company shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Members,
and no Member shall take any action that is inconsistent with, or not necessary
to or appropriate for, the winding up of the Company's business and affairs;
provided that all covenants contained in this Operating Agreement and
obligations provided for in this Operating Agreement shall continue to be fully
binding upon the Members until such time as the Property has been distributed
pursuant to this Section 14.2 and the Certificate has been canceled pursuant to
the Act. The Liquidator shall be responsible for overseeing the winding up and
dissolution of the Company, which winding up and dissolution shall be completed
within ninety (90) days of the occurrence of the Dissolution Event. The
Liquidator shall take full account of the Company's liabilities and Property and
shall cause the Property or the proceeds from the sale thereof (as determined
pursuant to Section 12.6), to the extent sufficient therefor, to be applied and
distributed, to the maximum extent permitted by law, in the following order:
(a) First, to creditors (including Members and Directors who are
creditors, to the extent otherwise permitted by law) in satisfaction of all of
the Company's Debts and other liabilities (whether by payment or the making of
reasonable provision for payment thereof), other than liabilities for which
reasonable provision for payment has been made and liabilities for distribution
to Members under Section 18-601 or 18-604 of the Act;
(b) Second, except as provided in this Agreement, to Members and
former Members of the Company in satisfaction of liabilities for distribution
under Sections 18-601 or 18-604 of the Act; and
(c) The balance, if any, to the Members in accordance with the positive
balance in their Capital Accounts, after giving effect to all contributions,
distributions and allocations for all periods.
14.3 Rights of Members.
Except as otherwise provided in this Agreement, each Member shall look
solely to the Property of the Company for the return of its investment and has
no right or power to demand or receive Property other than cash from the
Company. If the assets of the Company remaining after payment or discharge of
the Debts or liabilities of the Company are insufficient to return such
investment, the Members shall have no recourse against the Company or any other
Member or Director.
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54
14.4 Notice of Dissolution/Termination.
(a) In the event a Dissolution Event occurs, the Liquidator shall,
within thirty (30) days thereafter, provide written notice thereof to each of
the Members and to all other parties with whom the Company regularly conducts
business (as determined in the discretion of the Liquidator) and shall publish
notice thereof in a newspaper of general circulation in each place in which the
Company regularly conducts business (as determined in the discretion of the
Liquidator).
(b) Upon completion of the distribution of the Company's Property as
provided in this Section 14, the Company shall be terminated, and the Liquidator
shall cause the filing of the Certificate of Cancellation pursuant to Section
18-203 of the Act and shall take all such other actions as may be necessary to
terminate the Company.
14.5 The Liquidator.
(a) Definition. The "Liquidator" shall mean a Person appointed by the
Governing Board to oversee the dissolution of the Company and shall have the
power of attorney granted to the Directors pursuant to Section 13.
(b) Fees. The Company is authorized to pay a reasonable fee to the
Liquidator for its services performed pursuant to this Section 14 and to
reimburse the Liquidator for its reasonable costs and expenses incurred in
performing those services, other than a Liquidator that is also a Member or
Director.
(c) Indemnification. The Company shall indemnify, save harmless, and
pay all judgments and claims against such Liquidator or any officers, directors,
stockholders, agents or employees of the Liquidator relating to any liability or
damage incurred by reason of any act performed or omitted to be performed by the
Liquidator, or any officers, directors, stockholders, agents or employees of the
Liquidator in connection with the winding up of the Company, including
reasonable attorneys' fees incurred by the Liquidator, officer, director,
stockholder, agent or employee in connection with the defense of any action
based on any such act or omission, which attorneys' fees may be paid as
incurred, except to the extent such liability or damage is caused by the fraud,
intentional misconduct of, or a knowing violation of the laws by the Liquidator
which was material to the cause of action.
14.6 Form of Liquidating Distributions.
For purposes of making distributions required by Section 14.2 hereof,
the Liquidator may determine whether to distribute all or any portion of the
Property in-kind or to sell all or any portion of the Property and distribute
the proceeds therefrom.
SECTION 15.
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55
MANAGEMENT DEADLOCK
15.1 Existence of a Deadlock
A deadlock of the Governing Board (a "Deadlock") shall be deemed to
exist if the Governing Board shall be unable to reach agreement by the required
vote on (i) a Major Decision, (ii) a decision involving the expenditure of more
than $____ million or (iii) a decision relating to the election of Executive
Officers, provided that any matter referred to in (i), (ii) or (iii) has been
submitted for consideration at two successive meetings.
15.2 Discussions by Chief Executive Officers
If a Deadlock exists, the Members or Governing Board, as appropriate,
shall negotiate in good faith and use their respective best efforts to resolve
such Deadlock. If, however, after 20 Business Days such Deadlock remains, any
Member, by giving notice to the other Members, may request that such Deadlock be
referred for resolution to the Chief Executive Officer of Magellan and the Chief
Executive Officer of New Crescent (the "Chief Executive Officers") (or, if a
Member's Chief Executive Officer is on the Company's Governing Board, another
senior officer or director designated by the Member). The Chief Executive
Officers shall meet within 20 Business Days thereafter and shall attempt in good
faith to resolve such Deadlock. Any resolution agreed to in writing by the Chief
Executive Officers shall be final and binding on the Company and the Members, so
long as the resolution is not inconsistent with any provision of this Agreement.
15.3 Buy/Sell Option
In the event of a failure to resolve a Deadlock pursuant to Section
15.2 within forty (40) Business Days after a Member makes the request for
resolution by the Chief Executive Officers (an "Unresolved Deadlock"), either
Member, at any time thereafter, shall be authorized to offer to purchase all of
the Interest of the other Member pursuant to the procedures set forth in the
following provisions:
(a) Either New Crescent or Magellan (the initiating party being
hereinafter referred to as the "Offering Party") may by written notice to the
other party (the "Responding Party") state the aggregate fair value of all of
the outstanding Interests in the Company (the "Stated Value"). The giving of
such notice of Stated Value by the Offering Party shall constitute the
irrevocable offer of such party to purchase all of the Responding Party's
Interest in the Company or to sell to the Responding Party all of the Offering
Party's Interest in the Company for the respective purchase price provided for
hereinafter.
(b) Within thirty (30) days after receipt of said notice, the
Responding Party shall determine whether it shall sell its Interest or purchase
the Offering Party's Interest in the Company as provided herein and shall give
written notice to the Offering Party of its decision and shall designate in that
notice which party will be the "Selling Party" and which party shall be the
<PAGE>
56
"Purchasing Party." If the Responding Party shall fail to give notice of its
election within the said 15-day period, then the Responding Party shall be
deemed to have given notice of its election to sell all of its Interest in the
Company pursuant to the provisions hereof.
(c) Within forty-five (45) days after the date on which the Responding
Party receives the notice of Stated Value from the Offering Party, New Crescent
and Magellan shall close the purchase of all of the Interest in the Company then
owned by the Selling Party. The purchase price for such Interest shall be the
product obtained by multiplying the Stated Value times the Percentage Interest
owned by the Selling Party. The Purchasing Party shall pay the purchase price
for such Interest in cash or by certified check at the closing. The Selling
Party shall deliver to the Purchasing Party at the closing such documents and
instruments as may be necessary or desirable, in the opinion of counsel for the
Purchasing Party, to effect the transfer of the Selling Party's Interest to the
Purchasing Party, which Interest shall be free and clear of all Encumbrances.
(d) If the Selling Party is Magellan and, after the close of the
purchase of Magellan's Interest by New Crescent, the Company fails to pay to
Magellan all amounts due Magellan under the Franchise Agreement, New Crescent
acknowledges that Magellan shall have the rights granted to Magellan under
Section 15 of the Franchise Agreement.
15.4 Continuation of Business
During the pendency of any Deadlock relating to the approval of any
Annual Budget for an ensuing Fiscal Year, the Governing Board and the President
shall conduct the Business of the Company in accordance with Section 8.3(c) of
this Agreement.
SECTION 16.
MISCELLANEOUS
16.1 Time.
In computing any period of time pursuant to this Agreement, the day of
the act, event or default from which the designated period of time begins to run
shall not be included, but the time shall begin to run on the next succeeding
day. The last day of the period so computed shall be included, unless it is a
Saturday, Sunday or legal holiday, in which event the period shall run until the
end of the next day which is not a Saturday, Sunday or legal holiday.
16.2 Notices.
Any notice, payment, demand, or communication required or permitted to
be given by any provision of this Agreement shall be in writing and shall be
deemed to have been delivered, given, and received for all purposes (i) if
delivered personally to the Person or to an officer of the Person
<PAGE>
57
to whom the same is directed or (ii) when the same is actually received, if sent
either by registered or certified mail, postage and charges prepaid, or by
facsimile, if such facsimile is followed by a hard copy of the facsimile
communication sent promptly thereafter by registered or certified mail, postage
and charges prepaid, addressed as follows, or to such other address as such
Person may from time to time specify by notice to the Members and Governing
Board:
(a) If to the Governing Board or Company, to the address
determined pursuant to Section 2.4(a) hereof;
(b) If to the Directors, to the addresses set forth in Section 8.1
hereto and thereafter at such address notified by such Director to the Company
in writing; and
(c) If to a Member, to the appropriate address set forth in Section
2.4(b) or 2.4(c) hereof and thereafter at such address notified by such Member
to the Company in writing.
16.3 Binding Effect
Except as otherwise provided in this Agreement, every covenant, term,
and provision of this Agreement shall be binding upon and inure to the benefit
of the Members and their respective successors, transferees, and assigns.
16.4 Construction.
Every covenant, term, and provision of this Agreement shall be
construed simply according to its fair meaning and not strictly for or against
any Member.
16.5 Headings.
Section and other headings contained in this Agreement are for
reference purposes only and are not intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provision hereof.
16.6 Severability.
Except as otherwise provided in the succeeding sentence, every
provision of this Agreement is intended to be severable, and, if any term or
provision of this Agreement is illegal or invalid for any reason whatsoever,
such illegality or invalidity shall not affect the validity or legality of the
remainder of this Agreement. The preceding sentence of this Section 16.6 shall
be of no force or effect if the consequence of enforcing the remainder of this
Agreement without such illegal or invalid term or provision would be to cause
any Member to lose the material benefit of its economic bargain.
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58
16.7 Incorporation by Reference.
No exhibit, schedule, or other appendix attached to this Agreement and
referred to herein is incorporated in this Agreement by reference unless this
Agreement expressly otherwise provides.
16.8 Variation of Terms.
All terms and any variations thereof shall be deemed to refer to
masculine, feminine, or neuter, singular or plural, as the identity of the
Person or Persons may require.
16.9 Governing Law.
The laws of the State of Delaware (other than the choice of law
provisions thereof) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties
arising hereunder.
16.10 Waiver of Jury Trial.
Each of the Members irrevocably waives, to the extent permitted by law,
all rights to trial by jury and all rights to immunity by sovereignty or
otherwise in any action, proceeding or counterclaim arising out of or relating
to this Agreement.
16.11 Counterpart Execution.
This Agreement may be executed in any number of counterparts with the
same effect as if all of the Members had signed the same document. All
counterparts shall be construed together and shall constitute one agreement.
16.12 No Material Impairment.
No Member shall take any action that could impair materially such
Member's ability to perform its duties and obligations under this Agreement.
<PAGE>
59
IN WITNESS WHEREOF, the parties have executed and entered into this
Operating Agreement of the Company as of the day first above set forth.
MAGELLAN HEALTH SERVICES, INC.
-----------------------------------------
Name:
Title:
NEW CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
-----------------------------------------
Name:
Title:
<PAGE>
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of April ,
1997, between Crescent Opportunity Corp., a [Delaware corporation] (the
"Company"), and Magellan Health Services, Inc., a Delaware corporation (the
"Buyer").
WHEREAS, the Company desires to sell to Buyer, and Buyer desires to
purchase from the Company, warrants to purchase shares of common stock of the
Company, par value [$__] per share ("Common Stock");
WHEREAS, the Company, Buyer and Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership ("Crescent"), have agreed to certain
related transactions pursuant to the Transaction Documents (as defined in that
certain Real Estate Purchase and Sale Agreement, dated January 29, 1997, by and
between Buyer and Crescent (the "REIT Purchase Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Buyer hereby agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
1.1 Sale and Purchase of Warrants. On the terms and subject to the
conditions set forth in this Agreement, the Company hereby sells to Buyer, and
Buyer hereby purchases from the Company, warrants (collectively, the "Warrants")
to purchase shares of Common Stock. The Warrants shall be exercisable as set
forth on Annex 1 and shall constitute the right to purchase that number of
shares of Common Stock set forth on Annex 1, which number represents two and
one-half percent (2.5%) of the Common Stock of the Company outstanding on the
date hereof, on a fully diluted basis (subject to adjustment from time to time
as provided in the Warrants). The Warrants shall be in substantially the form
set forth as Exhibit A hereto (except for the number of shares and the exercise
period which shall be in accordance with Annex 1).
1.2 Purchase Price and Payment. The parties hereto acknowledge that the
Purchase Price for the Warrants was made by them in arm's length negotiation.
The aggregate purchase price for the Warrants is Ten and No/100 Dollars ($10.00)
(the "Purchase Price").
1.3 Defined Terms. A list of terms used in this Agreement is set
forth in Article XI.
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ARTICLE II
CLOSING AND CLOSING DATE
The Closing of the transactions contemplated hereby shall occur at the
time of the closing of the REIT Purchase Agreement and upon satisfaction of the
conditions to Closing set forth herein and therein. The date on which the
Closing is required to take place is herein referred to as the "Closing Date."
The closing of all of the transactions contemplated hereby shall be deemed to
have occurred simultaneously.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer, as of the date hereof,
that:
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority in all material
respects to own, lease, and operate its properties and to carry on its business
as now being conducted. No actions or proceedings to dissolve the Company are
pending or, to the best knowledge of the Company, are threatened.
3.2 Capitalization of the Company.
(a) The authorized [capital stock] of the Company consists of (i)
___________ shares of Common Stock, of which, as of the date hereof ___________
shares are outstanding and ___________ shares are held in the Company's
treasury, and (ii) 10,000,000 shares of Preferred Stock, without par value, of
which, as of the date hereof, no shares are outstanding. All outstanding shares
of capital stock of the Company have been validly issued and are fully paid and
nonassessable, and no shares of capital stock of the Company are subject to, nor
have any been issued in violation of, preemptive or similar rights. As of the
date hereof, no shares of Common Stock are reserved for issuance.
(b) Except as set forth above in subparagraph (a) of this Section 3.2
and as contemplated by this Agreement, there are outstanding (i) no shares of
capital stock or other voting securities of the Company; (ii) no securities of
the Company convertible into or exchangeable for shares of capital stock or
other voting securities of the Company; (iii) no options or other rights to
acquire from the Company, and no obligation of the Company to issue or sell, any
shares of capital stock or other voting securities of the Company or any
securities of the Company convertible into or exchangeable for such capital
stock or voting securities; and (iv) other than employee compensation plans
based on the Company's earnings and executive officer employment agreements, no
equity equivalents,
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interests in the ownership or earnings, or other similar rights of or with
respect to the Company. There are no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any shares of Common Stock or
any other securities of the type described in clauses (i)-(iv) of the preceding
sentence.
3.3 Authority Relative to This Agreement. The Company has full
corporate power and authority to execute, deliver, and perform this Agreement to
which it is a party and to consummate the transactions contemplated hereby. The
execution, delivery, and performance by the Company of this Agreement, and the
consummation by it of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes, and the
Warrant, when executed by the Company will be, a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting
creditors' rights generally or by general principles of equity.
3.4 Noncontravention. The execution, delivery, and performance by the
Company of this Agreement and the Warrants and the consummation by it of the
transactions contemplated hereby do not and will not (i) conflict with or result
in a violation of any provision of the Company's Certificate of Incorporation or
the Company's Bylaws, as amended, or the charter, bylaws or other governing
instruments of any Subsidiary, (ii) conflict with or result in a violation of
any provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, agreement, or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties may be bound, (iii) result in the creation
or imposition of any Encumbrance upon the properties of the Company or any
Subsidiary, or (iv) assuming compliance with the matters referred to in Section
3.5, violate any Applicable Law binding upon the Company or any Subsidiary,
except, in the case of clauses (ii), (iii), and (iv) above, for any such
conflicts, violations, defaults, terminations, cancellations, accelerations, or
Encumbrances which would not, individually or in the aggregate, have a material
adverse effect on the business, assets, results of operations, or financial
condition of the Company and the Subsidiaries taken as a whole or the ability of
the Company to consummate the transactions contemplated hereby.
3.5 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by the Company or any Subsidiary in
connection with the execution, delivery, or performance by the Company of this
Agreement or the consummation by it of the transactions contemplated hereby,
other than (i) compliance with any applicable requirements of the HSR Act; (ii)
compliance with any applicable requirements of the Securities Act; (iii)
compliance with any applicable requirements of the Exchange Act; (iv) compliance
with any applicable state securities laws; and (v) such consents, approvals,
orders, or authorizations which, if not obtained, and such declarations,
filings, or
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<PAGE>
registrations which, if not made, would not, individually or in the aggregate,
have a material adverse effect on the business, assets, results of operations,
or financial condition of the Company or on the ability of the Company to
consummate the transactions contemplated hereby. The representations and
warranties of the Company contained in this Section 3.5, insofar as such
representations and warranties pertain to compliance by the Company with the
requirements of the Securities Act and applicable state securities laws, are
based on the representations and warranties of Buyers contained in Section 4.5.
3.6 Authorization of Issuance: Reservation of Shares. When issued and
delivered pursuant to this Agreement against payment therefor, the Warrants will
have been duly authorized, issued and delivered and will constitute valid and
legally binding obligations of the Company entitled to the benefits provided
therein. During the period within which the Warrants may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
upon exercise of the Warrants, a sufficient number of shares of Common Stock to
provide for the exercise of the Warrants. All shares of Common Stock which are
issuable upon exercise of the Warrants (the "Warrant Shares") will, when issued,
be validly issued, fully paid and nonassessable. Upon exercise of the Warrants
the issuance of the Warrant Shares will not be subject to any preemptive or
similar rights.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company that:
4.1 Organization. Buyer is duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its formation.
4.2 Authority Relative to This Agreement. Buyer has full power and
authority to execute, deliver, and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance by
Buyer of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by all necessary action of Buyer.
This Agreement has been duly executed and delivered by Buyer and constitutes a
valid and legally binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally or by general principles of equity.
4.3 Noncontravention. The execution, delivery, and performance by Buyer
of this Agreement and the consummation by it of the transactions contemplated
hereby do not and will not (i) conflict with or result in a violation of any
provision of the charter, bylaws, or similar organizational documents of Buyer,
(ii) conflict with or result in a violation of any provision of, or constitute
(with or without the giving of notice or the passage of time or both) a default
under, or
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<PAGE>
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, agreement, or other instrument or
obligation to which Buyer is a party or by which Buyer or any of its properties
may be bound, (iii) result in the creation or imposition of any Encumbrance upon
the properties of Buyer, or (iv) violate any Applicable Law binding upon Buyer,
except, in the case of clauses (ii), (iii), and (iv) above, for any such
conflicts, violations, defaults, terminations, cancellations, accelerations, or
Encumbrances which would not, individually or in the aggregate, have a material
adverse effect on the business, assets, results of operations, or financial
condition of Buyer or on the ability of Buyer to consummate the transactions
contemplated hereby.
4.4 Governmental Approvals. Other than any HSR Act filing, no consent,
approval, order, or authorization of, or declaration, filing, or registration
with, any Governmental Entity is required to be obtained or made by Buyer in
connection with the execution, delivery, or performance by Buyer of this
Agreement or the consummation by it of the transactions contemplated hereby.
4.5 Purchase for Investment. Buyer has been furnished with all
information that it has requested for the purpose of evaluating the proposed
acquisition of the Warrants pursuant hereto, and Buyer has had an opportunity to
ask questions of and receive answers from the Company regarding the Company and
its business, assets, results of operations, and financial condition and the
terms and conditions of the issuance of the Warrants. Buyer is acquiring the
Warrants to be purchased by it for its own account for investment and not for
distribution in any manner that would violate applicable securities laws. Buyer
can bear the risk of an investment in the Warrants, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of a prospective investment in the Warrants. The
acquisition of such Warrants by Buyer at Closing shall constitute Buyer's
confirmation of the foregoing representations. Buyer understands that such
Warrants are being sold to it in a transaction which is exempt from the
registration requirements of the Securities Act, and that, in making the
representations and warranties contained in Section 3.5 pertaining to compliance
by the Company with the requirements of the Securities Act and applicable
securities laws, the Company is relying, to the extent applicable, upon Buyer's
representations set forth herein.
4.6 No Other Shares. Except for such rights as may be conferred on
Buyer by this Agreement, as of the date hereof, Buyer does not beneficially own,
directly or indirectly through any subsidiary or through any affiliate of Buyer
in which Buyer directly or indirectly owns stock or equity interests, any shares
of capital stock of the Company.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Press Releases. Except as may be required by Applicable Law,
neither Buyer, on the one hand, nor the Company, on the other, shall issue any
press release with respect to this Agreement
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<PAGE>
or the transactions contemplated hereby without the prior written consent of the
other party (which consent shall not be unreasonably withheld under the
circumstances). Any such press release required by Applicable Law shall only be
made after reasonable notice to the other party.
5.2 Stock Exchange Listing. The Company shall use its commercially
reasonable best efforts to cause the Warrant Shares to be approved for listing
on a national securities exchange, subject to official notice of issuance, or
traded in the over-the-counter market and quoted on the NASDAQ Stock Market,
prior to any exercise by the Company or Crescent of its rights to acquire shares
of common stock of Buyer under that certain Warrant Purchase Agreement from the
Company (the "Magellan Warrant").
5.3 Registration Rights.
(a) Registration of Warrant Shares. On or before the date that the
Company or Crescent first exercises its rights to acquire shares of common stock
under the Magellan Warrant, the Company will use its commercially reasonable
best efforts to obtain effectiveness of a registration statement under the
Securities Act with respect to the issuance of the Warrant Shares upon exercise
of the Warrants and the resale of the Registrable Warrant Shares.
(b) Registration Procedures. With respect to each registration
statement filed in accordance with this Section 5.3
(the "Registration Statement"), the Company shall:
(i) cause the Registration Statement and the related
prospectus and any amendment or supplement, (A) to comply in all
material respects with the applicable requirements of the Securities
Act and under the rules and regulations promulgated thereunder, and (B)
not to contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(ii) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith, and upon the mandatory expiration of the
Registration Statement, one or more additional registration statements,
as may be necessary to keep the Registration Statement effective on a
continual basis for so long as the Buyer or its permitted transferee
owns any Underlying Warrant Shares; provided that the Company shall not
be required to maintain the effectiveness of any Registration Statement
filed hereunder for a period in excess of twelve years and ninety (90)
days from the Closing Date;
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<PAGE>
(iii) furnish, upon written request, to Buyer a copy of any
amendment or supplement to the Registration Statement or prospectus
prior to filing it after effectiveness and not file any such amendment
or supplement to which Buyer shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the
rules or regulations promulgated thereunder;
(iv) furnish to Buyer such number of copies of the
Registration Statement, each amendment and supplement thereto, the
prospectus used in connection therewith (including, without limitation,
each preliminary prospectus and final prospectus) and such other
document as Buyer may reasonably request in order to facilitate the
disposition of the Registrable Warrant Shares owned by Buyer;
(v) use its commercially reasonable best efforts to register
or qualify all Registrable Warrant Shares covered by the Registration
Statement under such other securities or blue sky laws of the states of
the United States as may be required for the issuance and sale of the
Registrable Warrant Shares, to keep such registration or qualification
in effect for so long as the Registration Statement remains in effect
except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any
jurisdiction in which it is not and would not, but for the requirements
of this Section 5.3, be obligated to be so qualified, or to subject
itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(vi) prior to any sale of the Registrable Warrant Shares
effected on a national securities exchange, deliver to such national
securities exchange copies of the prospectus to be used in connection
with the offering to be conducted pursuant to the Registration
Statement;
(vii) upon discovery that, or upon the happening of any event
as a result of which, the prospectus included in the Registration
Statement, as then in effect, includes or in the judgment of the
Company may include an untrue statement of a material fact or omits or
may omit to state any material fact required to be stated in such
prospectus or necessary to make the statements in such prospectus not
misleading in the light of the circumstances in which they were made,
which circumstance requires amendment of the Registration Statement or
supplementation of the prospectus, prepare and file as promptly as
reasonably possible a supplement to or an amendment of such prospectus
as may be necessary so that, as when delivered (if required by the
Securities Act) to a purchaser of Registrable Warrant Shares, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated in such prospectus
or necessary to make the statements in such prospectus not misleading
in the light of the circumstances in which they were made;
(viii) otherwise use its commercially reasonable best efforts
to comply with all applicable rules and regulations under the
Securities Act and, in its discretion, to make
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available to its securities holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months,
but not more than eighteen months, beginning with the first month of
the first fiscal quarter after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of
section 11(a) of the Securities Act;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Warrant Shares covered by the
Registration Statement from and after a date not later than the
effective date of the Registration Statement;
(x) use its commercially reasonable best efforts to list all
Registrable Warrant Shares covered by the Registration Statement on any
national securities exchange on which securities of the same class as
the Registrable Warrant Shares are then listed;
(xi) after any sale of the Registrable Warrant Shares pursuant
to this Section 5.3, to the extent not prohibited by law, cause any
restrictive legends to be removed and any transfer restrictions to be
rescinded with respect to the Registrable Warrant Shares;
(xii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and
scope) and take all such other actions as the holders of a majority of
the Registrable Warrant Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition
of such Warrant Shares;
(xiii) in the event of the issuance of any stop order
suspending the effectiveness of the Registration Statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the disqualification of any Common Stock included in the
Registration Statement for sale in any jurisdiction, the Company will
use its commercially reasonable best efforts promptly to obtain the
withdrawal of such order; and
(xiv) use its commercially reasonable best efforts to cause
such Registrable Warrant Shares covered by the Registration Statement
to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the Buyer thereof to
consummate the disposition of such Warrant Shares.
(c) Obligations of Buyer. The Buyer holding Registrable Warrant Shares
shall furnish to the Company such information regarding the Buyer as the Company
may from time to time reasonably request in writing (and will notify the Company
of any changes in such information) and as shall be required by the Securities
Act in connection with such registration.
(d) Delay of Sales. During any period in which the Company is
maintaining the effectiveness of a Registration Statement for the Registrable
Warrant Shares pursuant to this Section 5.3, the Company shall have the right,
upon giving notice to the Buyer holding Registrable Warrant
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Shares of the exercise of such right, to require the Buyer not to sell any
Registrable Warrant Shares pursuant to such Registration Statement for a period
of time the Company deems reasonably necessary, which time shall be specified in
such notice but in no event longer than a period of 90 days, if (i) the Company
is engaged in an offering of shares by the Company for its own account or is
engaged in or proposes to engage in discussions or negotiations with respect to,
or has proposed or taken a substantial step to commence, or there otherwise is
pending, any merger, acquisition, other form of business combination,
divestiture, tender offer, financing or other transaction, or there is an event
or state of facts relating to the Company, in each case which is material to the
Company (any such negotiation, step, event or state of facts being herein called
a "Material Activity"), (ii) such Material Activity would, in the opinion of
counsel for the Company reasonably acceptable to Buyer, require disclosure so as
to permit the Registrable Warrant Shares to be sold in compliance with
applicable law, and (iii) such disclosure would, in the reasonable judgment of
the Company, be adverse to its interests in any material respect. The Company
shall have no obligation to include in any notice contemplated by this
subparagraph (f) any reference to or description of the facts based upon which
the Company is delivering such notice.
(e) Indemnification.
(i) The Company shall indemnify and hold harmless the Buyer
holding Registrable Warrant Shares and its directors, Affiliates and
officers, and each other person, if any, who controls the Buyer within
the meaning of the Securities Act against any losses, claims, damages,
liabilities or expenses (including reasonable fees and expenses of
counsel), joint or several, to which the Buyer or any such director,
Affiliate or officer or participating or controlling person may become
subject under the Securities Act or otherwise in connection with or as
a result of a sale by the Buyer of the Registrable Warrant Shares,
insofar as such losses, claims, damages, liabilities or expenses (or
related actions or proceedings) arise out of or are based upon (i) any
untrue statement of any material fact contained in the Registration
Statement, any preliminary prospectus, final prospectus or summary
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or any document incorporated
by reference in the Registration Statement, or (ii) any omission to
state in any such document a material fact required to be stated in any
such document or necessary to make the statements in any such document
not misleading, and the Company will reimburse the Buyer and each such
director, Affiliate, officer, participating person and controlling
person for any legal or any other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
damage, liability or expense (or action or proceeding in respect of any
such loss, claim, damage, liability or expense) which arises out of or
is based upon an untrue statement or omission made in the Registration
Statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement except for any untrue statement or
omission made in reliance upon and in conformity with written
information furnished to the Company by the Buyer or any such director,
Affiliate, officer, participating person or controlling person for use
in the preparation of the Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on
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behalf of the Buyer or any such director, Affiliate, officer,
participating person or controlling person and shall survive the
transfer of Registrable Warrant Shares by the Buyer.
(ii) The Buyer shall indemnify and hold harmless (in the same
manner and to the same extent as set forth in clause (i) of this
subparagraph (f)) the Company, each director of the Company, each
officer of the Company who shall sign the Registration Statement and
each other person, if any, who controls the Company within the meaning
of the Securities Act, with respect to any untrue statement in or
omission from the Registration Statement, any preliminary prospectus,
final prospectus or summary prospectus included in the Registration
Statement, or any amendment or supplement to the Registration
Statement, but only to the extent that such statement or omission was
made in direct reliance upon and in conformity with written information
furnished to the Company by the Buyer for use in the preparation of the
Registration Statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on behalf of the Company or any such director, officer or
controlling person and shall survive the transfer of the Registrable
Warrant Shares by the Buyer.
(iii) Indemnification under this Section 5.3 shall be made as
set forth in Article IX hereof.
(f) Registration Expenses. All expenses incident to the Company's
registration of the Registrable Warrant Shares pursuant to the provisions of
this Section 5.3, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or [blue sky laws],
printing and engraving expenses, messenger and delivery expenses and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding underwriting discounts and any selling
commissions) and any persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be paid by the Company; provided,
that, all expenses incurred by the Buyer holding Registrable Warrant Shares to
retain any counsel, accountant or other advisor will not be deemed to be
Registration Expenses and will be paid by the Buyer. The underwriting discounts
or commissions and any selling commissions together with any stock transfer or
similar taxes attributable to sales of the Registrable Warrant Shares will be
paid by the Buyer.
5.4 Fees and Expenses. The parties shall each pay their own fees and
expenses and those of their agents, advisors, attorneys and accountants with
respect to the negotiation and execution of this Agreement.
5.5 Restrictions on Transfers: Restrictions on Exercise of
Warrants.
(a) Restrictions on Transfer of Warrants and Warrant Shares.
Subject to the provisions of subsections (b) and (c), without having obtained
the prior written consent of the Company, the Buyer shall not:
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(i) sell or transfer any of the Warrants held by it to
any other person, except for Excluded Transfers (as defined below) or
to a wholly owned Subsidiary; and
(ii) prior to the twelfth anniversary of the Closing Date,
except for an Excluded Transfer, sell or transfer in a privately
negotiated transaction to a single purchaser and its Affiliates, or any
"Group" (as such term is defined in Rule 13d-5(b)(1) under the Exchange
Act) any combination of Warrants and/or Warrant Shares, if the
aggregate number of Warrant Shares and Underlying Warrant Shares to be
so transferred equals 5% or more of the Common Stock then outstanding
on a fully-diluted basis (i.e. including all shares of Common Stock
issuable under the terms of any options, warrants and similar rights).
(b) Exceptions to Transfer Restrictions. Notwithstanding subsection
(a), the Buyer may sell or transfer any of the Warrants and/or Warrant Shares to
any person pursuant to, as a result of, or in connection with (i) a tender offer
or an exchange offer approved by the Board of Directors of the Company; (ii) the
consummation of a merger (provided the Company is not the surviving corporation
in such merger), consolidation, or a sale of all or substantially all the assets
of the Company; or (iii) any other "Fundamental Change Transaction" (as such
term is defined in the Warrant).
(c) Transferees. During the period in which the restrictions set forth
in this Section 5.5 remain applicable, neither Buyer nor any transferee shall be
entitled to, directly or indirectly, sell or transfer any of the Warrants and/or
Warrant Shares in an Excluded Transfer to any person who is not a party to this
Agreement, unless the purported transferee executes an instrument acknowledging
that it is bound by the terms of this Section 5.5 and such instrument is
delivered to the Company.
5.6 Indemnification of Brokerage. Each of the parties hereto agrees to
indemnify and hold harmless each other party from and against any claim or
demand for a commission or other compensation by any financial advisor, broker,
agent, finder, or similar intermediary claiming to have been employed by or on
behalf of such indemnifying party and to bear the cost of legal fees and
expenses incurred in defending against any such claim or demand.
5.7 Delivery of Information. The Company will deliver to the Buyer
promptly upon the filing thereof, copies of all registration statements (other
than the exhibits thereto and any registration statements on Form S-8 or its
equivalent) and reports on Forms 10-K (or their equivalents) which the Company
shall have filed with the Commission or any similar reports filed with any state
securities commission or office.
5.8 Rule 144 and Rule 144A Information. With a view to making available
to the Buyer the benefits of Rule 144 and Rule 144A promulgated under the 1933
Act and any other rule or regulation of the Commission that may at any time
permit the Buyer to sell Common Stock of the Company to the public without
registration, the Company agrees to:
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(i) make and keep public information available, as those
terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) furnish to Buyer forthwith upon request (A) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (B)
a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company under the
Securities Act and the Exchange Act and (C) such other information as
may be reasonably requested by each Buyer in availing itself of any
rule or regulation of the Commission which permits the selling of any
such securities without registration; and
(iv) comply with all rules and regulations of the
Commission applicable to the Company in connection with use of Rule
144A (or any successor thereto); and
(v) within five business days of the Company's receipt of a
request made by, or on behalf of, any prospective transferee who is a
Qualified Institutional Buyer (as defined in Rule 144A) and would be
purchasing Common Stock of the Company in reliance upon Rule 144A),
provide to such prospective transferee copies of annual audited and
quarterly unaudited financial statements of the Company for it to
comply with Rule 144A.
5.9 Standstill.
(a) General. Buyer agrees that during the four year period ending on
the anniversary of the Closing Date, it will not, and it will cause its
Affiliates and employees not to, purchase additional shares of the Company's
Common Stock (or other Equity Securities) so that Buyer and its Affiliates and
employees collectively own 20% or more of the Company's Common Stock then
outstanding; provided, however, that Buyer and its Affiliates and employees
shall not be deemed to own 20% or more of the Common Stock then outstanding
solely by reason of the Company's purchase of any Common Stock unless thereafter
Buyer and its Affiliates and employees purchase any additional shares of Common
Stock (excluding any acquisition of Warrant Shares upon exercise of the
Warrants, which shall not be restricted hereunder).
(b) Additional Standstill Obligations. Buyer further agrees that during
the twelve year period ending on the anniversary of the Closing Date, it will
not, and it will cause its Affiliates and employees not to, without prior
Company consent, (i) effect or cause to be effected any (A) "solicitation" of
"proxies" (as such terms are used in the proxy rules of the Commission) with
respect to the Company or any action resulting in such person becoming a
"participant" in any "election contest" (as such terms are used in the proxy
rules of the Commission) with respect to the Company, or (B) any tender or
exchange offer or offer for a merger, consolidation, share exchange or business
combination involving the Company or substantially all of its assets, (ii)
propose any
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matter for submission to a vote of the stockholders of the Company, or (iii)
sell any shares of the Company's Common Stock (or other Equity Securities)
short.
5.10 Notices. The Company agrees to give the Buyer notice of any of the
events referred to in Section 4(g) of the Warrants at least five (5) Business
Days prior to any record date established or related to any such event which the
Buyer agrees to keep strictly confidential unless and until any such event has
been publicly announced.
5.11 Survival of Covenants. Except for any covenant or agreement which
by its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without contractual limitation.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
6.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement shall be true and correct on and
as of the Closing Date in all material respects, except to the extent that any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
specified date, except to the extent contemplated by this Agreement.
6.2 Covenants and Agreements Performed. Buyer shall have performed and
complied with all covenants and agreements required by this Agreement, if any,
to be performed or complied with by it on or prior to the Closing Date in all
material respects.
6.3 HSR Act. To the extent that the HSR Act is applicable to the
transaction contemplated herein, all waiting periods (and any extensions
thereof) applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.
6.4 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
6.5 Certificate. The Company shall have received a certificate executed
by a duly authorized person on behalf of Buyer dated the Closing Date,
representing and certifying, in such detail as the Company may reasonably
request, that the conditions set forth in Sections 6.1, 6.2 and 6.4 have been
fulfilled.
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6.6 Satisfaction of Conditions. All conditions to closing set
forth in the REIT Purchase Agreement have been satisfied or waived.
6.7 Other Transactions. All Transactions under the other
Transaction Documents (as defined in the REIT Purchase Agreement) have been
consummated contemporaneously herewith.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
7.1 Representations and Warranties True. All the representations and
warranties of the Company contained in this Agreement shall be true and correct
on and as of the Closing Date in all material respects, except to the extent
that any such representation or warranty is made as of a specified date, in
which case such representation or warranty shall have been true and correct as
of such specified date, except to the extent contemplated by this Agreement.
7.2 Covenants and Agreements Performed. The Company shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Closing Date
in all material respects.
7.3 Legal Proceeding. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7.4 Certificates. Buyer shall have received a certificate or
certificates representing the Warrants, in definitive form representing the
Warrants purchased by it, ( in substantially the form set forth in Exhibit A
hereto) registered in the name of Buyer and duly executed by the Company.
7.5 Satisfaction of Conditions. All conditions to closing the
REIT Purchase Agreement have been satisfied or waived.
7.6 Other Transactions. All Transactions under the other
Transaction Documents (as defined in the REIT Purchase Agreement) have been
consummated contemporaneously herewith.
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ARTICLE VIII
TERMINATION, AMENDMENT, AND WAIVER
8.1 Termination. This Agreement shall be terminated and the
transactions contemplated hereby abandoned if the REIT Purchase Agreement is
terminated.
8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall become void and have no
effect, except that the agreements contained in this Section and in Sections
5.1, 5.4 and 5.6 and Article IX shall survive the termination hereof. Nothing
contained in this Section shall relieve any party from liability for any breach
of this Agreement.
8.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
8.4 Waiver. No failure or delay by a party hereto in exercising any
right, power, or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The provisions
of this Agreement may not be waived except by an instrument in writing signed by
or on behalf of the party against whom such waiver is sought to be enforced.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
9.1 Survival. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto shall survive the Closing, regardless of any
investigation made by or on behalf of any party, until the first anniversary of
the Closing Date (the "Survival Date"). No action may be brought with respect to
a breach of any representation after the Survival Date unless, prior to such
time, the party seeking to bring such an action has notified the other party of
such claim, specifying in reasonable detail the nature of the loss suffered. The
provisions of this Section 9.1 shall have no effect upon any of the covenants of
the parties set forth in Article V or any of the other obligations of the
parties hereto under the Agreement, whether to be performed later, at or after
the Closing.
9.2 Indemnification by Company. The Company shall indemnify, defend,
and hold harmless Buyer from and against any and all claims, actions, causes of
action, demands, losses, damages, liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses) (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred by Buyer, directly or
indirectly, by reason of or resulting from any breach by the Company of any of
its representations, warranties, covenants, or agreements contained in this
Agreement or in any
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certificate, instrument, or document delivered pursuant hereto. Notwithstanding
anything to the contrary contained herein, the Company's indemnity obligations
hereunder (i) will not extend to Damages arising out of negligence, willful
misconduct or fraud of the Buyer, and (ii) with respect to indemnification
claims under this Section 9.2 (other than, for each of (i) and (ii), Damages
related to the ability of the Buyer to exercise the Warrants, receive the
Warrant Shares, effect the registration of the Warrant Shares or sell the
Warrant Shares), the Company's indemnification obligations (x) for a period of
two (2) years following the Closing, shall not arise until the aggregate claims
resulting from the breach exceed $1,000,000, at which time such indemnity
obligations shall cover all claims, and (y) after two (2) years following the
Closing, shall not arise until the aggregate claims during such period resulting
from the breach exceed $10,000,000, at which time such indemnity obligations
shall cover all claims.
9.3 Indemnification by Buyer. Buyer shall indemnify, defend, and hold
harmless the Company from and against any and all Damages asserted against,
resulting to, imposed upon, or incurred by the Company, directly or indirectly,
by reason of or resulting from any breach by Buyer of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto. Notwithstanding anything to the contrary contained herein, Buyer's
indemnity obligations hereunder (i) will not extend to Damages arising out of
negligence, willful misconduct or fraud of the Company, and (ii) with respect to
indemnification claims under this Section 9.3, the Buyer's indemnification
obligations (x) for a period of two (2) years following the Closing, shall not
arise until the aggregate claims resulting from the breach exceed $1,000,000, at
which time such indemnity obligations shall cover all claims, and (y) after two
(2) years following the Closing, shall not arise until the aggregate claims
during such period resulting from the breach exceed $10,000,000, at which time
such indemnity obligations shall cover all claims.
9.4 Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 9.2 or 9.3 of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such Section, give written notice to
the indemnifying party of the commencement thereof, but the failure so to notify
the indemnifying party shall not relieve it of any liability that it may have to
any indemnified party except to the extent the indemnifying party demonstrates
that the defense of such action is prejudiced thereby. In case any such action
shall be brought against an indemnified party and it shall give written notice
to the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it may wish, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. If the indemnifying party elects to assume the defense of
such action, the indemnified party shall have the right to employ separate
counsel at its own expense and to participate in the defense thereof. If the
indemnifying party elects not to assume (or fails to assume) the defense of such
action, the indemnified party shall be entitled to assume the defense of such
action with counsel of its own choice, at the expense of the indemnifying party.
If the action is asserted against both the indemnifying party and the
indemnified party and there is a conflict of interests which renders it
inappropriate for the same counsel to represent both the indemnifying party and
the indemnified party, the indemnifying party shall be
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responsible for paying for separate counsel for the indemnified party; provided,
however, that if there is more than one indemnified party, the indemnifying
party shall not be responsible for paying for more than one separate firm of
attorneys to represent the indemnified parties, regardless of the number of
indemnified parties. The indemnifying party shall have no liability with respect
to any compromise or settlement of any action effected without its written
consent (which shall not be unreasonably withheld).
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if delivered
personally, or transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, or sent by prepaid overnight delivery
service, or sent by cable, telegram, or telefax, to the parties at the addresses
and telefax numbers set forth opposite their names on the signature page hereof
(or at such other addresses and telefax numbers as shall be specified by the
parties by like notice).
10.2 Entire Agreement. This Agreement, together with the Transaction
Agreements, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
10.3 Binding Effect; Assignment; No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, successors, and permitted assigns. Except as
otherwise expressly provided in this Agreement, neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
Except as provided in Article IX, nothing in this Agreement, express or implied,
is intended to or shall confer upon any person other than the parties hereto,
and their respective legal representatives, successors, and permitted assigns,
any rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.
10.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
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10.5 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to the principles of conflicts of laws thereof.
10.6 Counterparts. This Agreement may be executed by the parties hereto
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
ARTICLE XI
DEFINITIONS
11.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Article:
"Affiliate" has the meaning specified in Rule 12b-2
promulgated under the Exchange Act.
"Applicable Law" means any statute, law, rule, or regulation
or any judgment, order, writ, injunction, or decree of any Governmental
Entity to which a specified person or property is subject.
"Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in Atlanta, Georgia or
Dallas, Texas are authorized or obligated by law or executive order to
close.
"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions
(whether on voting, sale, transfer, disposition, or otherwise),
easements, and other encumbrances of every type and description,
whether imposed by law, agreement, understanding, or otherwise.
"Equity Ownership Interests" shall mean, with respect to the
Buyer, at any time, the fraction (a) having as its numerator the number
of shares of Common Stock and Underlying Warrant Shares held
beneficially by the Buyer at such time, and (b) having as its
denominator the aggregate number of shares of Common Stock (calculated
on a fully diluted basis) issued and outstanding at such time.
"Equity Securities" means any capital stock of the Company,
and any securities directly or indirectly convertible into, or
exercisable or exchangeable for any capital stock of the Company, or
any right, option, warrant or other security which, with the payment of
additional consideration, the expiration of time or the occurrence of
any event shall give the
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holder thereof the right to acquire any capital stock of the company or
any security convertible into or exercisable or exchangeable for, any
capital stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or
other authority or instrumentality (domestic or foreign).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.
"Proceedings" means all proceedings, actions, suits,
investigations, and inquiries by or before any arbitrator or
Governmental Entity.
"Registrable Warrant Shares" means the Warrant Shares and any
Common Stock or other Equity Securities issued with respect thereto by
way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Rights Agreement" means that certain Rights Agreement, dated
as of July 21,1992 between the Company and First Union National Bank of
North Carolina, as rights agent.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation more than 50% of whose
outstanding voting securities, or any general partnership, joint
venture, or similar entity more than 50% of whose total equity
interests, is owned, directly or indirectly, by the Company, or any
limited partnership of which the Company or any Subsidiary is a general
partner.
"Underlying Warrant Shares" shall mean, at any time, all
shares of Common Stock which may be acquired upon exercise of the
Warrants. For purposes hereof, any person who holds Warrants shall be
deemed to be the holder of the Underlying Warrant Shares obtainable
upon exercise of such Warrants.
11.2 Certain Additional Defined Terms. In addition to such terms as are
defined in the opening paragraph of and the recitals to this Agreement and in
Section 11.1, the following terms are used in this Agreement as defined in the
Sections set forth opposite such terms:
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Defined Term Section Reference
Closing..............................................................Article II
Closing Date.........................................................Article II
Damages.....................................................................9.2
Excluded Transfer...........................................................5.5
Material Activity...........................................................5.3
Purchase Price..............................................................1.2
Registration Expenses.......................................................5.3
Registration Statement......................................................5.3
Survival Date...............................................................9.1
Warrant Shares..............................................................3.6
Warrants....................................................................1.1
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IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
MAGELLAN HEALTH SERVICES, INC.
Address:
3414 Peachtree Road, N.E. Suite 1400
Atlanta, Georgia 30326 By:___________________________________
Fax: (404) 814-5717 E. Mac Crawford, Chairman
and Chief Executive Officer
[CRESCENT OPPORTUNITY CORP.]
By: __________________________________
[ ]
Title:
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ANNEX I
Number of Warrant
Date First Shares Issuable Upon End of Exercise
Warrant [Number] Exercisable(1) Exercise of Warrants(1) Period
- ---------------- -------------- ----------------------- ---------------
[1] May 31, 1998 June 30, 2001
[2] May 31, 1999 June 30, 2002
[3] May 31, 2000 June 30, 2003
[4] May 31, 2001 June 30, 2004
[5] May 31, 2003 June 30, 2005
[6] May 31, 2003 June 30, 2006
[7] May 31, 2004 June 30, 2007
[8] May 31, 2005 June 30, 2008
[9] May 31, 2006 June 30, 2009
[10] May 31, 2007 June 30, 2009
[11] May 31, 2008 June 30, 2009
---------
(1) Notwithstanding anything to the contrary in this Annex I, (i) as to
each numbered Warrant, no exercise shall be allowed until either the Company or
Crescent exercises its corresponding numbered warrant under the Magellan Warrant
and (ii) the number of Warrant Shares issuable upon exercise of each Warrant
shall be limited to the number of Warrant Shares that bears the same
relationship to the number of Warrant Shares listed above for such Warrant as
the number of shares of common stock of Buyer issued to Crescent and the
Company, pursuant to the Magellan Warrant, in connection with the corresponding
numbered warrants, bears to the number of shares of Common Stock of Buyer
issuable under such numbered warrants.
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EXHIBIT A
(Form of Warrants)
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THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR UNLESS
AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
THE RIGHT TO SELL OR OTHERWISE TRANSFER THIS WARRANT IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A WARRANT PURCHASE AGREEMENT DATED JANUARY 29, 1997,
BETWEEN THE COMPANY AND THE INITIAL BUYER OF THE WARRANTS, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. THIS WARRANT MAY
NOT BE SOLD OR TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THE WARRANT
PURCHASE AGREEMENT AND IN THIS WARRANT, AND NO SALE OR TRANSFER OF THIS WARRANT
SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN
COMPLIED WITH.
------------------------------------------------------------------
CRESCENT OPPORTUNITY CORP.
([Incorporated] under the laws of the State of [Delaware])
Void after 5:00 p.m., Atlanta, Georgia, local time,
on [June 30], 2001
No. ___ Right to Purchase
[_______] Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Magellan Health Services,
Inc., a Delaware corporation (the "Holder"), or registered assigns, is entitled
to purchase from Crescent Opportunity Corp., a [Delaware corporation] (the
"Company"), at any time or from time to time during the period specified in
Paragraph 2 hereof, ([______]) fully paid and nonassessable shares of the
Company's Common Stock, par value $___ per share (the "Common Stock"), at an
exercise price per share of $ ___ (the "Exercise Price"). The term "Warrant
Shares", as used herein, refers to the shares of Common Stock purchasable
hereunder. The Warrant Shares and the Exercise Price are subject to adjustment
as provided in Paragraph 4 hereof.
This Warrant, together with all warrants issued upon transfer, exchange
or in replacement hereof pursuant to Paragraph 7 hereof (collectively, the
"Warrants"), is issued pursuant to, and is
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subject to all terms, provisions, and conditions contained in, that certain
Warrant Purchase Agreement, dated April [___], 1997 (the "Purchase Agreement'),
by and between the Company and the Holder. This Warrant is subject to the
following additional terms, provisions, and conditions:
12. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof and the provisions of the Purchase Agreement
which restrict the exercise of the Warrants, this Warrant may be exercised by
the holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed Exercise Agreement in the form attached hereto, to the
Company during normal business hours on any business day at the Company's
principal office in Atlanta, Georgia (or such other office or agency of the
Company as it may designate by notice to the holder hereof), during the Exercise
Period (as defined in Paragraph 2), and upon payment to the Company of the
Exercise Price for the Warrant Shares specified in said Exercise Agreement,
which such payment shall be made in cash or by certified or official bank check.
The Company shall not be required to issue fractional Warrant Shares upon any
exercise of the Warrant, but instead shall pay to the holder of this Warrant the
cash value of any such fractional Warrant Shares. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding ten business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be reasonably requested by the holder hereof, shall, unless
the Warrant Shares evidenced by such certificate have previously been registered
under the Securities Act of 1933, as amended (the "Securities Act"), be
imprinted with a restrictive legend substantially similar to the legend
appearing on the face of this Warrant, and shall be registered in the name of
said holder or such other name as shall be designated by said holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of said
certificates, deliver to said holder a new Warrant representing the number of
shares with respect to which this Warrant shall not then have been exercised,
which Warrant shall be imprinted on its face with the same legend appearing on
the face of this Warrant. The Company shall pay all taxes and other expenses and
charges payable in connection with the preparation, execution, and delivery of
stock certificates (and any new Warrants) pursuant to this Paragraph 1 except
that, in case such stock certificates shall be registered in a name or names
other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company as
mentioned above.
13. Period of Exercise. Subject to the provisions of the Purchase
Agreement which restrict the exercise of the Warrants, this Warrant is
exercisable at any time or from time to time during the period commencing at
9:00 a.m. Dallas, Texas, local time, on [ ] and ending at 5:00 p.m.
Dallas, Texas, local time, on [ ] (the "Exercise Period").
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<PAGE>
14. Certain Actions Prohibited. The Company will not, by amendment of
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.
Without limiting the generality of the foregoing,
(i) the Company will not increase the par value of the shares
of Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect,
(ii) before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value of the shares of Common
Stock so receivable, the Company will take all such corporate action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock at such adjusted Exercise
Price upon the exercise of this Warrant, or
(iii) the Company will not take any action which results in
any adjustment of the Exercise Price if the total number of shares of Common
Stock issuable after the action upon the exercise of this Warrant would exceed
the total number of shares of Common Stock then authorized by the Company's
charter and available for other than the purpose of issue upon such exercise.
15. Anti-dilution Provisions. The Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock," as used herein, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future by an amendment to the Company's charter, provided that
the shares purchasable pursuant to this Warrant shall include only shares of
Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in this Paragraph 4,
the stock or other securities or property provided for in this Paragraph 4.
(a) Subdivisions and Combinations. In case at any time the Company
shall (i) subdivide the outstanding shares of Capital Stock into a greater
number of shares, or (ii) combine the outstanding shares of Capital Stock into a
smaller number of shares, the Exercise Price in effect
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<PAGE>
immediately prior thereto shall be adjusted proportionately so that the adjusted
Exercise Price shall bear the same relation to the Exercise Price in effect
immediately prior to such event as the total number of shares of Capital Stock
outstanding immediately prior to such event shall bear to the total number of
shares of Capital Stock outstanding immediately after such event. Such
adjustment shall become effective immediately after the effective date of a
subdivision or combination.
(b) Stock Dividends. In case the Company at any time after the date
hereof shall declare, order, pay or make any dividend or other distribution to
all holders of the Capital Stock payable in Capital Stock, then in each such
case, subject to Paragraph 4(d) hereof, the Exercise Price in effect immediately
prior to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be reduced to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Exercise Price by a fraction
(i) the numerator of which shall be the number of shares
of Capital Stock outstanding immediately prior to such dividend or distribution,
and
(ii) the denominator of which shall be the number of shares of
Capital Stock outstanding immediately after such dividend or distribution.
Such adjustment shall be made on the date such dividend is paid or such
distribution is made and shall become effective retroactive to the record date
for the determination of shareholders entitled to receive such dividend or
distribution.
(c) Dividends other than Stock Dividends. In case the Company at any
time after the date hereof shall declare, order, pay or make any dividend or
other distribution to all holders of the Capital Stock, other than a dividend
payable in shares of Capital Stock (including, without limitation, dividends or
distributions payable in cash, evidences of indebtedness, rights, options or
warrants to subscribe for or purchase any Capital Stock or other securities, or
any other securities or other property), then, and in each such case, subject to
Paragraph 4(d) hereof, the Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
any class of securities entitled to receive such dividend or distribution shall
be reduced to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Exercise Price by a fraction
(i) the numerator of which shall be the "Market Price" (as
defined below) in effect on such record date or, if any class of Capital Stock
trades on an ex-dividend basis, the trading date immediately prior to the date
of commencement of ex-dividend trading, less the value of such dividend or
distribution (as determined in good faith by the Board of Directors of the
Company) applicable to one share of Capital Stock, and
(ii) the denominator of which shall be such Market Price on
such record date of, if any class of Capital Stock trades on an ex-dividend
basis, the trading date immediately prior to the date of commencement of
ex-dividend trading.
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<PAGE>
Such adjustment shall be made on the date such dividend is paid or such
distribution is made and shall become effective retroactive to the record date
for the determination of shareholders entitled to receive such dividend or
distribution.
For the purpose hereof, "Market Price" shall mean, on any date
specified herein, (A) if any class of Capital Stock is listed or admitted to
trading on any national securities exchange, the highest price obtained by
taking the arithmetic mean over a period of 20 consecutive days on which such
national securities exchange (or if such stock is traded on more than one
national securities exchange, the exchange the Company has designated under the
Securities Exchange Act of 1934 to receive copies of reports filed by the
Company under such act) is open for trading on a regular basis (any such day is
a "Trading Day") ending the Trading Day immediately prior to such date of the
average, on each such Trading Day, of the high and low sale prices of shares of
each such class of Capital Stock or if no such sale takes place on such date,
the average of the highest closing bid and lowest closing asked prices thereof
on such date, in each case as officially reported on all national securities
exchanges on which each such class of Capital Stock is then listed or admitted
to trading, or (B) if no shares of any class of Capital Stock are then listed or
admitted to trading on any national securities exchange, the highest closing
price of any class of Capital Stock on such date in the over-the-counter market
as shown by the NASDAQ National Market System or, if no such shares of any class
of Capital Stock are then quoted in such system, as published by the National
Quotation Bureau, Inc. or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected by the
Company. If no shares of any class of Capital Stock are then listed or admitted
to trading on any national securities exchange and if no closing bid and asked
prices thereof are then so quoted or published in the over-the-counter market,
"Market Price" shall mean the higher of (x) the book value per share of Capital
Stock (assuming for the purposes of this calculation the economic equivalence of
all shares of all class of Capital Stock) as determined on a fully diluted basis
in accordance with generally accepted accounting principles by the Board of
Directors of the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made or (y) the fair
value per share of classes of Capital Stock (assuming for the purposes of this
calculation the economic equivalence of all shares of all classes of Capital
Stock), as determined on a fully diluted basis in good faith by the Board of
Directors of the Company, as of a date which is 15 days preceding the date as of
which the determination is to be made.
(d) Minimum Adjustment of Exercise Price. If the amount of any
adjustment of the Exercise Price required pursuant to this Paragraph 4 would be
less than one percent (1%) of the Exercise Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one percent (1%)
of such Exercise Price; provided that, upon the exercise of this Warrant, all
adjustments carried forward and not theretofore made up to and including the
date of such exercise shall, with respect to the portion of this Warrant then
exercised, be made to the nearest .001 of a cent.
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<PAGE>
(e) Fundamental Change Transaction. In case at any time after the date
hereof a purchase, tender, or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of Capital
Stock, or the Company is otherwise a party to any transaction (including,
without limitation, a merger, consolidation, sale of all or substantially all
the Company's assets, liquidation, or recapitalization of the Capital Stock)
which is to be effected in such a way that as a result of such transaction or
offer (x) the holders of Common Stock (or any other securities of the Company
then issuable upon the exercise of this Warrant) shall be entitled to receive
stock or other securities or property (including cash) with respect to or in
exchange for Common Stock (or such other securities), or (y) the Capital Stock
has been and thereafter ceases to be a publicly traded security either listed on
the American Stock Exchange, the New York Stock Exchange or the NASDAQ National
Market System or any successor thereto or comparable system (each such
transaction being herein called a "Fundamental Change Transaction"), then, as a
condition of such Fundamental Change Transaction, lawful and adequate provision
shall be made whereby the holder of this Warrant shall thereafter have the right
to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant, and in lieu of the shares of Common Stock (or such
other securities) purchasable immediately before such transaction upon the
exercise hereof, such stock or other securities or property (including cash) as
may be issuable or payable with respect to or in exchange for a number of
outstanding shares of Common Stock (or such other securities) equal to the
number of shares of Common Stock (or such other securities) purchasable
immediately before such transaction upon the exercise hereof, had such
Fundamental Change Transaction not taken place. In any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including, without
limitation, the provisions for adjustments of the Exercise Price and of the
number of Warrant Shares purchasable upon exercise hereof) shall thereafter be
applicable, as nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise hereof
(including an immediate adjustment of the Exercise Price if by reason of or in
connection with such Fundamental Change Transaction any securities are issued or
event occurs which would, under the terms hereof, require an adjustment of the
Exercise Price). In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater or lesser
number of shares of common stock of the surviving corporation or entity are
issuable to holders of Capital Stock in respect of the number of shares of
Capital Stock outstanding immediately prior to such consolidation or merger,
then the Exercise Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a subdivision
or combination of the outstanding shares of Capital Stock. The Company shall not
effect any such Fundamental Change Transaction unless prior to or simultaneously
with the consummation thereof the successor corporation or entity (if other than
the Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets and any other corporation or entity the shares of
stock or other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the holder of this Warrant, (i) the
obligation to deliver to such holder such stock or other securities or property
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations of the Company hereunder.
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<PAGE>
(f) Notice of Adjustment. Upon the occurrence of any event requiring an
adjustment of the Exercise Price, then and in each such case the Company shall
promptly deliver to the holder of this Warrant a notice stating the Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares of Common Stock issuable upon exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. Within 90 days after each fiscal year in which
any such adjustment shall have occurred, or within 30 days after any request
therefor by the holder of this Warrant stating that such holder contemplates
exercise of this Warrant, the Company will deliver to the holder of this Warrant
a certificate of the Company's chief financial officer confirming the statements
in the most recent notice delivered under this Paragraph 4(f).
(g) Other Notices. In case at any time:
(i) the Company shall declare or pay to all the holders
of Capital Stock any dividend (whether payable in Capital Stock, cash,
securities or other property);
(ii) the Company shall offer for subscription pro rata to
all the holders of Capital Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization, or
reclassification of the Capital Stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all its assets to, another
corporation or other entity;
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company; or
(v) there shall be any other Fundamental Change
Transaction;
then, in any one or more of such cases, the Company shall give to the holder of
this Warrant (a) at least five (5) Business Days prior to the record date
established or related to any event referred to in clause (i) - (v) above
(which, for purposes of events referred to in clauses (i) - (v) above, shall be
the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution, or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or
Transaction) notice of such record date and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction known to the Company, at least 30 days
prior written notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution, or subscription rights, the date on
which such holders of Capital Stock shall be entitled thereto, and such notice
in accordance with the foregoing clause (b) shall also specify the date on which
such holders of Capital Stock shall be entitled to exchange their Capital Stock
for securities
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<PAGE>
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or
Transaction, as the case may be. Such notice shall also state that the action in
question or the record date is subject to the effectiveness of a registration
statement under the Securities Act, or to a favorable vote of security holders,
if either is required.
(h) Certain Events. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
Paragraph 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make such adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holder of this Warrant; provided, that no
such adjustment shall have the effect of increasing the Exercise Price as
otherwise determined pursuant to this Paragraph 4.
16. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any warrant or
certificate in a name other than the holder of this Warrant.
17. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
18. Transfer, Exchange, and Replacement of Warrant; Registration
Rights.
(a) Restrictions on Transfer of Warrants. This Warrant shall not be
transferable to any person or entity other than a wholly-owned affiliate of the
Holder or as permitted under the Purchase Agreement. The transfer of this
Warrant to a wholly-owned affiliate or other transferee permitted under the
Purchase Agreement and all rights hereunder, in whole or in part, is registrable
at the office or agency of the Company referred to in Paragraph 7(e) hereof by
the holder hereof in person or by his duly authorized attorney, upon surrender
of this Warrant properly endorsed. Upon any transfer of this Warrant to any
wholly-owned affiliate or other permitted transferee, other than a wholly-owned
affiliate or other permitted transferee who is at that time a holder of other
Warrants, the Company shall have the right to require the holder and the
affiliate or other transferee to make customary representations to the extent
reasonably necessary to assure that the transfer will comply with the Securities
Act and any applicable state securities laws. Each holder of this Warrant, by
taking or holding the same, consents and agrees that this Warrant, then endorsed
in blank, shall be deemed negotiable, and that the holder hereof, when this
Warrant shall have been so endorsed, may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner and
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<PAGE>
holder hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant and to the registration of transfer hereof on the
books of the Company; but until due presentment for registration of transfer on
such books the Company may treat the registered holder hereof as the owner and
holder hereof for all purposes, and the Company shall not be affected by any
notice to the contrary.
(b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to be imprinted with the same legend appearing on the face of this
Warrant and to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender. For purposes
hereof, the term "Warrant" shall be deemed to include any and all such
replacement Warrants, whether issued pursuant to this subparagraph (b) or any
other Paragraph hereof.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal office in
Dallas, Texas (or such other office or agency of the Company as it may designate
by notice to the holder hereof), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Registration Rights. The issuance of any Warrant Shares
required to be reserved for purposes of exercise of this Warrant and the resale
of such Warrant Shares are entitled to the benefits of the registration rights
set forth in the Purchase Agreement.
19. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail, postage prepaid and addressed, to such holder
at the address shown for such holder on the books of the Company, or at such
other
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<PAGE>
address as shall have been furnished to the Company by notice from such holder.
All notices, requests, and other communications required or permitted to be
given or delivered hereunder to the Company shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail, postage
prepaid and addressed, to the office of the Company at 777 Main Street, Suite
2100, Fort Worth, TX 76102, Attention: Chief Financial Officer, or at such other
address as shall have been furnished to the holder of this Warrant by notice
from the Company. Any such notice, request, or other communication may be sent
by telegram or telex, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail as provided
above. All notices, requests, and other communications shall be deemed to have
been given either at the time of the delivery thereof to (or the receipt by, in
the case of a telegram or telex) the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 8, or, if mailed, at
the completion of the third full day following the time of such mailing thereof
to such address, as the case may be.
20. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF DELAWARE,
WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE.
21. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific enforcement of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
22. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Successors and Assigns. This Warrant shall, to the extent provided
in Section 4(e), be binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the Company's assets.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this __ day of April __, 1997.
CRESCENT OPPORTUNITY CORP.
By: ______________________
[CORPORATE SEAL]
Attest:
___________________________________
________________________, Secretary
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<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: _____________, ____.
To: ____________________
____________________
Attention: ________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase _____ shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant *[in cash or by certified or official bank check in the
amount of $______________] held by the undersigned and any applicable taxes
payable by undersigned. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:_________________________________________
Signature:_____________________________________
Title of Signing Officer or Agent (if any):_____________
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant or with the name of the assignee
appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
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<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights represented by and under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- -------------- -------------
, and hereby irrevocably constitutes and appoints _______________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ______________, ____.
In the presence of
- -----------------------------------
Name:
Signature:
Title of Signing Officer or Agent
(if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
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<PAGE>
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BETWEEN
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC,
CERTAIN SUBSIDIARIES OF CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC,
AND
MAGELLAN HEALTH SERVICES, INC.
CLOSING DATE: MAY __, 1997
- --------------------------------------------------------------------------------
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT, entered into and effective as of May __, 1997, between
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC, a Delaware limited liability company
("Borrower"), the Subsidiaries of Borrower which are set forth on Exhibit "A"
and MAGELLAN HEALTH SERVICES, INC., a Delaware corporation ("Lender");
W I T N E S S E T H :
WHEREAS, Lender and ____________________, a ____________
[corporation/LLC/partnership] ("New Crescent") have established Borrower to (i)
operate certain acute care psychiatric hospitals and (ii) engage in the business
of hospital-based behavioral healthcare using Borrower as the operating entity;
WHEREAS, in connection with the agreement between Lender and New
Crescent to establish Borrower, Lender has agreed to provide certain financing
to Borrower;
WHEREAS, Lender is willing to extend financing to Borrower in
accordance with the terms of this Agreement;
WHEREAS, the Subsidiaries are party to this Agreement solely for
purposes of their obligations under Article 3 and Sections 4.3 and 4.5;
NOW, THEREFORE, Lender and Borrower agree as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1. Certain Definitions. In addition to terms defined
elsewhere in this Agreement and in any Exhibits, the following terms shall have
the following meanings:
"Account Debtor" shall mean the person who is obligated to pay or repay
any of the items constituting any of the Collateral.
"Agreement" shall mean this Loan and Security Agreement, as it may be
amended or supplemented from time to time.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as it
may be amended from time to time.
"Borrower" shall have the meaning given to such term in the preamble to
this Agreement.
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"Business Day" shall mean a day of the year on which banks are not
required or authorized to close in Atlanta, Georgia or Dallas, Texas.
"Closing Date" shall mean the date on which the initial extension of
credit is made to Borrower pursuant to this Agreement.
"Collateral" shall mean and include all rights of Borrower and its
Subsidiaries to payment for goods sold or leased, or to be sold or to be leased,
or for services rendered or to be rendered, howsoever evidenced or incurred
including, without limitation, all accounts, instruments, chattel paper and
general intangibles evidencing or arising out of such rights to payment and all
books, records, computer tapes, programs and ledger books arising therefrom or
relating thereto, all whether now owned or hereafter acquired or arising.
"Collateral Locations" shall mean the Executive Office and those
additional locations set forth and described on Exhibit "A" attached to this
Agreement.
"Default Condition" shall mean the occurrence of any event which, after
satisfaction of any requirement for the giving of notice or the lapse of time,
or both, would become an Event of Default.
"Default Rate" shall mean that interest rate per annum equal to two
percent (2%) per annum in excess of the contract interest rate otherwise
applicable to any Obligation.
"Event of Default" shall mean any of the events or conditions described
in Article 8, provided that any requirement for the giving of notice or the
lapse of time, or both, has been satisfied.
"Executive Office" shall mean the address of Borrower at 3414 Peachtree
Road, N.E., Suite [900], Atlanta, Georgia 30326.
"Fiscal Year", in respect of Borrower, shall mean the fiscal year of
Borrower employed by Borrower as of the Closing Date. The terms "Fiscal Quarter"
and "Fiscal Month" shall correspond accordingly to "Fiscal Year."
"GAAP" shall mean generally accepted accounting principles consistently
applied for the period or periods in question.
"Lender" shall have the meaning given to such term in the preamble to
this Agreement.
"Lien" shall mean any deed to secure debt, deed of trust, mortgage or
similar instrument, and any lien, security interest, preferential arrangement
which has the practical effect of constituting a security interest, security
title, pledge, charge, encumbrance or servitude of any kind, whether by
consensual agreement or by operation of statute or other law, and whether
voluntary or involuntary, including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof.
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"Line of Credit" shall refer to the line of credit in the principal
amount of $55 million opened by Lender in favor of Borrower pursuant to the
provisions of Section 2.1.
"Loan Documents" shall mean this Agreement, the Note, any financing
statements covering portions of the Collateral, the documents, instruments,
certificates and agreements delivered by Borrower or a Subsidiary pursuant to
the provisions of this Agreement and all other documents, instruments and
agreements evidencing, securing or modifying obligations under the Line of
Credit.
"Magellan Facility" shall mean the credit facility created pursuant to
the Credit Agreement dated as of April __, 1997, among Lender, the lenders named
therein and [Money Center Bank], as administrative agent for such lenders, as
the same may be amended from time to time.
"Maturity Date" shall mean May __, 1998.
"Note" shall mean the promissory note, dated of even date herewith, as
amended or supplemented from time to time, in a principal amount equal to the
maximum amount of the Line of Credit, evidencing advances to be obtained by
Borrower under the Line of Credit, together with any renewals or extensions of
such note thereof, in whole or in part. The Note shall be in the form of Exhibit
"B".
"Obligations" shall mean any indebtedness, liability or obligation of
Borrower to Lender arising hereunder or under any of the other Loan Documents,
whether evidenced by the Note or otherwise, and any and all extensions or
renewals thereof in whole or in part.
"Permitted Encumbrances" shall mean (i) Liens in favor of Lender and
(ii) those additional Liens, if any, set forth and described on Exhibit "C"
pertaining to the Collateral.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, joint stock company, trust, governmental unit
or other entity.
"Prime Rate" refers to that interest rate so denominated set by [Money
Center Bank] from time to time as its prime interest rate basis for borrowings.
"Subordinated Debt" shall mean any unsecured indebtedness for borrowed
money of Borrower or any Subsidiary to any Person which, by written agreement in
form and substance satisfactory to Lender, has been subordinated in right of
payment and claim, to the rights and claims of Lender in respect of the
Obligations, on terms and conditions satisfactory to Lender.
"Subsidiary" shall mean any corporation, partnership, business
association or other entity (including any Subsidiary of any of the foregoing)
of which Borrower owns, directly or indirectly, one hundred percent (100%) of
the capital stock or equity interest having ordinary power for the election of
directors or others performing similar functions. Exhibit "A" contains a
complete listing of all Subsidiaries which exist as of the Closing Date.
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"UCC" shall mean the Uniform Commercial Code- Secured Transactions of
Georgia (O.C.G.A. Art. 11-9), as in effect on the date hereof.
1.2. Use of Defined Terms. All terms defined in this
Agreement and the Exhibits shall have the same defined meanings when used in any
other Loan Documents, unless the context shall require otherwise.
1.3. Accounting Terms. All accounting terms not specifically
defined herein shall have the meanings generally attributed to such terms under
GAAP.
1.4. UCC Terms. The terms "accounts", "chattel paper",
"instruments", "general intangibles", "inventory," "equipment" and "fixtures",
as and when used in the Loan Documents, shall have the same meanings given such
terms under the UCC.
1.5. Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the plural
shall include the singular. Titles of Articles and Sections in this Agreement
are for convenience only, and neither limit nor amplify the provisions of this
Agreement, and all references in this Agreement to Articles, Sections,
Subsections, paragraphs, clauses, subclauses or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause, subclause of, or
Exhibit attached to, this Agreement, unless specific reference is made to the
articles, sections or other subdivisions of, or Exhibit to, another document or
instrument. Wherever in this Agreement reference is made to any instrument,
agreement or other document, including, without limitation, any of the Loan
Documents, such reference shall be understood to mean and include any and all
amendments thereto or modifications, restatements, renewals or extensions
thereof. Wherever in this Agreement reference is made to any statute, such
reference shall be understood to mean and include any and all amendments thereof
and all regulations promulgated pursuant thereto. Whenever any matter set forth
herein or in any Loan Document is to be consented to or be satisfactory to
Lender, or is to be determined, calculated or approved by Lender, then, unless
otherwise expressly set forth herein or in any such Loan Document, such consent,
satisfaction, determination, calculation or approval shall be in Lender's sole
discretion, exercised in good faith and, where required by law, in a
commercially reasonable manner.
1.6. Exhibits. All Exhibits attached hereto are by reference
made a part hereof.
2. THE FINANCING.
2.1. Line of Credit. Upon the execution of this Agreement and
compliance with its terms and conditions, Lender agrees to extend the Line of
Credit in favor of Borrower so that, prior to the Maturity Date and so long as
there is not in existence any Default Condition or Event of Default, Borrower
may borrow and repay and reborrow up to a maximum aggregate principal amount
outstanding at any one time equal to the original principal amount of the Line
of Credit.
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All proceeds so obtained under the Line of Credit may be used by Borrower for
general corporate purposes in such manner as Borrower may elect in the ordinary
course of its business operations. All advances to Borrower under the Line of
Credit shall be evidenced by the Note, which shall be executed and delivered
simultaneously herewith. Each request for an advance under the Note shall be
made by Borrower to Lender in writing no later than 9:00 a.m. Eastern time on
the Business Day that is two Business Days prior to the date of the requested
advance. Lender shall make the amount of the requested advance available to
Borrower prior to 1:00 p.m. Eastern time on the requested borrowing date, by
transferring to the account directed by Borrower the amount of the requested
advance. The outstanding principal amount of the Note shall be repaid on the
Maturity Date or at such earlier time as may be provided pursuant to this
Agreement and shall bear interest paid on the first day of each month (computed
on the daily outstanding principal balance, for the actual number of days
outstanding, on the basis of a 365 day year), payable in the manner described
therein, from the date thereof on the unpaid principal amount thereof from time
to time outstanding at a rate per annum equal to the Prime Rate plus .50%, with
any change in such interest rate on the Note due to a change in the Prime Rate
to become effective as of the opening of business on each date on which such
change in the Prime Rate occurs. Notwithstanding any other provision of this
Agreement, Lender shall not be required to advance funds to Borrower pursuant to
the Line of Credit in excess of the amounts received by Lender pursuant to
Section [7.7] of the OpCo Contribution Agreement, dated January __, 1997,
between Lender and Crescent Real Estate Equities Limited Partnership, which
amounts consist of accounts receivable owned by Lender and collected by Borrower
on Lender's behalf.
2.2. Interest and Charges. Lender and Borrower hereby agree
that the only charge imposed by Lender upon Borrower for the use of money in
connection herewith is and shall be the interest expressed in the Note, at the
rate set forth therein, and that all other charges imposed by Lender upon
Borrower in connection herewith, including, without limitation, default and late
charges, are and shall be deemed to be charges made to compensate Lender for
underwriting and administrative services and costs, and other services and costs
performed and incurred, and to be performed and incurred, by Lender in
connection with the Line of Credit, and shall under no circumstances be deemed
to be charges for the use of money. In no contingency or event whatsoever shall
the aggregate of all amounts deemed interest hereunder or under the Note and
charged or collected pursuant to the terms of this Agreement or pursuant to the
Note exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
In the event that such a court determines that Lender has charged or received
interest hereunder in excess of the highest applicable rate, the rate in effect
hereunder shall automatically be reduced to the maximum rate permitted by
applicable law and Lender shall promptly refund to Borrower any interest
received by Lender in excess of the maximum lawful rate or, if so requested by
Borrower, shall apply such excess to the principal balance of the Obligations.
It is the intent hereof that Borrower not pay or contract to pay, and that
Lender not receive or contract to receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may be paid by Borrower under
applicable law.
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2.3. Prepayment. Borrower may prepay amounts outstanding
under the Line of Credit at any time without premium or penalty.
3. SECURITY INTEREST.
3.1. Grant of Security Interest. As security for the payment
of the Note and all Obligations whatsoever of Borrower to Lender, Borrower and
each Subsidiary hereby grant to Lender a continuing, general lien upon and
security interest in and to the following described property, wherever located,
whether now existing or hereafter acquired or arising, namely: (a) the
Collateral and (b) all proceeds of the Collateral.
3.2. Grant of Security Interest by Subsidiaries. The grant of
security interests in and to the Collateral by each Subsidiary pursuant to
Section 3.1 shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of Borrower under this Agreement, the Note,
or any other Loan Document, by operation of law or otherwise or any obligation
of any other Subsidiary pursuant to this Agreement;
(b) any modification or amendment of or supplement to
this Agreement, any Note, or any other Loan Document;
(c) any release, nonperfection or invalidity of any direct or
indirect security for any obligation of the Borrower under this Agreement, the
Note, any Loan Document, or any obligations of any other Subsidiary;
(d) any change in the existence, structure or ownership of
Borrower or any other Subsidiary, or any insolvency, bankruptcy, reorganization
or other similar proceeding affecting Borrower, or any other Subsidiary, or its
assets or any resulting release or discharge of any obligation of Borrower, or
any other Subsidiary;
(e) the existence of any claim, setoff or other rights which
any Subsidiary may have at any time against Borrower, any other Subsidiary,
Lender or any other Person, whether in connection herewith or any unrelated
transactions, provided that nothing herein shall prevent the assertion of any
such claim by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against
Borrower, or any other Subsidiary, for any reason related to this Agreement, any
other Loan Document, or any provision of applicable law or regulation purporting
to prohibit the payment by Borrower, of the principal of or interest on the Note
or any other amount payable by Borrower under this Agreement, the Note, or any
other Loan Document; or
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(g) any other act or omission to act or delay of any kind by
Borrower, any other Subsidiary, Lender or any other Person or any other
circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of any Subsidiary's obligations
hereunder.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO COLLATERAL.
With respect to the Collateral, Borrower (and, with respect to Sections 4.3 and
4.5 only, each Subsidiary) hereby represents, warrants and covenants to Lender
as set forth below.
4.1. Bona Fide Accounts. Each item of the Collateral arises or
will arise under a contract between Borrower or a Subsidiary and the Account
Debtor, or from the bona fide sale or delivery of goods to or performance of
services for, the Account Debtor.
4.2. Good Title. Borrower and the Subsidiaries have good title
to the Collateral free and clear of all liens, security interests and
encumbrances thereon other than any Permitted Encumbrances, and no financing
statement covering the Collateral is on file in any public office other than any
evidencing Permitted Encumbrances.
4.3. Right to Assign. Each of Borrower and the Subsidiaries
has full right, power and authority to make the assignment of the Collateral to
Lender and hereafter will not pledge, hypothecate, grant a security interest in,
sell, assign, transfer, or otherwise dispose of any portion of the Collateral,
or any interest therein without the written permission of Lender.
4.4. Trade Styles. Except as may be set forth on Exhibit "D"
attached hereto, neither Borrower nor any Subsidiary uses any trade names or
trade styles in its business operations (herein, "Trade Styles"), and Borrower
covenants with Lender not to use or allow any Subsidiary to use any Trade Styles
in their business operations hereafter, except as so specified on Exhibit "D"
prior to having given Lender at least thirty (30) days written notice thereof.
In any event, to the extent that, now or hereafter, Borrower or any Subsidiary
uses any Trade Styles, Borrower hereby certifies and agrees with Lender that:
(i) all of the accounts receivable and proceeds thereof arising out of sales
under the Trade Styles shall be the property of, and belong to, Borrower or a
Subsidiary; (ii) each of the Trade Styles is a trade name and trade style (and
not an independent corporation or other legal entity) by which Borrower or a
Subsidiary identifies and sells certain of its products or services and under
which it may conduct a portion of its business; and (iii) all accounts
receivable and proceeds thereof invoiced under the names of any of the Trade
Styles shall be owned solely by Borrower or a Subsidiary and shall be subject to
the terms of this Agreement as they relate to Collateral.
4.5. Power of Attorney. (i) Each of Borrower and the
Subsidiaries hereby appoints Lender as its attorney-in-fact to file such
certificates disclosing its use of the Trade Styles and to take such other
actions on its behalf as are necessary to comply with the statutes of any states
relating to the use of fictitious or assumed business names, to the extent that
Borrower
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or such Subsidiary fails to do so; and (ii) each of Borrower and the
Subsidiaries irrevocably designates and appoints Lender its true and lawful
attorney either in the name of Lender or in the name of Borrower or such
Subsidiary to, upon the occurrence and during the continuance of any Event of
Default, ask for, demand, sue for, collect, compromise, compound, receive,
receipt for and give acquittances for any and all sums owing or which may become
due upon any items of the Collateral and, in connection therewith, to take any
and all actions as Lender may deem necessary or desirable in order to realize
upon the Collateral, including, without limitation, power to endorse for
collection in the name of Borrower or such Subsidiary, any checks, drafts, notes
or other instruments received in payment of or on account of the Collateral, but
Lender shall not be under any duty to exercise any such authority or power or in
any way be responsible for the collection of the Collateral.
5. GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce
Lender to enter into this Agreement, Borrower hereby represents and warrants to
Lender (which representations and warranties, together with any other
representations and warranties of Borrower contained elsewhere in this
Agreement, shall be deemed to be renewed as of the date of each advance under
the Line of Credit) as set forth below:
5.1. Existence and Qualification. Each of Borrower and the
Subsidiaries is a limited liability company or corporation duly organized,
validly existing and in good standing under the laws of the state of its
formation and is duly qualified to do business and in good standing in any other
state wherein the conduct of its business or the ownership of its property
requires such qualification. Exhibit "A" sets forth the jurisdiction in which
each Subsidiary of Borrower is organized and the jurisdictions in which Borrower
and each Subsidiary is qualified to do business as a foreign entity.
5.2. Authority; Validity and Binding Effect. Each of Borrower
and the Subsidiaries (to the extent that each is a party thereto) has the power
to make, deliver and perform under the Loan Documents, and to borrow hereunder,
and has taken all necessary and appropriate action to authorize the execution,
delivery and performance of the Loan Documents. This Agreement constitutes, and
the remainder of the Loan Documents, when executed and delivered for value
received, will constitute, the valid obligations of each of Borrower and the
Subsidiaries (to the extent that each is a party thereto), legally binding upon
it and enforceable against it in accordance with their respective terms, except
as such enforceability may be limited by bankruptcy, insolvency, other similar
laws affecting the enforcement of creditor's rights in general, or general
principles of equity.
5.3. Incumbency and Authority of Signing Officers. Each of the
officers of the Borrower and the Subsidiaries who has executed any Loan Document
holds the office specified on such document and, in such capacity, is duly
authorized and empowered to execute, attest and deliver such Loan Document for
and on behalf of Borrower or such Subsidiary, and to bind Borrower or such
Subsidiary accordingly by his execution of such Loan Document thereby.
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5.4. Taxes. Each of Borrower and the Subsidiaries has filed or
caused to be filed all tax returns required to be filed by it and has paid all
taxes shown to be due and payable by it on said returns or on any assessments
made against it, except for any taxes being contested in good faith by
appropriate proceedings promptly initiated and diligently pursued and for which
reserves or other appropriate provisions required by GAAP have been established.
5.5. Organization. The (i) Certificate of Formation and the
Operating Agreement of Borrower, dated ______ __, 1997 (the "Operating
Agreement") and (ii) the Certificates of Formation and Operating Agreements or
Articles of Incorporation and Bylaws, as applicable of each Subsidiary and (iii)
all amendments to said certificates, operating agreements, articles of
incorporation and bylaws are in full force and effect under the law of the state
of such entity's organization.
5.6. Insolvency. After giving effect to the execution and
delivery of the Loan Documents and the making of any disbursements under the
Note, Borrower will not be "insolvent", within the meaning of such term as used
in O.C.G.A. ss. 18-2-22 or as defined in ss. 101(29) of the Bankruptcy Code; or
be unable to pay its debts generally as such debts become due; or have an
unreasonably small capital.
5.7. Title. Borrower and the Subsidiaries have good and
marketable title to all of the Collateral, except for the Permitted
Encumbrances.
5.8. No Violations. The execution, delivery and performance by
each of Borrower and the Subsidiaries (to the extent that each is a party
thereto) of this Agreement, the Note and each other Loan Document do not violate
any provision of any law, rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to Borrower or any Subsidiary or any organizational
document of Borrower or any Subsidiary, or result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which Borrower or any Subsidiary is a party or by which
it or its properties may be bound or affected; and neither Borrower nor any
Subsidiary is in default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
6. AFFIRMATIVE COVENANTS. Borrower covenants to Lender that from and
after the date hereof, and so long as any amounts remain unpaid on account of
any of the Obligations or this Agreement remains effective (whichever is the
last to occur), Borrower will comply (and will cause each Subsidiary to comply)
with the affirmative covenants set forth below:
6.1. Records Respecting Collateral. All records of Borrower
and its Subsidiaries with respect to the Collateral will be kept, in the case of
Borrower, at the Executive
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Office or, in the case of a Subsidiary, at the location shown on Exhibit "A" and
will not be removed from such address without the prior written consent of
Lender.
6.2. Further Assurances. Borrower shall duly execute and/or
deliver (or cause to be duly executed and/or delivered) to Lender any
instrument, invoice, document, document of title, order, financing statement,
assignment, waiver, consent or other writing which may be reasonably necessary
to Lender to carry out the terms of this Agreement and any of the other Loan
Documents and to perfect its security interest in and facilitate the collection
of the Collateral, the proceeds thereof, and any other property at any time
constituting security to Lender. Borrower shall perform or cause to be performed
such acts as Lender may reasonably request to establish and maintain for Lender
a valid and perfected security interest in and secure title to the Collateral,
free and clear of any liens, encumbrances or security interests other than
Permitted Encumbrances.
6.3. Right to Inspect. Lender (or any person or persons
designated by it) shall, in its sole discretion, have the right to call at any
place of business of Borrower or any Subsidiary at any reasonable time, during
normal business hours following reasonable advance notice and, without
hindrance, disruption or delay, inspect, audit, check and make extracts from any
books, records, journals, orders, receipts, correspondence or other data of
Borrower or any Subsidiary of Borrower relating to the Collateral, to Borrower's
business or to any other transactions between the parties hereto.
6.4. Reports. Borrower shall, as soon as practicable, but in
any event on or before twenty (20) days after the end of each calendar month,
furnish or cause to be furnished to Lender a status report, certified by a duly
authorized officer of Borrower, showing the aggregate dollar value of the items
comprising the Collateral and the age of each individual item thereof as of the
last day of the preceding fiscal month (segregating such items in such manner
and to such degree as Lender may reasonably request). In any event, upon request
from Lender, made at any time hereafter, subject to Borrower's confidentiality
constraints, Borrower shall furnish Lender with a then current Account Debtor
address list.
6.5. Payment of Taxes. Borrower shall pay and discharge and
shall cause each Subsidiary to pay and discharge all taxes, assessments and
governmental charges upon Borrower or such Subsidiary, their income and their
properties prior to the date on which penalties attach thereto, unless and to
the extent only that (x) such taxes, assessments and governmental charges are
being contested in good faith and by appropriate proceedings by Borrower or such
Subsidiary, (y) Borrower or such Subsidiary maintains reasonable reserves on its
books therefor and (z) the payment of such taxes does not result in a Lien upon
any of the Collateral other than a Permitted Encumbrance.
6.6. Certificate of No Default. Borrower shall, on a
quarterly basis not later than forty-five (45) days after the close of each of
its first three Fiscal Quarters and not later than ninety (90) days after the
close of its Fiscal Year, certify to Lender, in a statement executed by a
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duly authorized Officer of Borrower in the form of Exhibit "E" attached hereto,
that no Event of Default and no Default Condition exists or has occurred, or, if
an Event of Default or Default Condition exists, specifying the nature and
period of existence thereof.
6.7. Change of Principal Place of Business. Borrower hereby
agrees that if, at any time hereafter, Borrower elects to (i) move the Executive
Office or the principal place of business of a Subsidiary, (ii) change its name
or the name of a Subsidiary, or (iii) change its organizational structure or the
organizational structure of any Subsidiary to a structure other than a limited
liability company or corporation, Borrower will notify Lender in writing at
least thirty (30) days prior thereto.
6.8. Preservation of Existence. Borrower shall preserve and
maintain and shall cause each Subsidiary to maintain its existence, rights,
franchises and privileges in the jurisdiction of its organization, and qualify
and remain qualified to do business in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership of its properties.
6.9. Compliance With Laws. Borrower shall comply and shall
cause each Subsidiary to comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, noncompliance with
which would or could materially adversely affect their respective financial
condition or the ownership, maintenance or operation of any material portion of
any of their respective properties. Without limiting the foregoing, each of
Borrower and its Subsidiaries shall obtain and maintain all material permits,
licenses and other authorizations which are required under, and otherwise comply
with, all federal, state, and local laws and regulations.
6.10. Certain Required Notices. Promptly, upon its receipt of
notice or knowledge thereof, Borrower will report to Lender: (i) any lawsuit,
proceeding, action, arbitration, claim or governmental investigation, inquiry or
proceeding, pending or threatened against Borrower or any Subsidiary seeking
damages for an amount in excess of $1 million; or (ii) the existence and nature
of any Default Condition or Event of Default.
7. NEGATIVE COVENANTS. Borrower covenants to Lender that from and after
the date hereof and so long as any amount remains unpaid on account of any of
the Obligations or this Agreement remains effective (whichever is the last to
occur), Borrower will not do (and will not permit any Subsidiary to do), without
the prior written consent of Lender, any of the things or acts set forth below:
7.1. Encumbrances. Create, assume, or suffer to exist any
Lien on the Collateral except for Permitted Encumbrances and as permitted by
Section 4.3 of this Agreement.
7.2. Business Locations. Transfer the Executive Office or
the principal place of business of any Subsidiary to, or maintain records with
respect to, Collateral at any locations
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other than those at which the same are presently kept or maintained as set forth
on Exhibit "A" hereto, except upon at least thirty (30) days prior written
notice to Lender and after the delivery to Lender of financing statements, if
reasonably required by Lender, in form reasonably satisfactory to Lender, to
perfect or continue the perfection of Lender's Lien.
8. EVENTS OF DEFAULT. The occurrence of any events or conditions set
forth below shall constitute an Event of Default hereunder, provided that any
requirement for the giving of notice or the lapse of time, or both, has been
satisfied:
8.1. Notes. Borrower shall fail to repay the principal on the
Note on the Maturity Date or at such earlier time as may be provided pursuant to
this Agreement or make payments of interest within five Business Days of the
giving of written notice by Lender to Borrower of Lender's right to such
payment.
8.2. Other Obligations. Borrower shall fail to make any
payments (other than those described in Section 8.1) on its Obligations to
Lender within 10 days of the giving of written notice by Lender to Borrower of
Lender's right to such payment.
8.3. Misrepresentations. Borrower shall make any
representation or warranty in any of the Loan Documents or in any certificate or
statement furnished at any time hereunder or in connection with any of the Loan
Documents which proves to have been untrue or misleading in any material respect
when made or furnished.
8.4. Covenants. Borrower shall default in the observance or
performance of any covenant or agreement (other than payment obligations covered
by Section 8.1 or 8.2 above) contained in any of the Loan Documents unless such
default is cured to Lender's satisfaction within thirty (30) days after the
sooner to occur of receipt of notice of such default from Lender or the date on
which such default first becomes known to Borrower.
8.5. Other Debts. Borrower shall default in connection with
any agreement for indebtedness for borrowed money of $10,000,000 or more with
any creditor other than Lender which entitles said creditor to accelerate the
maturity thereof.
8.6. Voluntary Bankruptcy. Borrower shall file a voluntary
petition in bankruptcy or a voluntary petition or answer seeking liquidation,
reorganization, arrangement, readjustment of its debts, or for any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether state, Federal, or foreign, now or
hereafter existing; Borrower shall enter into any agreement indicating its
consent to, approval of, or acquiescence in, any such petition or proceeding;
Borrower shall apply for or permit the appointment by consent or acquiescence of
a receiver, custodian or trustee of Borrower for all or a substantial part of
its property; Borrower shall make an assignment for the benefit of creditors; or
Borrower shall be unable or shall fail to pay its debts generally as such debts
become due, or
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Borrower shall admit, in writing, its inability or failure to pay its debts
generally as such debts become due.
8.7. Involuntary Bankruptcy. There shall have been filed
against Borrower an involuntary petition in bankruptcy or seeking liquidation,
reorganization, arrangement, readjustment of its debts or for any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign, now or hereafter
existing; Borrower shall suffer or permit the involuntary appointment of a
receiver, custodian or trustee of Borrower or for all or a substantial part of
its property; or Borrower shall suffer or permit the issuance of a warrant of
attachment, execution or similar process against all or any substantial part of
the property of Borrower; provided, however, that no filing, appointment or
issuance described above shall constitute an Event of Default if such filing,
appointment or issuance is dismissed or terminated within ninety (90) days of
its occurrence.
8.8. Judgments. A final judgment or order for the payment of
money is rendered against Borrower or any Subsidiary in the amount of $5,000,000
or more (exclusive of amounts covered by insurance) and either (x) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order, or (y) a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect for any period of sixty (60)
consecutive days.
8.9. Bankruptcy of Affiliate. Any motion, complaint or other
pleading is filed in any bankruptcy case of any person or entity other than
Borrower and such motion, complaint or pleading seeks the consolidation of
Borrower's assets and liabilities with the assets and liabilities of such person
or entity; provided, however, that the filing of any such motion, complaint or
pleading shall not constitute an Event of Default if such motion, complaint or
pleading is dismissed within ninety (90) days of its filing.
8.10. Material Adverse Change. There shall occur any
material adverse change in the financial condition, operations or business
prospects of Borrower.
9. REMEDIES. Upon the occurrence of any Default Condition or Event of
Default, Lender's obligation to disburse amounts under the Line of Credit shall
immediately cease; provided, however, that if such obligation has ceased due to
the occurrence of a Default Condition, and such Default Condition does not
become an Event of Default due to its having been cured or waived before it has
matured into an Event of Default, then such obligation shall be reinstated as of
the date such Default Condition is cured or waived. Upon the occurrence or
existence of any Event of Default, or at any time thereafter, without prejudice
to the rights of Lender to enforce its claims against Borrower for damages for
failure by Borrower to fulfill any of its obligations hereunder, subject only to
prior receipt by Lender of payment in full of all Obligations then outstanding
in immediately available funds, Lender shall have all of the rights and remedies
set forth below, and it may exercise any one, more, or all of such remedies, in
its sole discretion, without thereby waiving any of the others.
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9.1. Acceleration of the Obligations. Lender, at its option,
may declare all of the Obligations to be immediately due and payable, whereupon
the same shall become immediately due and payable without presentment, demand,
protest, notice of nonpayment or any other notice required by law relative
thereto, all of which are hereby expressly waived by Borrower, anything
contained herein to the contrary notwithstanding and, in connection therewith,
if Lender so elects, by further written notice to Borrower, Lender may increase
the rate of interest charged on the Note then outstanding for so long thereafter
as Lender further shall elect to an amount not to exceed the Default Rate.
Failure to declare all Obligations due shall not constitute an election by
Lender to waive its right to demand payment at any time and in any event, as
Lender in its discretion may deem appropriate. Thereafter, Lender, at its
option, may, but shall not be obligated to, accept less than the entire amount
of Obligations due, if tendered, provided, however, that unless then agreed to
in writing by Lender, no such acceptance shall or shall be deemed to constitute
a waiver of any Event of Default or a reinstatement of any commitments of Lender
hereunder.
9.2. Remedies of a Secured Party. Lender shall thereupon have
the rights and remedies of a secured party under the UCC in effect on the date
thereof (regardless of whether the same has been enacted in the jurisdiction
where the rights or remedies are asserted), including, without limitation, the
right to take possession of any of the Collateral or the proceeds thereof, to
sell or otherwise dispose of the same, and to apply the proceeds therefrom to
any of the Obligations in such order as Lender, in its sole discretion, may
elect. Lender shall give Borrower written notice of the time and place of any
public sale of the Collateral or the time after which any other intended
disposition thereof is to be made. The requirement of sending reasonable notice
shall be met if such notice is given to Borrower at least ten (10) days before
such disposition. Expenses of retaking, holding, insuring, preserving,
protecting, preparing for sale or selling or the like with respect to the
Collateral shall include, in any event, reasonable attorneys' fees and other
legally recoverable collection expenses, all of which shall constitute
Obligations.
9.3. Repossession of the Collateral. Lender may take the
Collateral or any portion thereof into its possession, by such means (without
breach of the peace) and through agents or otherwise as it may elect (and, in
connection therewith, demand that Borrower assemble the Collateral at a place or
places and in such manner as Lender shall prescribe), and sell, lease or
otherwise dispose of the Collateral or any portion thereof in its then condition
or following any commercially reasonable preparation or processing, which
disposition may be by public or private proceedings, by one or more contracts,
as a unit or in parcels, at any time and place and on any terms, so long as the
same are commercially reasonable and Borrower hereby waives all rights which
Borrower has or may have under and by virtue of O.C.G.A. sections 44-14-260
through 44-14-264, including, without limitation, the right of Borrower to
notice and to a judicial hearing prior to seizure of any Collateral by Lender.
9.4. Other Remedies. Unless and except to the extent
expressly provided for to the contrary herein, the rights of Lender specified
herein shall be in addition to, and not in
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limitation of, Lender's rights under the UCC, as amended from time to time, or
any other statute or rule of law or equity, or under any other provision of any
of the Loan Documents, all of which may be exercised successively or
concurrently.
10. MISCELLANEOUS.
10.1. Waiver. Each and every right granted to Lender under
this Agreement, or any of the other Loan Documents, or any other document
delivered hereunder or in connection herewith or allowed it by law or in equity,
shall be cumulative and may be exercised from time to time. No failure on the
part of Lender to exercise, and no delay in exercising, any right shall operate
as a waiver thereof, nor shall any single or partial exercise by Lender of any
right preclude any other or future exercise thereof or the exercise of any other
right. No waiver by Lender of any Default Condition or Event of Default shall
constitute a waiver of any subsequent Default Condition or Event of Default.
10.2. GOVERNING LAW. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
GEORGIA.
10.3. Survival. All representations, warranties and covenants
made herein and in the Loan Documents shall survive the execution and delivery
hereof and thereof but shall terminate when Lender's obligation to advance funds
under the Line of Credit has expired. The terms and provisions of this Agreement
shall continue in full force and effect, notwithstanding the payment of the Note
or the termination of the Line of Credit, until all of the Obligations have been
paid in full and Lender's obligation to advance funds under the Line of Credit
has expired.
10.4. Assignment. No assignment hereof or of any Loan Document
shall be made by Borrower without the prior written consent of Lender. Lender
may collaterally assign, pledge or transfer its rights under this Agreement, the
Note or any other Loan Document to Lender's senior lenders without the consent
of Borrower; any other assignment or transfer shall require the prior written
consent of Borrower, which consent shall not be unreasonably withheld. It is
understood and agreed by the parties hereto that Lender's rights, but not its
obligations, under this Agreement, the Note and all other Loan Documents shall
be collaterally assigned by Lender to [Money Center Bank], in its capacity as
administrative agent under the Magellan Facility, for the benefit of the lenders
under the Magellan Facility, pursuant to a written instrument of assignment
satisfactory to [Money Center Bank] and the parties hereto; and Lender
acknowledges and agrees that such collateral assignment of rights shall in no
way relieve Lender of any of Lender's obligations under this Agreement or the
Loan Documents.
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10.5. Counterparts. This Agreement may be executed in two or
more counterparts, each of which when fully executed shall be an original, and
all of said counterparts taken together shall be deemed to constitute one and
the same agreement.
10.6. Reimbursement. Borrower shall pay to Lender on demand
all reasonable out-of-pocket costs and expenses that Lender pays or actually
incurs in connection with the negotiation, preparation, consummation,
enforcement and termination of this Agreement and the other Loan Documents.
Borrower will pay all expenses incurred by it in the transaction. In the event
Borrower becomes a debtor under the Bankruptcy Code, Lender's secured claim in
such case shall include interest on the Obligations and all fees, costs and
charges provided for herein (including, without limitation, reasonable
attorneys' fees actually incurred) all to the extent allowed by the Bankruptcy
Code. All expenses due under this Section 10.6 shall be Obligations.
10.7. Successors and Assigns. This Agreement and Loan
Documents shall be binding upon and inure to the benefit of the successors and
permitted assigns of the parties hereto and thereto.
10.8. Severability. If any provision of this Agreement or of
any of the Loan Documents or the application thereof to any party thereto or
circumstances shall be invalid or unenforceable to any extent, the remainder of
such Loan Documents and the application of such provisions to any other party
thereto or circumstance shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
10.9. Notices. All notices, requests and demands to or upon
the respective parties hereto shall be deemed to have been given or made when
personally delivered, upon the date originally received if delivered by telecopy
transmission followed by registered or certified mail confirmation, one Business
Day following deposit with an overnight delivery service, or three Business Days
following deposit in the mail, registered or certified mail, postage prepaid
(except in cases where it is expressly provided herein or by applicable law that
such notice, demand or request is not effective until received by the party to
whom it is addressed) as follows:
To Lender:
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Attn: Treasurer
Telecopy: 404/814-5823 or 814-5796
with a copy to:
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King & Spalding
191 Peachtree Street
Suite 4900
Atlanta, Georgia 30303-1763
Attn: Robert W. Miller
Telecopy: 404/572-5100
To Borrower:
Charter Behavioral Health Systems, LLC
3414 Peachtree Road, N.E.
Suite 900
Atlanta, Georgia 30326
Attn: General Counsel
Telecopy: 404/___- ____
with copies to:
__________________________
__________________________
Attn: ____________________
Telecopy: ________________
and:
New Crescent
__________________________
__________________________
Attn: ____________________
Telecopy: ________________
and:
Shaw, Pittman, Potts & Trowbridge
2300 N. Street, N.W.
Washington, D.C. 20037
Attn: Wendelin A. White
Telecopy: 202/663-8007
or to such other representative or at such other address of a party as such
party hereto may furnish to the other party in writing.
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10.10. Entire Agreement; Amendments. This Agreement, together
with the remaining Loan Documents, constitute the entire agreement between the
parties hereto with respect to the subject matter hereof. Neither this Agreement
nor any Loan Document may be changed, waived, discharged, modified or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement is sought.
10.11. Time of Essence. Time is of the essence in this
Agreement and the other Loan Documents.
10.12. Interpretation. No provision of this Agreement or any
Loan Document shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
10.13. JURISDICTION. BORROWER AGREES THAT ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY LOAN DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF GEORGIA OR THE UNITED STATES OF AMERICA FOR THE
NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, ALL AS LENDER MAY ELECT. BY
EXECUTION OF THIS AGREEMENT, BORROWER HEREBY SUBMITS TO EACH SUCH JURISDICTION,
HEREBY EXPRESSLY WAIVING WHATEVER RIGHTS MAY CORRESPOND TO IT BY REASON OF ITS
PRESENT OR FUTURE DOMICILE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER
JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED OR REQUIRED BY LAW.
10.14. Payment on Non-Business Days. Whenever any payment to
be made hereunder or under the Note is due on a date which is not a Business
Day, such payment may be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest hereunder or under the Note.
10.15. Cure of Defaults by Lender. If, hereafter, Borrower
defaults in the performance of any duty or obligation to Lender hereunder or
under any Loan Document, Lender may, at its option, but without obligation, cure
such default. Any costs, fees and expenses incurred by Lender in connection
therewith including, without limitation, for the purchase of insurance, the
payment of taxes and the removal or settlement of liens and claims, shall become
Obligations and shall be due and payable within ten Business Days of the giving
of notice of such to Borrower by Lender.
10.16. Recitals. All recitals contained herein are hereby
incorporated by reference into this Agreement and made part thereof.
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10.17. Sole Benefit. The rights and benefits set forth in
this Agreement and the other Loan Documents are for the sole and exclusive
benefit of the parties hereto and thereto and may be relied upon only by them,
and, in the case of Lender, its permitted assignees.
10.18. Indemnification. Borrower will hold Lender, its
respective directors, officers, employees, agents, successors and assigns
harmless from and indemnify Lender, its respective directors, officers,
employees, agents, successors and assigns against, all loss, damages, costs and
expenses (including, without limitation, reasonable attorney's fees, costs and
expenses) actually incurred by any of the foregoing, whether direct, indirect or
consequential, as a result of or arising from or relating to any "Proceedings"
(as defined below) by any Person, whether threatened or initiated, asserting a
claim for any legal or equitable remedy against any Person under any statute,
case or regulation, including, without limitation, any federal or state
securities laws or under any common law or equitable case or otherwise, arising
from this Agreement or any Loan Document or from any loans made or other actions
taken by Lender pursuant to this Agreement or any other Loan Document, except to
the extent such losses, damages, costs or expenses are due to the wilful
misconduct or gross negligence of Lender. As used herein, "Proceedings" shall
mean actions, suits or proceedings before any court, governmental or regulatory
authority. At the request of Lender, Borrower will indemnify any Person to whom
Lender transfers or sells (subject to the provisions of Section 10.4) all or any
portion of its interest in the Obligations or participation therein on terms
substantially similar to the terms set forth above. Neither Borrower nor Lender
shall not be responsible or liable to any Person for consequential damages which
may be alleged as a result of this Agreement or any of the transactions
contemplated hereby. The obligations of Borrower under this Section shall
survive the termination of this Agreement and payment of the Obligations.
10.19. JURY TRIAL WAIVER. EACH OF BORROWER AND LENDER HEREBY
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO ANY OF THE LOAN DOCUMENTS, OBLIGATIONS OR THE COLLATERAL.
11. CONDITIONS PRECEDENT TO INITIAL ADVANCE. Unless waived in
writing by Lender at or prior to the execution and delivery of this Agreement,
the conditions set forth below shall constitute express conditions precedent to
the obligation of Lender to make the initial advance under the Line of Credit.
11.1. Secretary's Certificate. Receipt by Lender of a
certificate from the Secretary (or Assistant Secretary) of Borrower and each
Subsidiary, certifying to Lender that appropriate resolutions have been entered
into by the Governing Board of Borrower and the governing body of each
Subsidiary incident hereto and that the officers of Borrower and each Subsidiary
whose signatures appear hereinbelow, on the other Loan Documents, and on any and
all other documents, instruments and agreements executed in connection herewith,
are duly authorized by the Governing Board of Borrower and the governing body of
each Subsidiary for
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and on behalf of Borrower or such Subsidiary to execute and deliver this
Agreement, the other Loan Documents and such other documents, instruments and
agreements, and to bind Borrower and each Subsidiary accordingly thereby.
11.2. Loan Documents. Receipt by Lender of all the other
Loan Documents, duly executed in form and substance reasonably acceptable to
Lender.
11.3. Financing Statements. Receipt by Lender of Uniform
Commercial Code financing statements respecting the Collateral, duly executed by
Borrower or its Subsidiaries in form and substance reasonably acceptable to
Lender.
11.4. Opinion of Counsel. Receipt by Lender of an opinion of
counsel from independent legal counsel to Borrower and each Subsidiary in
substantially the form of Exhibit "F", subject to normal and customary
assumptions and exceptions.
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11.5. No Default. No Default Condition or Event of Default
shall exist and Borrower shall in all respects be in compliance with all of the
terms of the Loan Documents, as evidenced by its delivery of a certificate of no
default to such effect, to be substantially in the form of Exhibit "E" attached
hereto.
11.6. Other. Receipt by Lender of such other documents,
certificates, instruments and agreements as shall be reasonably required
hereunder or provided for herein or as Lender or Lender's counsel may reasonably
require in connection herewith.
11.7. Borrowing Notice. Receipt by Lender of a Borrowing
Notice to be substantially in the form of Exhibit "G" attached hereto.
12. CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES. Unless waived
in writing by Lender at or prior to the execution and delivery of this
Agreement, the conditions set forth below shall constitute express conditions
precedent to the obligation of Lender to make each advance (other than the
initial advance) under the Line of Credit.
12.1. No Default. No Default Condition or Event of Default
shall exist and Borrower shall in all respects be in compliance with all of the
terms of the Loan Documents, as evidenced by its delivery of a certificate of no
default to such effect, to be substantially in the form of Exhibit "E" attached
hereto.
12.2. Borrowing Notice. Receipt by Lender of a Borrowing
Notice to be substantially in the form of Exhibit "G" attached hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and Borrower has caused its corporate seal to be affixed hereto, as of
the day and year first above written.
"LENDER"
MAGELLAN HEALTH SERVICES, INC.
By:_____________________________
[Name/Title]
"BORROWER"
CHARTER BEHAVIORAL HEALTH
SYSTEMS, LLC.
By:_____________________________
[Name], President
"SUBSIDIARIES"
By:_____________________________
[Name/Title]
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