<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-6639
MAGELLAN HEALTH SERVICES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
3414 PEACHTREE ROAD, NE, SUITE 1400
ATLANTA, GEORGIA 30326
(Address of principal executive offices)
(Zip Code)
(404) 841-9200
(Registrant's telephone number, including area code)
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW.
------------------------
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No______
The number of shares of the Registrant's Common Stock outstanding as of July
31, 1997, was 28,970,003.
- --------------------------------------------------------------------------------
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<PAGE>
ADDITIONAL REGISTRANTS(1)
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Behavioral Heath Systems of Indiana,
Inc................................ Indiana 35-1990127 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Beltway Community Hospital, Inc...... Texas 58-1324281 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Blue Grass Physician Management
Group, Inc......................... Kentucky 66-1294402 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
C.A.C.O. Services, Inc............... Ohio 58-1751511 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CCM, Inc............................. Nevada 58-1662418 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CMCI, Inc............................ Nevada 88-0224620 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMFC, Inc............................ Nevada 88-0215629 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMSF, Inc............................ Florida 58-1324269 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CPS Associates, Inc.................. Virginia 58-1761039 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Alvarado Behavioral Health
System, Inc........................ California 58-1394959 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Asheville Behavioral Health
System, Inc........................ North Carolina 58-2097827 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Arbor Indy Behavioral
Health System, LLC................. Delaware 58-2265776 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Augusta Behavioral Health
System, Inc........................ Georgia 58-1615676 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Bay Harbor Behavioral Health
System, Inc........................ Florida 58-1640244 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
The Charter Beacon Behavioral Health
System, LLC........................ Delaware 35-1994155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Corporation....... Nevada 91-1819015 1061 E. Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
Charter Behavioral Health System at
Fair Oaks, Inc..................... New Jersey 58-2097832 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Behavioral Health System at
Hidden Brook, Inc.................. Maryland 52-1866212 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at
Los Altos, Inc..................... California 33-0606642 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at
Manatee Adolescent Treatment
Services, Inc...................... Florida 65-0519663 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at
Potomac Ridge, Inc................. Maryland 52-1866221 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Systems,
Inc................................ Delaware 58-2213642 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Athens, Inc........................ Georgia 58-1513304 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Austin, Inc........................ Texas 58-1440665 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Baywood, Inc....................... Texas 76-0430571 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Behavioral Health System of
Bradenton, Inc..................... Florida 58-1527678 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Central Georgia, Inc............... Georgia 58-1408670 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavorial Health System of
Central Virginia, Inc.............. Virginia 54-1765921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Charleston, Inc.................... South Carolina 58-1761157 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Charlottesville, Inc............... Virginia 58-1616917 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Chicago, Inc....................... Illinois 58-1315760 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Chula Vista, Inc................... California 58-1473063 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Columbia, Inc...................... Missouri 61-1009977 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Behavioral Health System of
Corpus Christi, Inc................ Texas 58-1513305 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Dallas, Inc........................ Texas 58-1513306 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Delmarva, Inc...................... Maryland 52-1866214 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Evansville, LLC................. Delaware 35-1994080 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Fort Worth, Inc.................... Texas 58-1643151 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Jackson, Inc....................... Mississippi 58-1616919 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Jacksonville, Inc.................. Florida 58-1483015 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Jefferson, LLC.................. Delaware 35-1994087 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Behavioral Health System of
Kansas City, Inc................... Kansas 58-1603154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Lafayette, Inc..................... Louisiana 72-0686492 302 Dulles Drive
Lafayette, LA 70506
(318) 233-9024
Charter Behavioral Health System of
Lake Charles, Inc.................. Louisiana 62-1152811 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System.....
of Maryland, Inc. Maryland 52-2026699 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Michigan City, LLC.............. Delaware 35-1994736 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Mississippi, Inc................... Mississippi 58-2138622 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Mobile, Inc........................ Alabama 58-1569921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Nashua, Inc........................ New Hampshire 02-0470752 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Behavioral Health System of
Nevada, Inc........................ Nevada 58-1321317 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
New Mexico, Inc.................... New Mexico 58-1479480 5901 Zuni Road, SE
Albuquerque, NM 87108
(505) 265-8800
Charter Behavioral Health System of
North Carolina, Inc................ North Carolina 56-1908581 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Northern California, Inc........... California 58-1857277 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Northwest Arkansas, Inc............ Arkansas 58-1449455 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Northwest Indiana, LLC.......... Delaware 35-1994154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Paducah, Inc....................... Kentucky 61-1006115 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health of Puerto
Rico, Inc.......................... Georgia 66-0523678 Caso Bldg., Suite 1504
1225 Ponce de Leon Avenue
Santurce, PR 00907
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Behavioral Health System of
San Jose, Inc...................... California 58-1747020 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Savannah, Inc...................... Georgia 58-1750583 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Texarkana, Inc..................... Arkansas 71-0752815 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
the Inland Empire, Inc............. California 95-2685883 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Toledo, Inc........................ Ohio 58-1731068 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Tucson, Inc........................ Arizona 86-0757462 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Visalia, Inc....................... California 33-0606644 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Waverly, Inc....................... Minnesota 41-1775626 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Behavioral Health System of
Winston-Salem, Inc................. North Carolina 56-1050502 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Yorba Linda, Inc................... California 33-0606646 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Systems of
Atlanta, Inc....................... Georgia 58-1900736 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Talbott Behavioral Health
System, Inc........................ Georgia 58-0979827 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter By-The-Sea Behavioral Health
System, Inc........................ Georgia 58-1351301 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Call Center, Inc............. Georgia 58-2318455 2151 Peachford Road
Atlanta, GA 30338
Charter Call Center of Texas, Inc.... Texas 75-2709908 920 South Main Street
Suite 250
Grapevine, TX 76051
Charter Canyon Behavioral Health
System, Inc........................ Utah 58-1557925 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Canyon Springs Behavioral
Health System, Inc................. California 33-0606640 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
ix
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Centennial Peaks Behavioral
Health System, Inc................. Colorado 58-1761037 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Community Hospital, Inc...... California 58-1398708 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Contract Services, Inc....... Georgia 58-2100699 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Cove Forge Behavioral Health
System, Inc........................ Pennsylvania 25-1730464 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Fairmount Behavioral Health
System, Inc........................ Pennsylvania 58-1616921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Fenwick Hall Behavioral
Health System, Inc................. South Carolina 57-0995766 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Financial Offices, Inc....... Georgia 58-1527680 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Forest Behavioral Health
System, Inc........................ Louisiana 58-1508454 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Franchise Services, LLC...... Delaware 58-2292977 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
x
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Grapevine Behavioral Health
System, Inc........................ Texas 58-1818492 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Greensboro Behavioral Health
System, Inc........................ North Carolina 58-1335184 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Health Management of Texas,
Inc................................ Texas 58-2025056 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Columbus, Inc.... Ohio 58-1598899 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Denver, Inc...... Colorado 58-1662413 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ft. Collins,
Inc................................ Colorado 58-1768534 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo, Inc. Texas 58-1491620 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Hospital of
Miami, Inc......................... Florida 61-1061599 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of
Mobile, Inc........................ Alabama 58-1318870 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Santa Teresa,
Inc................................ New Mexico 58-1584861 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of St. Louis,
Inc................................ Missouri 58-1583760 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Torrance, Inc.... California 58-1402481 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Indiana BHS Holding, Inc..... Indiana 58-2247985 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Indianapolis Behavioral
Health
System, LLC........................ Delaware 35-1994923 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Lafayette Behavioral
Health System, LLC................. Delaware 35-1994151 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
xii
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Lakehurst Behavioral Health
System, Inc........................ New Jersey 22-3286879 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Health
Network, Inc....................... Tennessee Applied for 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Health
System, Inc........................ Tennessee 62-0892645 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Laurel Heights Behavioral
Health
System, Inc........................ Georgia 58-1558212 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Linden Oaks Behavioral Health
System, Inc........................ Illinois 36-3943776 852 West Street
Naperville, IL 60540
(708) 305-5500
Charter Little Rock Behavioral Health
System, Inc........................ Arkansas 58-1747019 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Louisiana Behavioral Health
System, Inc........................ Louisiana 72-1319231 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Louisville Behavioral Health
System, Inc........................ Kentucky 58-1517503 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
xiii
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<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Managed Care Services, LLC... Georgia 58-2324879 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Meadows Behavioral Health
System, Inc........................ Maryland 52-1866216 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--California,
Inc................................ Georgia 58-1357345 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Clayton County,
Inc................................ Georgia 58-1579404 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Cleveland,
Inc................................ Texas 58-1448733 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Long Beach, Inc..... California 58-1366604 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--New York,
Inc................................ New York 58-1761153 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical (Cayman Islands) Cayman Islands, 58-1841857 Caledonian Bank & Trust
Ltd................................ BWI Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
</TABLE>
xiv
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Medical Information Services,
Inc................................ Georgia 58-1530236 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical International, Cayman Islands, N/A Caledonian Bank & Trust
Inc................................ BWI Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical International, S.A.,
Inc................................ Nevada 58-1605110 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Managed Care Sales and
Services, Inc...................... Georgia 58-1195352 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of East Valley,
Inc................................ Arizona 58-1643158 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of England Limited... United Kingdom N/A 111 Kings Road
Box 323
London SW3 4PB
London, England
44-71-351-1272
Charter Medical of Florida,
Inc................................ Florida 58-2100703 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of North Phoenix,
Inc................................ Arizona 58-1643154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
xv
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Medical of Puerto Rico, Commonwealth of 58-1208667 Caso Building, Suite 1504
Inc................................ Puerto Rico 1225 Ponce De Leon Avenue
Santurce, P.R. 00907
(809) 723-8666
Charter Milwaukee Behavioral Health
System, Inc........................ Wisconsin 58-1790135 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Mission Viejo Behavioral
Health System, Inc................. California 58-1761156 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter MOB of Charlottesville,
Inc................................ Virginia 58-1761158 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter North Behavioral Health
System, Inc........................ Alaska 58-1474550 2530 DeBarr Road
Anchorage, AK 99508-2996
(907) 258-7575
Charter Northbrooke Behavioral Health
System, Inc........................ Wisconsin 39-1784461 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter North Counseling Center,
Inc................................ Alaska 58-2067832 2530 DeBarr Road
Anchorage, AK 99508-2996
(907) 258-7575
Charter Northridge Behavioral Health
System, Inc........................ North Carolina 58-1463919 400 Newton Road
Raleigh, NC 27615
(919) 847-0008
Charter Oak Behavioral Health System,
Inc................................ California 58-1334120 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
xvi
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter of Alabama, Inc.............. Alabama 63-0649546 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Palms Behavioral Health
System, Inc........................ Texas 58-1416537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Peachford Behavioral Health
System, Inc........................ Georgia 58-1086165 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Pines Behavioral Health
System, Inc........................ North Carolina 58-1462214 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Plains Behavioral Health
System, Inc........................ Texas 58-1462211 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter-Provo School, Inc............ Utah 58-1647690 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Real Behavioral Health
System, Inc........................ Texas 58-1485897 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Ridge Behavioral Health
System, Inc........................ Kentucky 58-1393063 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Rivers Behavioral Health
System, Inc........................ South Carolina 58-1408623 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
</TABLE>
xvii
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Charter Rockford Behavioral Health
System, Inc........................ Delaware 51-0374617 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter San Diego Behavioral Health
System, Inc........................ California 58-1669160 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Sioux Falls Behavioral Health
System, Inc........................ South Dakota 58-1674278 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter South Bend Behavioral
Health System,
LLC................................ Delaware 35-1994307 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Springs Behavioral Health
System, Inc........................ Florida 58-1517461 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Springwood Behavioral Health
System, Inc........................ Virginia 58-2097829 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Suburban Hospital of
Mesquite, Inc...................... Texas 75-1161721 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter System, LLC.................. Nevada 91-1819015 1061 E. Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
</TABLE>
xviii
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
The Charter Terre Haute Behavioral
Health System,
LLC................................ Delaware 35-1994308 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Thousand Oaks Behavioral
Health System,
Inc................................ California 58-1731069 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Westbrook Behavioral Health
System, Inc........................ Virginia 54-0858777 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter White Oak Behavioral Health
System, Inc........................ Maryland 52-1866223 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Wichita Behavioral Health
System, Inc........................ Kansas 58-1634296 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Woods Behavioral Health
System, Inc........................ Alabama 58-1330526 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Correctional Behavioral Solutions,
Inc................................ Delaware 58-2180940 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Correctional Behavioral Solutions of
Indiana, Inc....................... Indiana 35-1978792 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
xix
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Correctional Behavioral Solutions of
New Jersey, Inc.................... New Jersey 22-3436964 3000 Atrium Way
Suite 410
Mount Laurel, NJ
(609) 235-2339
Correctional Behavioral Solutions of
Ohio, Inc.......................... Ohio 34-1826431 Allen Correctional Institute
2338 North West Street
Lima, OH 45801
(419) 224-8000
Desert Springs Hospital, Inc......... Nevada 88-0117696 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Employee Assistance Services, Inc.... Georgia 58-1501282 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Florida Health Facilities, Inc....... Florida 58-1860493 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Gulf Coast EAP Services, Inc......... Alabama 58-2101394 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Hospital Investors, Inc.............. Georgia 58-1182191 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Illinois Mentor, Inc................. Illinois 36-3643670 313 Congress St.
Boston, MA 02210
(617) 790-4800
Magellan Executive
Corporation........................ Georgia 58-2310891 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Solutions, Inc....... Delaware 58-2227841 222 Berkley Street
Boston, MA 02117
(617) 437-6400
</TABLE>
xx
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Mandarin Meadows, Inc................ Florida 58-1761155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Network, Inc......... Delaware 51-0374654 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Solutions of Ohio,
Inc................................ Ohio Applied for 222 Berkley Street
Boston, MA 02117
(617) 437-6400
Massachusetts Mentor, Inc............ Massachusetts 04-2799071 313 Congress St.
Boston, MA 02210
(617) 790-4800
Metroplex Behavioral Healthcare
Services, Inc...................... Texas 58-2138596 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
National Mentor, Inc................. Delaware 04-3250732 313 Congress St.
Boston, MA 02210
(617) 790-4800
National Mentor Healthcare,
Inc................................ Massachusetts 04-2893910 313 Congress St.
Boston, MA 02210
(617) 790-4800
NEPA--Massachusetts, Inc............. Massachusetts 58-2116751 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
NEPA--New Hampshire, Inc............. New Hampshire 58-2116398 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Nevada Behavioral Services,
Inc................................ Nevada Applied for 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
xxi
<PAGE>
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
<S> <C> <C> <C>
Ohio Mentor, Inc..................... Ohio 31-1098345 313 Congress St.
Boston, MA 02210
(617) 790-4800
Pacific-Charter Medical, Inc......... California 58-1336537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
South Carolina Mentor, Inc........... South Carolina 57-0782160 313 Congress St.
Boston, MA 02210
(617) 790-4800
Southeast Behavioral Systems, Inc.... Georgia 58-2100700 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Schizophrenia Treatment and
Rehabilitation, Inc................ Georgia 58-1672912 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Sistemas De Terapia Respiratoria,
S.A., Inc.......................... Georgia 58-1181077 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Western Behavioral
Systems, Inc....................... California 58-1662416 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Wisconsin Mentor, Inc................ Wisconsin 39-1840054 313 Congress St.
Boston, MA 00210
(617) 790-4800
</TABLE>
- ------------------------
(1) The Additional Registrants listed are wholly-owned subsidiaries of the
Registrant and are guarantors of the Registrant's 11 1/4% Series A Senior
Subordinated Notes due 2004. The Additional Registrants have been
conditionally exempted, pursuant to Section 12(h) of the Securities Exchange
Act of 1934, from filing reports under Section 13 of the Securities Exchange
Act of 1934.
xxii
<PAGE>
FORM 10-Q
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C>
PART I--FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets--
September 30, 1996 and June 30, 1997................................................................ 1
Condensed Consolidated Statements of Operations--
For the Three Months and the Nine Months ended June 30, 1996 and 1997............................... 2
Condensed Consolidated Statements of Cash Flows--
For the Nine Months ended June 30, 1996 and 1997.................................................... 3
Notes to Condensed Consolidated Financial Statements.................................................. 4
Management's Discussion and Analysis of Financial Condition and Results of Operations................. 19
PART II--OTHER INFORMATION:
Item 1.--Legal Proceedings............................................................................ 27
Item 4.--Submission of Matters to a Vote of Security Holders.......................................... 27
Item 6.--Exhibits and Reports on Form 8-K............................................................. 27
Signatures............................................................................................ 30
</TABLE>
<PAGE>
MAGELLAN HEALTH SERVICES, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I--FINANCIAL INFORMATION
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
ASSETS 1996 1997
------------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................................................. $ 120,945 $ 326,243
Accounts receivable, net............................................................... 189,878 151,620
Supplies............................................................................... 4,753 1,508
Refundable income taxes................................................................ 1,323 --
Other current assets................................................................... 21,251 18,568
------------- ---------
Total Current Assets............................................................... 338,150 497,939
Property and Equipment:
Land................................................................................... 83,431 12,520
Buildings and improvements............................................................. 388,821 69,164
Equipment.............................................................................. 146,915 59,711
------------- ---------
619,167 141,395
Accumulated depreciation............................................................... (126,053) (34,376)
------------- ---------
493,114 107,019
Construction in progress............................................................... 2,276 429
------------- ---------
495,390 107,448
Assets Restricted for Settlement of Unpaid Claims and Other Long-Term Liabilities........ 105,303 92,335
Deferred income taxes.................................................................... -- 8,267
Investment in CBHS....................................................................... -- 7,101
Other Long-Term Assets................................................................... 30,755 26,209
Goodwill, net............................................................................ 128,012 113,265
Other Intangible Assets, net............................................................. 42,527 38,966
------------- ---------
$ 1,140,137 $ 891,530
------------- ---------
------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................................................... $ 78,966 $ 47,363
Accrued liabilities.................................................................... 189,599 167,969
Current maturities of long-term debt and
capital lease obligations............................................................ 5,751 3,592
------------- ---------
Total Current Liabilities.......................................................... 274,316 218,924
Long-Term Debt and Capital Lease Obligations............................................. 566,307 391,926
Deferred Income Taxes.................................................................... 12,368 --
Reserve for Unpaid Claims................................................................ 73,040 55,331
Deferred Credits and Other Long-Term Liabilities......................................... 39,769 21,842
Minority Interest........................................................................ 52,520 58,943
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, without par value
Authorized--10,000 shares
Issued and outstanding--none......................................................... -- --
Common Stock, par value $0.25 per share
Authorized--80,000 shares
Issued and outstanding--33,007 shares at
September 30, 1996 and 33,311 shares at June 30, 1997.................................... 8,252 8,330
Other Stockholders' Equity:
Additional paid-in capital........................................................... 327,681 336,692
Accumulated deficit.................................................................. (129,457) (140,118)
Warrants outstanding................................................................. 54 25,050
Common Stock in Treasury, 4,424 shares at September 30, 1996 and June 30, 1997....... (82,731) (82,731)
Cumulative foreign currency adjustments.............................................. (1,982) (2,659)
------------- ---------
Stockholders' Equity............................................................... 121,817 144,564
------------- ---------
$ 1,140,137 $ 891,530
------------- ---------
------------- ---------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
1
<PAGE>
MAGELLAN HEALTH SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- ------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
---------- ---------- ---------- ------------
Net revenue.................................................... $ 346,379 $ 324,921 $ 996,997 $ 1,021,662
---------- ---------- ---------- ------------
Costs and expenses:
Salaries, supplies and other operating expenses.............. 274,536 263,915 780,880 830,248
Bad debt expense............................................. 18,886 12,081 61,293 47,456
Depreciation and amortization................................ 12,886 12,044 36,186 38,231
Interest, net................................................ 13,065 12,602 35,459 39,324
Stock option expense (credit)................................ (210) 1,781 1,204 3,214
Equity in loss of CBHS....................................... -- 399 -- 399
Loss on Crescent Transactions................................ -- 59,868 -- 59,868
Unusual items................................................ 33,959 (1,038) 33,959 357
---------- ---------- ---------- ------------
353,122 361,652 948,981 1,019,097
---------- ---------- ---------- ------------
Income (loss) before provision for income taxes, minority
interest and extraordinary items............................. (6,743) (36,731) 48,016 2,565
Provision for (benefit from) income taxes...................... (2,698) (14,693) 19,674 1,025
---------- ---------- ---------- ------------
Income (loss) before minority interest and extraordinary
items........................................................ (4,045) (22,038) 28,342 1,540
Minority interest.............................................. 1,677 2,403 4,247 6,948
---------- ---------- ---------- ------------
Income (loss) before extraordinary items....................... (5,722) (24,441) 24,095 (5,408)
Extraordinary items--losses on early extinguishments of debt
(net of income tax benefit of $1,536 for the three months
ended June 30, 1997 and $3,503 for the nine months ended June
30, 1997).................................................... -- (2,303) -- (5,253)
---------- ---------- ---------- ------------
Net income (loss).............................................. $ (5,722) $ (26,744) $ 24,095 $ (10,661)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Income (loss) per common share:
Income (loss) before extraordinary items..................... $ (0.18) $ (0.85) $ 0.79 $ (0.19)
Extraordinary losses on early extinguishments of debt........ -- (0.08) -- (0.18)
---------- ---------- ---------- ------------
Net income (loss).............................................. $ (0.18) $ (0.93) $ 0.79 $ (0.37)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Weighted average number of common shares outstanding........... 32,464 28,830 30,559 28,715
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
JUNE 30,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................................... $ 24,095 $ (10,661)
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................... 36,186 38,231
Non-cash portion of unusual items....................................................... 31,206 --
Equity in loss of CBHS.................................................................. -- 399
Loss on Crescent Transactions........................................................... -- 59,868
Stock option expense.................................................................... 1,204 3,214
Non-cash interest expense............................................................... 1,812 1,297
Gain on sale of assets.................................................................. (867) (5,747)
Extraordinary losses on early extinguishments of debt................................... -- 8,756
Cash flows from changes in assets and liabilities, net of effects from sales and
acquisitions of businesses:
Accounts receivable, net.............................................................. (3,201) 18,521
Other assets.......................................................................... 2,291 8,409
Accounts payable and other accrued liabilities........................................ (28,798) (67,540)
Reserve for unpaid claims............................................................. (14,051) (20,679)
Income taxes payable.................................................................. 11,514 (17,985)
Other liabilities..................................................................... (5,957) (17,400)
Minority interest, net of dividends paid.............................................. 4,868 7,498
Other................................................................................. 155 (965)
---------- ----------
Total adjustments................................................................... 36,362 15,877
---------- ----------
Net cash provided by operating activities......................................... 60,457 5,216
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................... (24,617) (28,113)
Acquisitions and investments in businesses, net of cash acquired........................ (50,099) (28,840)
Decrease (increase) in assets restricted for settlement of unpaid claims................ (8,567) 12,551
Proceeds from sale of property and equipment to Crescent and CBHS, net of transaction
costs................................................................................. -- 384,041
Proceeds from sale of assets............................................................ 1,253 15,463
---------- ----------
Net cash provided by (used in) investing activities................................... (82,030) 355,102
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of issuance costs................................... 68,125 203,643
Payments on debt and capital lease obligations.......................................... (84,492) (389,406)
Proceeds from issuance of common stock, net of issuance costs........................... 68,561 --
Proceeds from issuance of warrants...................................................... -- 25,000
Proceeds from exercise of stock options and warrants.................................... 2,147 5,743
Income tax payments made on behalf of stock optionees................................... (1,678) --
---------- ----------
Net cash provided by (used in) financing activities................................... 52,663 (155,020)
---------- ----------
Net increase in cash and cash equivalents................................................. 31,090 205,298
Cash and cash equivalents at beginning of period.......................................... 105,514 120,945
---------- ----------
Cash and cash equivalents at end of period................................................ $ 136,604 $ 326,243
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation, have been included.
These financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended September
30, 1996, included in the Company's Annual Report on Form 10-K, as amended.
NOTE B--NATURE OF BUSINESS
The Company's provider business and CBHS' (as hereinafter defined) business
are seasonal in nature, with a reduced demand for certain services generally
occurring in the first fiscal quarter around major holidays, such as
Thanksgiving and Christmas, and during the summer months comprising the fourth
fiscal quarter. The Company's business is also subject to general economic
conditions and other factors. Accordingly, the results of operations for the
interim periods are not necessarily indicative of the actual results expected
for the year.
NOTE C--SUPPLEMENTAL CASH FLOW INFORMATION
Below is supplemental cash flow information related to the nine months ended
June 30, 1996 and 1997:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Income taxes paid, net of refunds received........................................ $ 6,853 $ 14,419
Interest paid, net of amounts capitalized......................................... 53,350 53,945
Notes payable assumed in connection with acquisitions of businesses............... 12,100 --
Non-cash investment in CBHS....................................................... -- 5,281
</TABLE>
The non-cash portion of unusual items for the nine months ended June 30,
1996 includes the unpaid portion of the $30.0 million insurance settlement that
was recorded during the quarter ended June 30, 1996. The payments of the
insurance settlement are included in accounts payable and other accrued
liabilities in the statement of cash flows for the nine months ended June 30,
1997.
4
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE D--LONG-TERM DEBT AND LEASES
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 1996 and June 30, 1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
(IN THOUSANDS)
New Revolving Credit Agreement due 2002...................................... $ 105,593 $ --
11.25% Senior Subordinated Notes due 2004.................................... 375,000 375,000
6.8125% to 8.0% Mortgage and other notes payable through 1999................ 12,163 7,940
Variable rate secured notes.................................................. 60,875 --
7.5% Swiss Bonds............................................................. 6,443 6,443
4.25% capital lease obligations due through 2014............................. 12,333 6,439
------------- ----------
572,407 395,822
Less amounts due within one year......................................... 5,751 3,592
Less debt service funds.................................................. 349 304
------------- ----------
$ 566,307 $ 391,926
------------- ----------
------------- ----------
</TABLE>
On October 28, 1996, the Company entered into a Credit Agreement with
certain financial institutions for a five-year senior secured reducing revolving
credit facility in an aggregate committed amount of $400 million (the "Revolving
Credit Agreement"). The Company borrowed approximately $121.0 million under the
Revolving Credit Agreement in October 1996 to (i) pay-off the existing
borrowings outstanding under the previous revolving credit agreement that was
terminated and (ii) pay for fees and expenses related to the Revolving Credit
Agreement.
The loans outstanding under the Revolving Credit Agreement bore interest
(subject to certain potential adjustments) at a rate per annum equal to one,
two, three or six-month LIBOR plus 1.25% or the Prime Lending Rate.
The Company recorded an extraordinary loss from the early extinguishment of
debt of approximately $3.0 million, net of tax, during the quarter ended
December 31, 1996 to write off unamortized deferred financing costs related to
its previous revolving credit agreement.
On June 17, 1997, the Company entered into a new Credit Agreement (the "New
Revolving Credit Agreement") with certain financial institutions for a five-year
senior secured revolving credit facility in an aggregate committed amount of
$200 million. The Company paid off approximately $191.8 million of borrowings
outstanding under the Revolving Credit Agreement on June 17, 1997 with proceeds
from the Crescent Transactions (as hereinafter defined).
The loans outstanding under the New Revolving Credit Agreement bear interest
(subject to certain potential adjustments) at a rate per annum equal to one,
two, three or six-month LIBOR plus 1.25% or the Alternative Base Rate ("ABR"),
as defined, plus .25%. Interest on ABR loans is payable at the end of each
fiscal quarter. Interest on LIBOR-based loans is payable at the end of their
respective terms, but a minimum of every three months.
5
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE D--LONG-TERM DEBT AND LEASES (CONTINUED)
The Company also paid off approximately $66 million of variable rate secured
notes and other long-term debt during June 1997 related to the consummation of
the Crescent Transactions.
The Company recorded an extraordinary loss of approximately $2.3 million,
net of tax, during the quarter ended June 30, 1997 to write off unamortized
deferred financing costs related to the Revolving Credit Agreement and for costs
related to paying off the variable rate secured notes.
NOTE E--ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
Salaries and wages........................................................... $ 39,841 $ 17,811
Amounts due health insurance programs........................................ 27,223 16,341
Medical claims payable....................................................... 26,552 32,766
Interest..................................................................... 20,348 9,094
Crescent Transaction......................................................... -- 20,306
Other........................................................................ 75,635 71,651
------------- ----------
$ 189,599 $ 167,969
------------- ----------
------------- ----------
</TABLE>
NOTE F--CRESCENT TRANSACTIONS
On June 17, 1997, the Company consummated a series of transactions including
the sale of substantially all of its domestic hospital real estate and related
personal property (the "Assets") to Crescent Real Estate Equities Limited
Partnership ("Crescent") and CBHS (as hereinafter defined). 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
account for its 50% investment in CBHS under the equity method of accounting.
The Company received approximately $417.2 million in cash (before costs
estimated to be $16.0 million) and warrants in COI for the purchase of 2.5% of
COI's common stock, exercisable over 12 years. The Company also issued 1,283,311
warrants to Crescent and COI each for the purchase of Magellan common stock at
an exercise price of $30 per share.
In related agreements, (i) Crescent leased the real estate and related
assets to CBHS for annual rent beginning at approximately $41.7 million with a
5% annual escalation clause compounded annually (the "Facilities Lease") and
(ii) CBHS will pay Magellan approximately $78.3 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
are 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 advertising and marketing
assistance, risk management services, outcomes monitoring, and consultation on
6
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE F--CRESCENT TRANSACTIONS (CONTINUED)
matters relating to reimbursement, government relations, clinical strategies,
regulatory matters, strategic planning and business development.
The Company initially used a portion of the proceeds from the sale of the
Assets to reduce its long-term debt, including borrowings under the Revolving
Credit Agreement. Under the terms of its Senior Subordinated Notes (the "Notes")
indenture, the Noteholders were given the right to put their Notes to the
Company at 101% of face value through July 21, 1997. No Noteholders elected to
put their Notes to the Company. The Company intends to use the remaining
proceeds from the sale of the Assets 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 Crescent Transactions are more fully described in the Company's Proxy
Statement filed on Schedule 14A on April 24, 1997, which is incorporated herein
by reference.
The Company recorded a loss before income taxes of approximately $59.9
million as a result of the Crescent Transactions, which consisted of the
following (in thousands):
<TABLE>
<S> <C>
Accounts receivable collection fees........................................ $ 21,400
Impairment losses on intangible assets..................................... 14,408
Exit costs and construction obligation..................................... 13,549
Loss on the sale of property and equipment................................. 10,511
---------
$ 59,868
---------
---------
</TABLE>
The $5.0 million of exit costs accrued as a result of the Crescent
transactions include incremental staffing, consulting and related costs to
prepare and coordinate audits of terminating Medicare cost reports, prepare and
file income tax, property tax, sales and use tax and other tax returns and
perform accounting functions related to the divested businesses (CBHS). The
Company incurred approximately $0.1 million of such costs during the quarter and
the nine months ended June 30, 1997.
The Company is constructing a hospital in Philadelphia as required by the
Crescent Real Estate Purchase Agreement to replace CBHS' existing Philadelphia
hospital. The Company has incurred approximately $2.0 million in construction
costs as of June 30, 1997 and expects to incur up to $8.5 million in
construction costs before completion.
The Company's Consolidated Statement of Operations for the nine months ended
June 30, 1996 and 1997 include the operations of businesses divested as part of
the Crescent Transactions through June 16, 1997. The unaudited pro forma
information for the nine months ended June 30, 1996 and 1997 have been prepared
assuming the Crescent Transactions were consummated on October 1, 1995. The pro
forma information does not purport to be indicative of the results which would
have actually been obtained had
7
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE F--CRESCENT TRANSACTIONS (CONTINUED)
the Crescent Transactions been consummated on October 1, 1995 or which may be
attained in future periods (in thousands, except per share data).
<TABLE>
<CAPTION>
PRO FORMA
FOR THE NINE MONTHS ENDED
----------------------------
<S> <C> <C>
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
Net Revenue......................................................................... $ 454,639 $ 527,338
Income before extraordinary items(1)................................................ 14,515 24,448
Net income(1)....................................................................... 14,515 19,195
Income per common share--primary:
Income before extraordinary items(1)............................................ 0.51 0.83
Net income(1)................................................................... 0.51 0.66
Income per common share--fully diluted:
Income before extraordinary items(1)............................................ 0.51 0.82
Net income(1)................................................................... 0.51 0.64
</TABLE>
- ------------------------
(1) Excludes the loss on the Crescent Transactions and assumes the excess
proceeds from the Crescent Transactions are not invested. If the excess
proceeds from the Crescent Transactions were assumed to be reinvested at the
Company's historic temporary cash investment rate of 5.4% and 5.25% for the
nine months ended June 30, 1996 and 1997, respectively, pro forma income
before extraordinary items, net income, income per common share before
extraordinary items and net income per common share would have been $19.3
million, $19.3 million, $0.68 (primary and fully diluted) and $0.68 (primary
and fully diluted) for the nine months ended June 30, 1996, respectively,
and $29.1 million, $23.9 million, $0.99 (primary) and $0.81 (primary) and
$0.98 (fully diluted) and $0.80 (fully diluted) for the nine months ended
June 30, 1997, respectively.
NOTE G--UNUSUAL ITEMS
INSURANCE SETTLEMENTS
Unusual items for the quarter and the nine months ended June 30, 1996
included the resolution of disputes between the Company and insurance carriers
concerning certain billings for services.
In August 1996, the Company and a group of insurance carriers resolved a
billing dispute which arose in fiscal 1996 related to matters originating in the
1980's. As part of the settlement of these claims, certain related payer matters
and associated legal fees, the Company recorded a charge of approximately $30.0
million during the quarter ended June 30, 1996. The Company is paying the
insurance settlement amount in twelve installments over a three year period,
that began in August 1996. The Company and the insurance carriers have agreed
that the dispute and settlement will not negatively impact any present or
pending business relationships nor will it prevent the parties from negotiating
in good faith concerning additional business opportunities available to, and
future relationships between, the parties.
8
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE G--UNUSUAL ITEMS (CONTINUED)
FACILITY CLOSURES
During fiscal 1996, the Company consolidated, closed or sold nine
psychiatric facilities (the "1996 Closed Facilities"). The 1996 Closed
Facilities that are still owned by the Company will be sold, leased or used for
alternative purposes depending on the market conditions in each geographic area.
The Company recorded charges of approximately $4.1 million related to facility
closures in fiscal 1996.
Severance and benefits related to the 1996 Closed Facilities were fully paid
as of December 31, 1996. Other exit costs paid and applied against the resulting
liabilities recorded during fiscal 1996 were approximately $0.1 million and $0.4
million during the quarter and the nine months ended June 30, 1997,
respectively.
During the second quarter of fiscal 1997, the Company consolidated or closed
three psychiatric facilities and its one general hospital (the "1997 Closed
Facilities"). The 1997 Closed Facilities which were owned by the Company were
sold as part of the Crescent Transactions. The Company recorded charges of
approximately $4.2 million related to facility closures in the second quarter of
fiscal 1997, which consisted of approximately $3.0 million for severance and
related benefits and $1.2 million for contract terminations and other costs.
Approximately 700 employees were terminated at the 1997 Closed Facilities.
Severance and related benefits paid and applied against the resulting liability
were approximately $0.4 million and $2.7 million during the quarter and nine
months ended June 30, 1997, respectively. Other exit costs paid and applied
against the resulting liability were approximately $0.4 million and $0.7 million
during the quarter and the nine months ended June 30, 1997, respectively. The
remaining obligations relating to the 1997 Closed Facilities sold to Crescent
have been assumed by CBHS as part of the Crescent Transactions.
The following table presents net revenue, salaries, supplies and other
operating expenses and bad debt expenses and depreciation and amortization of
the 1996 Closed Facilities and the 1997 Closed Facilities (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE NINE MONTHS ENDED
30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
--------- --------- --------- ---------
Net Revenue.................................................... $ 21,304 $ 286 $ 72,939 $ 18,952
Salaries, supplies and other operating
expenses and bad debt expenses............................... 20,063 346 74,127 21,964
Depreciation and Amortization.................................. 407 -- 1,509 272
</TABLE>
The Company recorded a charge of approximately $2.0 million in the fourth
quarter of fiscal 1996 related to severance and related benefits for employees
who were terminated pursuant to planned overhead reductions. Substantially all
of such severance and benefits was paid as of December 31, 1996.
FACILITY SALES
The Company sold two psychiatric facilities during the quarter ended March
31, 1997 that were closed during fiscal 1995. The Company received approximately
$5.6 million in proceeds from the sales and recorded an aggregate gain on such
sales of approximately $2.8 million during the quarter ended March 31,
9
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE G--UNUSUAL ITEMS (CONTINUED)
1997. The Company also sold one psychiatric facility during the quarter ended
June 30, 1997 that was closed during fiscal 1996. The Company received
approximately $4.8 million in proceeds from the sale and recorded a gain of
approximately $2.6 million during the quarter and the nine months ended June 30,
1997.
OTHER
The Company recorded charges of approximately $1.6 million during the
quarter and the nine months ended June 30, 1997 for costs incurred related
primarily to the expiration of its agreement to sell its three European
Hospitals. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Outlook" for further discussion.
NOTE H--INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings per Share" ("FAS 128"), which is more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Accounting Pronouncements". The Company is required to adopt
FAS 128 in the first quarter of fiscal 1998. Income per common share under FAS
128, if applied to the three months and the nine months ended June 30, 1996 and
1997, is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN)THOUSANDS, EXCEPT PER SHARE DATA
Income (loss) per common share--Basic:
Income (loss) before extraordinary items................................ $ (0.18) $ (0.85) $ 0.79 $ (0.19)
Extraordinary losses on early extinguishments of debt................... -- (0.08) -- (0.18)
--------- --------- --------- ---------
Net income (loss)........................................................... $ (0.18) $ (0.93) $ 0.79 $ (0.37)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per common share--Diluted:
Income (loss) before extraordinary item................................. $ (0.18) $ (0.85) $ 0.77 $ (0.19)
Extraordinary losses on early extinguishments of debt................... -- (0.08) -- (0.18)
--------- --------- --------- ---------
Net income (loss)........................................................... $ (0.18) $ (0.93) $ 0.77 $ (0.37)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common shares outstanding:
Basic................................................................... 32,464 28,830 30,559 28,715
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted................................................................. 32,464 28,830 31,099 28,715
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The difference between weighted average number of common shares outstanding
for basic and diluted EPS for the nine months ended June 30, 1996 related
primarily to stock option common stock equivalents computed under the treasury
stock method.
10
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE I--INVESTMENT IN CBHS
The Company owned a 50% interest in CBHS as of June 30, 1997. The Company
became a 50% owner of CBHS upon consummation of the Crescent Transactions. The
Company accounts for its investment in CBHS using the equity method.
A summary of financial information for the Company's investment in CBHS is
as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
Current assets........................................................................... $ 59,870
Property and equipment, net.............................................................. 18,863
Other noncurrent assets.................................................................. 3,340
-------------
Total Assets......................................................................... 82,073
-------------
-------------
Current liabilities...................................................................... $ 40,980
Long-term debt(2)........................................................................ 25,875
Other noncurrent liabilities............................................................. 1,016
Member capital........................................................................... 14,202
-------------
Total liabilities and Member capital................................................. $ 82,073
-------------
-------------
Magellan equity investment............................................................... $ 7,101
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
14 DAYS ENDED
JUNE 30, 1997
--------------
<S> <C>
Net revenue............................................................................. $ 29,865
--------------
Operating expenses(1)................................................................... 30,565
Interest, net........................................................................... 98
--------------
Net loss............................................................................ $ (798)
--------------
--------------
Cash used in operating activities....................................................... $ (13,996)
--------------
--------------
Magellan equity loss.................................................................... $ (399)
--------------
--------------
</TABLE>
- ------------------------
(1) Includes salaries, supplies and other operating expenses, bad debt expense,
depreciation and amortization.
(2) As of August 11, 1997, CBHS had $65 million of outstanding borrowings under
its revolving credit agreement and had received $20 million of advances from
its Members, including $10 million from the Company.
11
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE I--INVESTMENT IN CBHS (CONTINUED)
The Company's transactions with CBHS and related balances are as follows (in
thousands):
<TABLE>
<CAPTION>
14 DAYS ENDED
JUNE 30, 1997
---------------
<S> <C>
Franchise Fee revenue................................................................... $ 3,164
------
Expenses:
Accounts receivable collection fees................................................. 1,426
Hospital-based Joint venture management fees........................................ 417
------
1,843
------
Income before income taxes, minority interest
and extraordinary items............................................................... $ 1,321
------
------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
Accounts receivable collection fees...................................................... $ (1,426)
Hospital-based Joint venture management fees payable..................................... (417)
Other receivables........................................................................ 5,571
-------------
Due from CBHS, net................................................................... $ 3,728
-------------
-------------
</TABLE>
NOTE J--CONTINGENCIES
The Company is self-insured for a substantial portion of its general and
professional liability risks. The reserves for self-insured general and
professional liability losses, including loss adjustment expenses, are based on
actuarial estimates that are discounted at an average rate of 6% to their
present value based on the Company's historical claims experience adjusted for
current industry trends. The reserve for unpaid claims is adjusted periodically
as such claims mature, to reflect changes in actuarial estimates based on actual
experience. The Company recorded reductions of expenses of approximately $4.8
million and $12.3 million during the quarter and the nine months ended June 30,
1996, respectively, and $2.5 million and $7.5 million during the quarter and the
nine months ended June 30, 1997, respectively. These reductions resulted
primarily from updates to actuarial assumptions regarding the Company's expected
losses for more recent policy years. These revisions are based on changes in
expected values of ultimate losses resulting from the Company's claim
experience, and increased reliance on such claim experience. While management
and its actuaries believe that the present reserve is reasonable, ultimate
settlement of losses may vary from the amount provided.
The Company and certain of its subsidiaries are subject to claims, civil
suits, and governmental investigations and inquiries relating to their
operations and certain alleged business practices. In the opinion of management,
based on consultation with counsel, resolution of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.
On August 1, 1996, the United States Department of Justice, Civil Division,
filed its First Amended Complaint in a civil qui tam action initiated in
November of 1994 against the Company and its Orlando South hospital subsidiary
("Charter Orlando") by two former employees. The First Amended Complaint
12
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE J--CONTINGENCIES (CONTINUED)
alleges that Charter Orlando violated the civil False Claims Act (the "Act") in
billing for inpatient treatment provided to elderly patients. The Court granted
the Company's motion to dismiss the government's First Amended Complaint yet
granted the government leave to amend its First Amended Complaint. The
government filed a Second Amended Complaint on December 12, 1996 which, similar
to the First Amended Complaint alleges that the Company and its subsidiary
violated the Act in billing for the treatment of geriatric patients. Like the
First Amended Complaint, the Second Amended Complaint is based on disputed
clinical and factual issues which the Company believes do not constitute a
violation of the Act. The Company and its subsidiary, therefore, have filed a
motion to dismiss the Second Amended Complaint. The Company and its subsidiary
deny the allegations made in the Second Amended Complaint and will vigorously
defend against its claims. The Company does not believe this matter will have a
material adverse effect on its financial position or results of operations.
The Company has provided a guarantee, not to exceed $65 million, for CBHS'
line of credit. CBHS has a $100 million, 5-year revolving credit facility.
13
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
ASSETS SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents....................... $ 29,751 $ 79,552 $ 11,642 $ -- $ 120,945
Accounts receivable, net........................ 139,523 44,904 5,451 -- 189,878
Supplies........................................ 4,091 394 268 -- 4,753
Other current assets............................ 8,379 121 14,074 -- 22,574
----------- ------------- ------------ ------------ ------------
Total Current Assets........................ 181,744 124,971 31,435 -- 338,150
Assets restricted for settlement of unpaid claims
and other long-term liabilities................. -- 78,542 26,761 -- 105,303
Property and Equipment
Land............................................ 74,790 6,657 1,984 -- 83,431
Buildings and improvements...................... 350,187 33,493 5,141 -- 388,821
Equipment....................................... 112,748 25,206 8,961 -- 146,915
----------- ------------- ------------ ------------ ------------
537,725 65,356 16,086 -- 619,167
Accumulated depreciation........................ (111,556) (10,313) (4,184) -- (126,053)
Construction in progress........................ 1,586 621 69 -- 2,276
----------- ------------- ------------ ------------ ------------
427,755 55,664 11,971 -- 495,390
Other Long-Term Assets (1)........................ 92,978 (78,517) 1,172,069 (1,155,775) 30,755
Goodwill, net..................................... 20,645 94,682 12,685 -- 128,012
Other Intangible Assets, net...................... 5,213 22,341 14,973 -- 42,527
----------- ------------- ------------ ------------ ------------
$ 728,335 $ 297,683 $1,269,894 $(1,155,775) $1,140,137
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................ $ 32,644 $ 34,057 $ 12,265 $ -- $ 78,966
Accrued liabilities and income tax payable...... 57,948 55,208 76,443 -- 189,599
Current maturities of long-term debt and capital
lease obligations............................. 2,620 3,131 -- -- 5,751
----------- ------------- ------------ ------------ ------------
Total Current Liabilities................... 93,212 92,396 88,708 -- 274,316
Long-Term Debt and Capital Lease Obligations...... (455,333) 8,815 1,012,825 -- 566,307
Deferred Income Tax Liabilities................... -- (4,252) 16,620 -- 12,368
Reserve for Unpaid Claims......................... -- 72,494 546 -- 73,040
Deferred Credits and Other Long-Term
Liabilities(1).................................. 352,044 43,565 29,378 (385,218) 39,769
Minority interest................................. -- -- -- 52,520 52,520
Stockholders' Equity
Common Stock, par value $0.25 per share;
Authorized--80,000 shares Issued and
outstanding--33,007 shares.................... 2,764 (483) 8,252 (2,281) 8,252
Committments and contingencies
Other Stockholders' Equity
Additional paid-in capital...................... 609,627 30,237 327,681 (639,864) 327,681
Retained earnings (Accumulated deficit)......... 126,826 58,932 (129,457) (185,758) (129,457)
Warrants outstanding............................ -- -- 54 -- 54
Common Stock in treasury, 4,424 shares.......... -- (4,736) (82,731) 4,736 (82,731)
Cumulative foreign currency adjustments......... (805) 715 (1,982) 90 (1,982)
----------- ------------- ------------ ------------ ------------
738,412 84,665 121,817 (823,077) 121,817
----------- ------------- ------------ ------------ ------------
$ 728,335 $ 297,683 $1,269,894 $(1,155,775) $1,140,137
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
</TABLE>
- ------------------------
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these balance sheets.
14
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
<CAPTION>
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents............. $ 105,409 $ 65,215 $ 155,619 $ -- $ 326,243
Accounts receivable, net.............. 91,995 51,421 8,204 -- 151,620
Supplies.............................. 903 286 319 -- 1,508
Other current assets.................. 987 7,343 10,238 -- 18,568
----------- ------------- ------------ ------------ ------------
Total Current Assets.............. 199,294 124,265 174,380 -- 497,939
Assets restricted for settlement of unpaid
claims and other long-term
liabilities............................. -- 74,219 18,116 -- 92,335
Property and Equipment
Land.................................. 6,266 5,382 872 -- 12,520
Buildings and improvements............ 34,220 33,169 1,775 -- 69,164
Equipment............................. 20,323 30,451 8,937 -- 59,711
----------- ------------- ------------ ------------ ------------
60,809 69,002 11,584 -- 141,395
Accumulated depreciation.............. (14,407) (15,819) (4,150) -- (34,376)
Construction in progress.............. 39 340 50 -- 429
----------- ------------- ------------ ------------ ------------
46,441 53,523 7,484 -- 107,448
Investment in CBHS........................ 7,101 -- -- -- 7,101
Deferred income taxes..................... -- 4,308 3,959 -- 8,267
Other Long-Term Assets (1)................ 132,662 (24,026) 1,036,123 (1,118,550) 26,209
Goodwill, net............................. 18,039 95,226 -- -- 113,265
Other Intangible Assets, net.............. 2,674 22,570 13,722 -- 38,966
----------- ------------- ------------ ------------ ------------
$ 406,211 $ 350,085 $1,253,784 $(1,118,550) $ 891,530
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current Liabilities
Accounts payable...................... $ 23,707 $ 20,744 $ 2,912 $ -- $ 47,363
Accrued liabilities................... 32,539 61,792 73,638 -- 167,969
Current maturities of long-term debt
and capital lease obligations....... 460 3,132 -- -- 3,592
----------- ------------- ------------ ------------ ------------
Total Current Liabilities......... 56,706 85,668 76,550 -- 218,924
Long-Term Debt and Capital Lease
Obligations............................. (766,309) 4,217 1,154,018 -- 391,926
Reserve for Unpaid Claims................. -- 65,576 (10,245) -- 55,331
Deferred Credits and Other Long-Term
Liabilities (1)......................... 61,772 12,681 (111,103) 58,492 21,842
Minority interest......................... -- -- -- 58,943 58,943
Stockholders' Equity......................
Common Stock, par value $0.25 per
share;
Authorized--80,000 shares...........
Issued and outstanding--33,311
shares.............................. 2,752 (483) 8,330 (2,269) 8,330
Commitments and contingencies.............
Other Stockholders' Equity................
Additional paid-in capital............ 1,024,344 125,672 336,692 (1,150,016) 336,692
Retained earnings (Accumulated
deficit)............................ 26,150 54,318 (140,118) (80,468) (140,118)
Warrants outstanding.................. -- -- 25,050 -- 25,050
Common stock in Treasury, 4,424
shares.............................. -- -- (82,731) -- (82,731)
Cumulative foreign currency
adjustments......................... 796 2,436 (2,659) (3,232) (2,659)
----------- ------------- ------------ ------------ ------------
1,054,042 181,943 144,564 (1,235,985) 144,564
----------- ------------- ------------ ------------ ------------
$ 406,211 $ 350,085 $1,253,784 $(1,118,550) 891,530
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
</TABLE>
- ------------------------
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these balance sheets.
15
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------- ------------- ------------
Net revenue............................... $ 252,810 $ 96,031 $ 1,776 $ (4,238) $ 346,379
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 194,157 82,021 2,596 (4,238) 274,536
Bad debt expense........................ 21,482 1,671 (4,267) -- 18,886
Depreciation and amortization........... 9,015 3,443 428 -- 12,886
Interest, net........................... (10,923) (307) 24,295 -- 13,065
Stock option expense (credit)........... -- -- (210) -- (210)
Unusual items........................... 3,959 -- 30,000 -- 33,959
----------- ------------- ------------- ------------- ------------
217,690 86,828 52,842 (4,238) 353,122
----------- ------------- ------------- ------------- ------------
Income (loss) before income taxes and
equity in earnings (loss) of
subsidiaries............................ 35,120 9,203 (51,066) -- (6,743)
Provision for (benefit from) income
taxes................................... 197 2,799 11 (5,705) (2,698)
----------- ------------- ------------- ------------- ------------
Income (loss) before equity in earnings
(loss) of subsidiaries.................. 34,923 6,404 (51,077) 5,705 (4,045)
Equity in earnings (loss) of
subsidiaries............................ 1,540 1,602 (45,355) 43,890 1,677
----------- ------------- ------------- ------------- ------------
Net income (loss)......................... $ 33,383 $ 4,802 $ (5,722) $ (38,185) $ (5,722)
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------- ------------- ------------
Net revenue............................... $ 202,006 $ 121,046 $ 2,122 $ (253) $ 324,921
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 157,059 101,705 5,404 (253) 263,915
Bad debt expense........................ 11,690 835 (444) 0 12,081
Depreciation and amortization........... 7,385 3,748 911 0 12,044
Interest, net........................... (14,368) (655) 27,625 0 12,602
Stock option expense.................... 0 0 1,781 0 1,781
Equity in loss of CBHS.................. 399 0 0 0 399
Los on Crescent Transactions............ 13,684 14 46,170 -- 59,868
Unusual items........................... (2,583) 0 1,545 0 (1,038)
----------- ------------- ------------- ------------- ------------
173,266 105,647 82,992 (253) 361,652
----------- ------------- ------------- ------------- ------------
Income (loss) before income taxes, equity
in earnings (loss) of subsidiaries and
extraordinary items..................... 28,740 15,399 (80,870) 0 (36,731)
Provision for (benefit from) income
taxes................................... 826 3,345 (18,864) 0 (14,693)
----------- ------------- ------------- ------------- ------------
Income (loss) before equity in earnings
(loss) of subsidiaries and extraordinary
items................................... 27,914 12,054 (62,006) 0 (22,038)
Equity in earnings (loss) of continuing
subsidiaries............................ (328) (2,063) 37,565 (37,577) (2,403)
----------- ------------- ------------- ------------- ------------
Income (loss) before extraordinary
items................................... 27,586 9,991 (24,441) (37,577) (24,441)
Extraordinary item--loss on early
extinguishment of debt (net of income
tax benefit of $1,536).................. (910) -- (2,303) 910 (2,303)
----------- ------------- ------------- ------------- ------------
Net income (loss)......................... $ 26,676 $ 9,991 $ (26,744) $ (36,667) $ (26,744)
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
</TABLE>
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
16
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenue............................... $ 765,388 $ 235,720 $ 9,403 $ (13,514) $ 996,997
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 586,180 204,112 4,102 (13,514) 780,880
Bad debt expense........................ 62,520 3,659 (4,886) -- 61,293
Depreciation and amortization........... 27,043 8,346 797 -- 36,186
Interest, net........................... (31,309) (575) 67,343 -- 35,459
Stock option expense.................... -- -- 1,204 -- 1,204
Unusual items........................... 3,959 -- 30,000 -- 33,959
----------- ------------- ------------ ------------ ------------
648,393 215,542 98,560 (13,514) 948,981
----------- ------------- ------------ ------------ ------------
Income (loss) before income taxes and
equity in earnings (loss) of
subsidiaries............................ 116,995 20,178 (89,157) -- 48,016
Provision for income taxes................ 1,538 4,845 219 13,072 19,674
----------- ------------- ------------ ------------ ------------
Income (loss) before equity in earnings
(loss) of subsidiaries.................. 115,547 15,333 (89,376) (13,072) 28,342
Equity in earnings (loss) of
subsidiaries............................ 1,172 2,747 (113,471) 113,799 4,247
----------- ------------- ------------ ------------ ------------
Net income (loss)......................... $ 114,285 $ 12,586 $ 24,095 $ (126,871) $ 24,095
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by operating activities..... $ 6,702 $ 29,922 $ 23,833 $ -- $ 60,457
----------- ------------- ------------ ------------ ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (17,359) (2,320) (4,938) -- (24,617)
Proceeds from sale of assets............ 1,253 -- -- -- 1,253
Acquisitions and investments in
businesses, net of cash acquired...... (438) 36,229 (85,890) -- (50,099)
Increase in assets restricted for the
settlement of unpaid claims........... -- (7,059) (1,508) -- (8,567)
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) investing
activities.............................. (16,544) 26,850 (92,336) -- (82,030)
----------- ------------- ------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt...... -- 125 68,000 -- 68,125
Payments on debt and capital
obligations........................... (12,465) (4,027) (68,000) -- (84,492)
Proceeds from issuance of Common Stock,
net of issuance costs................. -- -- 68,561 -- 68,561
Income tax payments made on behalf of
stock optionees....................... -- -- (1,678) -- (1,678)
Proceeds from exercise of stock option
and warrants.......................... -- -- 2,147 -- 2,147
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) financing
activities.............................. (12,465) (3,902) 69,030 -- 52,663
----------- ------------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................. (22,307) 52,870 527 -- 31,090
Cash and cash equivalents at beginning of
period.................................. 60,719 10,279 34,516 -- 105,514
----------- ------------- ------------ ------------ ------------
Cash and cash equivalents at end of
period.................................. $ 38,412 $ 63,149 $ 35,043 $ -- $ 136,604
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
</TABLE>
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
17
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenue............................... $ 669,274 $ 346,248 $ 7,093 $ (953) $1,021,662
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 518,843 291,983 20,375 (953) 830,248
Bad debt expense........................ 44,776 3,124 (444) -- 47,456
Depreciation and amortization........... 24,147 11,221 2,863 -- 38,231
Interest, net........................... (39,530) (1,650) 80,504 -- 39,324
Stock option expense (credit)........... -- -- 3,214 -- 3,214
Equity in loss of CBHS.................. 399 -- -- -- 399
Loss on Crescent Transactions........... 13,684 14 46,170 -- 59,868
Unusual Items........................... (1,188) -- 1,545 -- 357
----------- ------------- ------------ ------------ ------------
561,131 304,692 154,227 (953) 1,019,097
----------- ------------- ------------ ------------ ------------
Income (loss) before income taxes, equity
in earnings (loss) of subsidiaries and
extraordinary items..................... 108,143 41,556 (147,134) -- 2,565
Provision for (benefit from) income
taxes................................... 1,860 9,531 (10,366) -- 1,025
----------- ------------- ------------ ------------ ------------
Income (loss) before equity in earnings
(loss) of subsidiaries and extraordinary
items................................... 106,283 32,025 (136,768) -- 1,540
Equity in earnings (loss) of continuing
subsidiaries............................ (686) (6,043) 131,360 (131,579) (6,948)
----------- ------------- ------------ ------------ ------------
Income (loss) before extraordinary
items................................... 105,597 25,982 (5,408) (131,579) (5,408)
Extraordinary items--loss on early
extinguishments of debt (net of income
tax benefit of $3,503).................. (2,103) -- (5,253) 2,103 (5,253)
----------- ------------- ------------ ------------ ------------
Net income (loss)......................... $ 103,494 $ 25,982 $ (10,661) $ (129,476) $ (10,661)
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating
activities.............................. $ 46,758 $ 5,170 $ (46,712) $ -- $ 5,216
----------- ------------- ------------ ------------ ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (18,462) (8,086) (1,565) -- (28,113)
Acquisitions and investments in
businesses, net of cash acquired...... (19,657) (8,656) (527) -- (28,840)
Decrease (increase) in assets restricted
for the settlement of unpaid claims... -- 1,934 10,617 -- 12,551
Proceeds from the sale of property and
equipment to Crescent and CBHS, net of
transaction costs..................... 196,066 -- 187,975 -- 384,041
Proceeds from the sale of assets........ 15,463 -- -- -- 15,463
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) investing
activities.............................. 173,410 (14,808) 196,500 -- 355,102
----------- ------------- ------------ ------------ ------------
Cash Flows from Financing Activities:
Payments on debt and capital lease
obligations........................... (272,944) (4,699) (111,763) -- (389,406)
Proceeds from the issuance of debt...... 128,434 -- 75,209 -- 203,643
Proceeds from issuance of warrants...... -- -- 5,743 -- 5,743
Proceeds from exercise of stock options
and warrants.......................... -- -- 25,000 -- 25,000
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) financing
activities.............................. (144,510) (4,699) (5,811) -- (155,020)
----------- ------------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................. 75,658 (14,337) 143,977 -- 205,298
Cash and cash equivalents at beginning of
period.................................. 29,751 79,552 11,642 -- 120,945
----------- ------------- ------------ ------------ ------------
Cash and cash equivalents at end of
period.................................. $ 105,409 $ 65,215 $ 155,619 $ -- $ 326,243
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
</TABLE>
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
18
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
JUNE 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This document contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 including, without
limitation, statements regarding the sufficiency of the Company's liquidity and
sources of capital and the statements under the heading "Outlook". Actual
results may differ materially from those projected in such forward-looking
statements. These forward-looking statements are subject to certain risks,
uncertainties and other factors which could cause actual results to differ
materially from those anticipated, including, without limitation, potential
reductions in reimbursement by third-party payers and changes in hospital payer
mix, governmental budgetary constraints and healthcare reform, the impact of
potential hospital closures, competition in the provider business and the
managed care business, and the regulatory environment for the Company's
businesses, as well as the other factors discussed in Exhibit 99 hereto, which
is hereby incorporated by reference.
GREEN SPRING ACQUISITION
On December 13, 1995, the Company acquired a 51% ownership interest in Green
Spring for approximately $68.9 million in cash, the issuance of 215,458 shares
of Magellan Common Stock valued at approximately $4.3 million and the
contribution of GPA, a wholly-owned subsidiary of the Company, which became a
wholly-owned subsidiary of Green Spring. On December 20, 1995, the Company
acquired an additional 10% ownership interest in Green Spring for approximately
$16.7 million in cash as a result of an exercise by a minority stockholder of
its Exchange Option ("Exchange Option") for a portion of the stockholder's
interest in Green Spring. Green Spring provides managed behavioral healthcare
services, which includes utilization management, care management and employee
assistance programs through a 50-state provider network covering approximately
16.1 million people nationwide. The Company has accounted for the acquisition of
Green Spring using the purchase method of accounting, which resulted in
additional intangible assets of approximately $113 million.
The minority stockholders of Green Spring consist of four Blue Cross/Blue
Shield organizations (the "Blues") that are key customers of Green Spring. In
addition, two other Blues organizations that formerly owned a portion of Green
Spring have continued as customers of Green Spring. As of June 30, 1997, the
minority stockholders of Green Spring have the Exchange Option, under certain
circumstances, to exchange their ownership interest in Green Spring for
2,831,739 shares of the Company's Common Stock or $65.1 million in subordinated
notes. The Company may elect to pay cash in lieu of issuing the subordinated
notes. The Exchange Option expires December 13, 1998.
CRESCENT TRANSACTIONS
On June 17, 1997, the Company consummated the Crescent Transactions, which
are more fully described in Note F. The Company's resulting investment in CBHS
will be accounted for under the equity method, which will result in a
significant reduction in the Company's revenues and expenses from its provider
segment in future periods.
PSYCHIATRIC HOSPITAL RESULTS
The following selected statistics include the psychiatric hospitals in
operation, by quarter, for fiscal 1996 and 1997, including (a) psychiatric
hospitals closed during fiscal 1996 and 1997 and (b) psychiatric hospitals
acquired during fiscal 1996 and 1997 (from the date of acquisition). The
selected statistics include the psychiatric hospitals controlled by CBHS as a
result of the Crescent Transactions through June 16, 1997.
19
<PAGE>
<TABLE>
<CAPTION>
FISCAL FISCAL %
1996 1997 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
Hospitals in operation:
December 31................................................................... 102 95 (7)%
March 31...................................................................... 99 93 (6)
June 30....................................................................... 96 13 (86)
September 30.................................................................. 95
Average licensed beds at:
Quarter:
First..................................................................... 9,110 8,463 (7)%
Second.................................................................... 9,040 8,468 (6)
Third..................................................................... 8,677 7,358 (15)
Fourth.................................................................... 8,469
Year.......................................................................... 8,805
Net revenue (in thousands):
Quarter:
First..................................................................... $ 253,565 $ 229,064 (10)%
Second.................................................................... 257,690 225,494 (12)
Third..................................................................... 249,145 195,981 (21)
Fourth.................................................................... 228,597
---------
Year.......................................................................... $ 988,997
---------
---------
Patient days:
Quarter:
First..................................................................... 432,474 392,352 (9)%
Second.................................................................... 463,327 402,929 (13)
Third..................................................................... 452,864 350,877 (23)
Fourth.................................................................... 404,346
---------
Year.......................................................................... 1,753,011
---------
---------
Equivalent patient days:
Quarter:
First..................................................................... 478,693 437,960 (9)%
Second.................................................................... 513,502 447,551 (13)
Third..................................................................... 503,622 390,194 (23)
Fourth.................................................................... 450,708
---------
Year.......................................................................... 1,946,525
---------
---------
Net revenue per equivalent patient day:
Quarter:
First..................................................................... $ 530 $ 523 (1)%
Second.................................................................... 502 504 --
Third..................................................................... 495 502 1
Fourth.................................................................... 507
Year.......................................................................... 508
Admissions:
Quarter:
First..................................................................... 32,865 32,326 (2)%
Second.................................................................... 37,966 34,643 (9)
Third..................................................................... 35,854 29,848 (17)
Fourth.................................................................... 33,861
---------
Year.......................................................................... 140,546
---------
---------
Average length of stay (days):
Quarter:
First..................................................................... 12.4 11.5 (7)%
Second.................................................................... 12.2 11.1 (9)
Third..................................................................... 12.5 11.6 (7)
Fourth.................................................................... 12.5
Year.......................................................................... 12.4
</TABLE>
- ------------------------
Note: Includes Northstar Hospital in Anchorage, Alaska that is managed pursuant
to a joint venture arrangement.
20
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes, for the periods indicated, changes in
selected operating indicators.
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
------------------------------------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<CAPTION>
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue................................................................ 100.0% 100.0% 100.0% 100.0%
Salaries, supplies and other operating expenses............................ 79.2 81.2 78.3 81.3
Bad debt expense........................................................... 5.5 3.7 6.2 4.6
--------- --------- --------- ---------
Total expenses............................................................. 84.7 84.9 84.5 85.9
Operating margin........................................................... 15.3% 15.1% 15.5% 14.1%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Patient days at the Company's hospitals decreased 22.5% and 15.0% for the
quarter and the nine months ended June 30, 1997, respectively, as compared to
the same periods of fiscal 1996. The decrease resulted primarily from patient
days attributable to the hospitals closed during fiscal 1996 and 1997, declines
in average length of stay and the consummation of the Crescent Transactions on
June 17, 1997. Total admissions decreased 16.8% and 9.2% for the quarter and the
nine months ended June 30, 1997, respectively, as compared to the prior year
periods. The decrease resulted primarily from the hospitals closed in fiscal
1996 and 1997 and the consummation of the Crescent Transactions on June 17,
1997.
The Company's net revenue for the quarter ended June 30, 1997 decreased 6.2%
as compared to the prior year quarter. The decrease was primarily attributable
to (i) the closure of hospitals during fiscal 1996 and 1997, (ii) reduced
equivalent patient days at the Company's operating hospitals and (iii) the
effect of the consummation of the Crescent Transactions offset by revenue growth
in the Company's managed care (Green Spring) and public sector (Public
Solutions) businesses. The 44.0% increase in Green Spring revenue to $95.6
million was primarily attributable to obtaining several new contracts, which
became effective July 1, 1996 and January 1, 1997, to manage the behavioral
healthcare component of certain state Medicaid programs and increases in
services to an insurer. The 39.0% increase in Public Solutions revenue to $24.6
million was primarily attributable to a 25.0 % increase in placements in mentor
homes and $1.4 million in new revenues from correctional contracts.
The Company's net revenue for the nine months ended June 30, 1997 increased
2.5 % as compared to the prior year period. The increase was primarily
attributable to the Green Spring acquisition and related internal growth (as
previously described) and Public Solutions internal growth (as previously
described) offset by (i) the closure of hospitals during fiscal 1996 and fiscal
1997, (ii) reduced equivalent patient days at the Company's operating hospitals
and (iii) the effect of the consummation of the Crescent Transactions. Green
Spring revenues increased 85.1% to $269.1 million and Public Solutions revenue
increased 34.8% to $68.5 million.
The Company's salaries, supplies and other operating expenses decreased 3.9%
and increased 6.3% in the quarter and the nine months ended June 30, 1997
compared to the same periods in fiscal 1996. The increases resulted primarily
from the Green Spring acquisition and related internal growth less the effect of
hospitals closed during fiscal 1996 and 1997 and the effect of the consummation
of the Crescent Transactions.
The Company's bad debt expense decreased 36.0% and 22.6% in the quarter and
the nine months ended June 30, 1997 compared to the same periods in fiscal 1996.
These decreases are primarily attributable to (i) improvement in accounts
receivable agings and turnover compared to prior periods, (ii) shifts towards
governmental and managed care payers, which reduces the Company's credit risk
associated with individual patients and (iii) the effect of the consummation of
the Crescent Transactions.
21
<PAGE>
Bad debt expense decreased to 3.7% and 4.6% of revenue for the quarter and the
nine months ended June 30, 1997, respectively. These decreases are primarily
attributable to lower bad debt expense in the provider business and bad debt
expense representing less than 1% of Green Spring revenues for the periods
presented.
Depreciation and amortization decreased $0.8 million and increased $2.0
million in the quarter and the nine months ended June 30, 1997, respectively,
compared to the same periods in fiscal 1996. These changes resulted primarily
from depreciation and amortization related to the Green Spring acquisition and
the effect of the consummation of the Crescent Transactions.
Interest expense, net, decreased $0.5 million and increased $3.9 million for
the quarter and the nine months ended June 30, 1997, respectively, compared to
the same periods in fiscal 1996. The decrease for the three months ended June
30, 1997 resulted primarily from lower average borrowings and higher temporary
investments as a result of the Crescent Transactions. The increase for the nine
months ended June 30, 1997 resulted primarily from approximately $5.0 million of
interest income recorded during the nine months ended June 30, 1996 related to
income tax refunds due from the State of California for the Company's income tax
returns for fiscal 1982 through 1989 offset by reduced interest, net, as a
result of the Crescent Transactions.
Stock option expense for the quarter and the nine months ended June 30, 1997
increased $2.0 million from the previous year periods primarily due to
fluctuations in the market price of the Company's common stock.
Equity in loss of CBHS represents the Company's proportionate (50%) loss in
CBHS for the 14 days ended June 30, 1997. See Note I for further information
regarding the Company's Investment in CBHS.
The Company recorded a loss on the Crescent Transactions of approximately
$59.9 million during the quarter and the nine months ended June 30, 1997. See
Note F for further information regarding the Crescent Transactions.
The Company recorded unusual items, net, of $(1.0) million and $0.4 million,
during the quarter and the nine months ended June 30, 1997, respectively, which
consisted of (i) a $2.6 million and a $5.4 million pre-tax gain on the sale of
previously closed psychiatric hospitals, respectively, (ii) a $4.2 million
charge for the closure of three psychiatric hospitals and one general hospital
during the nine months ended June 30, 1997 and (iii) $1.6 million charge related
to the termination of an agreement to sell the Company's European hospitals
during the quarter and the nine months ended June 30, 1997. During the quarter
and the nine months ended June 30, 1996, the Company recorded an unusual item of
$30.0 million related to the settlement of insurance claims. Also, during the
quarter and the nine months ended June 30, 1996, the Company recorded unusual
items of $2.8 million related to the closure of three hospitals and $1.2 million
for an impairment loss. See Note G for further information regarding unusual
items.
Minority interest increased $0.7 million and $2.7 million in the quarter and
the nine months ended June 30, 1997 as compared to the prior year periods. The
increases are primarily due to (i) the Company acquiring a controlling interest
in Green Spring in December 1995, (ii) Green Spring's internal growth subsequent
to the acquisition date and (iii) increased net income from hospital-based joint
ventures.
The Company recorded extraordinary losses on early extinguishment of debt,
net of tax, of $2.3 million and $5.3 million for the three months and the nine
months ended June 30, 1997, respectively. See Note D for further information
regarding the early extinguishment of debt.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("FAS 123") "Accounting for Stock-Based Compensation," which became
effective for fiscal years beginning after December 15, 1995. FAS 123
established new financial accounting and reporting standards for stock-based
22
<PAGE>
compensation plans. Entities will be allowed to measure compensation expense for
stock-based compensation under FAS 123 or APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Entities electing to remain with the accounting in
APB Opinion No. 25 will be required to make pro forma disclosures of net income
and earnings per share as if the provisions of FAS 123 had been applied. The
Company is adopting FAS 123 in fiscal 1997 on a proforma disclosure basis.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
FAS 128, which applies to entities with publicly held common stock or potential
common stock. FAS 128 replaces APB Opinion 15, "Earnings per Share" and related
interpretations. APB Opinion 15 required that entities with simple capital
structures present a single "earnings per common share" ("EPS") on the face of
the income statement, whereas those with complex capital structures present both
"primary" and "fully diluted" EPS. Primary EPS shows the amount of income
attributed to each share of common stock if every common stock equivalent were
converted into common stock. Fully diluted EPS considers common stock
equivalents and all other securities that could be converted into common stock.
Statement 128 simplifies the computation of EPS by replacing the
presentation of primary EPS with a presentation of basic EPS. The Statement
requires dual presentation of basic and diluted EPS by entities with complex
capital structures. Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in the earnings of an entity, similar to fully
diluted EPS under APB Opinion 15.
FAS 128 becomes effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The Company will adopt FAS 128 during the quarter ended December 31,
1997, which is the first quarter of the fiscal year ended September 30, 1998.
The Company has disclosed pro forma EPS amounts computed using FAS 128 in Note H
to the financial statements for the quarter and the nine months ended June 30,
1996 and 1997. After the effective date, all prior-period EPS data presented
will be restated to conform with the provisions of FAS 128.
The primary effect of FAS 128 on the Company's financial statements is the
required dual presentation of basic and diluted income per common share for each
interim and annual reporting period. APB Opinion No. 15 allowed entities with
complex capital structures to present income per common share excluding common
stock equivalents and other potentially dilutive securities if the dilution was
less than three percent.
LIQUIDITY AND SOURCES OF CAPITAL
OPERATING ACTIVITIES. The Company's net cash provided by operating
activities was approximately $60.5 million and $5.2 million for the nine months
ended June 30, 1996 and June 30, 1997, respectively. The decrease in operating
cash flows for the nine months ended June 30, 1997 was primarily the result of
(i) higher income tax payments ($6.9 million and $14.4 million for the nine
months ended June 30, 1996 and 1997, respectively), (ii) $5.0 million of
interest income related to income tax refunds in fiscal 1996 and (iii) reduced
cash flows from its provider business. Management believes its cash flows from
operations will be adequate to fund operations, capital expenditures and debt
service obligations in future periods.
INVESTING ACTIVITIES. The Company acquired a 61% ownership interest in
Green Spring during the first quarter of fiscal 1996. The consideration paid for
Green Spring and related acquisition costs resulted in the use of cash of
approximately $87.2 million compared to approximately $28.8 million for
acquisitions and investments in businesses during the nine months ended June 30,
1997.
23
<PAGE>
The Crescent Transactions resulted in net proceeds of $384.0 million, during
the nine months ended June 30, 1997 which consists of the following (in
thousands):
<TABLE>
<S> <C>
Sale of Property and Equipment to Crescent and CBHS............... $ 392,200
Crescent Transaction costs........................................ (8,159)
---------
$ 384,041
---------
---------
</TABLE>
The Company also made a $2.5 capital contribution to CBHS on June 20, 1997.
The Company expects to fund an additional $15.4 million in transaction costs and
construction obligations related to the Crescent Transactions through fiscal
1998.
Management believes that its cash on hand, future cash flows from
operations, borrowing capacity under the New Revolving Credit Agreement and its
ability to issue debt and equity securities under current market conditions will
provide adequate capital resources to support the Company's anticipated
investing strategies.
FINANCING ACTIVITIES. The Company borrowed approximately $68.1 million and
$88.0 million (excluding borrowings of approximately $115.6 million to pay off
the previous Revolving Credit Agreement), respectively, during the nine months
ended June 30, 1996 and 1997, primarily to fund the acquisition of Green Spring
in fiscal 1996 and to (i)fund the payment of variable rate secured notes and
other long-term debt, (ii)fund acquisitions and (iii)fund working capital needs
in fiscal 1997. The Company believes that its businesses will generate
sufficient cash flows from operations to meet its future debt service
requirements.
The Company paid off approximately $84.5 million and $389.4 million of debt
and capital lease obligations during the nine months ended June 30, 1996 and
1997, respectively. The payments relate primarily to servicing and refinancing
long-term debt under the Revolving Credit Agreements and servicing variable rate
secured notes and other long-term debt as a result of the Crescent Transactions.
The Company issued approximately 2.6 million warrants with a fair value of
$25.0 million to Crescent and COI as part of the Crescent Transactions during
the nine months ended June 30, 1997.
On September 27, 1996, the Company repurchased approximately 4.0 million
shares of its Common Stock for approximately $73.5 million, including
transaction costs, pursuant to a "Dutch Auction" self-tender offer to its
stockholders. On November 1, 1996, the Company announced that its board of
directors approved the repurchase of an additional 3.0 million shares of its
Common Stock from time to time subject to the terms of the New Revolving Credit
Agreement. The Company expects to use cash on hand, future cash flows from
operations and borrowings under its New Revolving Credit Agreement to fund any
future treasury stock purchases.
As of June 30, 1997, the Company had $193.4 million of availability under
the New Revolving Credit Agreement. The Company was in compliance with all debt
covenants at June 30, 1997.
OUTLOOK
CRESCENT TRANSACTIONS. The Company relinquished control of CBHS upon
consummation of the Crescent Transactions. Magellan's operational input in CBHS
will be limited to those rights provided by the franchise agreements and the
CBHS Operating Agreement.
The Franchise Fees payable to the Company by CBHS are subordinated in
payment to the $41.7 million annual base rent, 5% minimum escalator rent and, in
certain circumstances, the additional rent due Crescent under the CBHS
Facilities Lease. If CBHS encounters a decline in earnings or financial
difficulties, such amounts due Crescent will be paid before any Franchise Fees
are paid. The remainder of CBHS' available cash will then be applied in such
order of priority as CBHS may determine, in the reasonable discretion of the
CBHS board, to all other operating expenses of CBHS, including the current
24
<PAGE>
and accumulated Franchise Fees. The Company will be entitled to pursue all
available remedies for breach of the Master Franchise Agreement, except that the
Company does not have the right to take any action that could reasonably be
expected to force CBHS into bankruptcy or receivership. In addition, if CBHS
encounters a decline in earnings or financial difficulties, it is possible that
cash flows from CBHS' operations will not be sufficient to pay all or a portion
of the Franchise Fees when due.
The Company has used the proceeds of the Crescent Transactions to reduce net
interest expense by repaying long-term debt where possible and investing the
remaining proceeds in short-term cash equivalents. Although net interest expense
will be lower, the Company's reduced earnings as a result of the Crescent
Transactions could be even more pronounced until capital resource allocation
decisions (e.g., acquisitions) related to the net proceeds from the Crescent
Transactions are implemented.
SALE OF EUROPEAN HOSPITALS. On March 19, 1997, the Company announced that
it signed definitive agreements with Priory Hospitals Holdings Limited and
Priory Hospitals Europe Limited for the sale of its two psychiatric hospitals in
London and its psychiatric hospital in Nyon, Switzerland. The sale of the
European Hospitals was subject to regulatory approval. The total purchase price
for the European Hospitals and license agreements was $76 million.
On June 17, 1997, the Company announced that the sale of its two United
Kingdom hospitals had been referred to the Monopolies and Mergers Commission
("MMC") by the Office of Fair Trade under the provisions of the Fair Trading
Act. The MMC is required to make their report by September 15, 1997. The time
period for receiving regulatory approval expired and the Company elected not to
consummate the sale and has begun exploring other strategic alternatives related
to its European hospitals.
NET OPERATING LOSS CARRYFORWARDS The Company incurred a gain for federal
income tax purposes of approximately $50 million as a result of the Crescent
Transactions. The Company intends to utilize net operating loss carryforwards
("NOLs") to offset such taxable gains to the extent NOLs are available. The
expected utilization of NOLs as a result of the Crescent Transactions will
accelerate the payment of federal income taxes in future periods, resulting in
lower cash flows from operations in future periods.
OPERATIONS-PROVIDER. CBHS management continually assesses events and
changes in circumstances that could affect its business strategy and the
viability of its operations. During fiscal 1995 and 1996, Magellan consolidated,
closed or sold 15 and 9 psychiatric hospitals, respectively. During fiscal 1997,
Magellan has consolidated or closed three psychiatric hospitals and its one
general hospital. See Note G for further information regarding facility closures
in fiscal 1996 and 1997. CBHS may pursue acquisitions during fiscal 1998 in
markets where it does not currently have a presence and in markets where it has
existing hospital operations. CBHS management may consolidate services in
selected markets as a result of acquisitions or overcapacity by closing
additional facilities in future periods depending on market conditions and
evolving business strategies. If CBHS closes additional psychiatric hospitals in
future periods, it could result in additional charges to income for the costs
necessary to exit the hospital operations, which would result in lower equity in
earnings of CBHS for the Company.
The Company's hospitals and CBHS' hospitals continue to experience a shift
in payer mix to managed care payers from other payers, which contributed to a
reduction in revenue per equivalent patient day in fiscal 1996 and average
length of stay in fiscal 1996 and 1997. Management anticipates continued
shifting in CBHS' hospital payer mix towards managed care payers as a result of
changes in the healthcare marketplace. Future shifts in CBHS' hospital payer mix
to managed care payers could result in lower revenue per equivalent patient day
and lower average length of stay in future periods for CBHS' hospital
operations. In addition, the recently passed Federal budget will, beginning in
fiscal 1998, reduce the amount of reimbursement the Company and CBHS receive for
treatment of Medicare patients. Lower revenue per equivalent patient day and
declines in average length of stay at CBHS' hospitals could result in lower
equity in earnings from CBHS for the Company and the recognition of bad debt
expense related to franchise fee receivables in future periods, if any.
25
<PAGE>
During fiscal 1994, 1995 and 1996, the Company recorded revenue of $32.1
million, $35.6 million and $28.3 million, respectively, for settlements and
adjustments related to reimbursement issues. During the quarter and the nine
months ended June 30, 1997, the Company recorded revenue of $2.5 million and
$16.2 million, respectively, for settlements and adjustments related to
reimbursement issues compared to $3.3 million and $14.4 million, respectively,
for the prior year periods. The settlements in fiscal 1994, 1995 and 1996
related primarily to certain reimbursable costs associated with the Company's
financial reorganization in fiscal 1992 and costs related to the early
extinguishment of long-term debt in fiscal 1994. Management anticipates that
revenue related to such settlements will decline for fiscal 1997, and that the
decline will be comparable to the reduction experienced in fiscal 1996.
Management also expects revenue related to such settlements to decline in fiscal
1998 from anticipated fiscal 1997 levels comparable to the reduction anticipated
in fiscal 1997 as compared to fiscal 1996.
During fiscal 1996, the Company recorded reductions of expenses of
approximately $15.3 million as a result of updated actuarial estimates related
to malpractice claim reserves. The Company recorded reductions of expenses of
approximately $4.8 million and $12.3 million during the quarter and the nine
months ended June 30, 1996 and $2.5 million and $7.5 million in the quarter and
the nine months ended June 30, 1997, respectively. These reductions resulted
primarily from updates to actuarial assumptions regarding the Company's expected
losses for more recent policy years. These revisions are based on changes in
expected values of ultimate losses resulting from the Company's claim
experience, and increased reliance on such claim experience. While Management
and its actuaries believe that the present reserve is reasonable, ultimate
settlement of losses may vary from the amount recorded and result in additional
fluctuations in income in future periods.
HUMAN AFFAIRS INTERNATIONAL, INC. ACQUISITION
On August 5, 1997, the Company announced that it had signed a definitive
agreement for the purchase of Human Affairs International, Inc. ("HAI"), a unit
of Aetna U.S. Healthcare for approximately $122.1 million in cash. HAI manages
the care of approximately 15 million covered lives through employee assistance
programs and managed behavioral health plans. The Company expects to fund the
acquisition of HAI with cash on hand. The Company will account for the
acquisition of HAI using the purchase method of accounting. The HAI acquisition
is subject to federal and state approval and other customary matters and is
expected to close in the first quarter of fiscal 1998.
The Company may be required to make additional contingent payments of up to
$300 million to Aetna U.S. Healthcare (the "Contingent Payments") over the
five-year period subsequent to closing under certain circumstances. The Company
expects to fund the Contingent Payments, if any, with a combination of cash on
hand, future cash flows from operations and borrowing capacity under the New
Revolving Credit Agreement.
26
<PAGE>
PART II--OTHER INFORMATION
ITEM 1.--LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are subject to or parties to
claims, civil suits and governmental investigations and inquiries relating to
their operations and certain alleged business practices. In the opinion of
management, based on consultation with counsel, resolution of these matters will
not have a material adverse effect on the Company's financial position or
results or operations.
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of stockholders on May 30, 1997.
The tabulation of votes with respect to each matter voted upon at the
meeting is as follows:
<TABLE>
<CAPTION>
VOTES CAST
------------------------------------------------
<S> <C> <C> <C> <C>
AUTHORITY BROKER
FOR WITHHELD ABSTAIN NON-VOTES
------------ ----------- --------- ----------
Election of:
E. Mac Crawford as a Director (term expiring in 2000)............ 25,501,517 502,794 N/A N/A
Raymond H. Kiefer as a Director (term expiring in 2000).......... 25,551,055 453,256 N/A N/A
Gerald L. McManis as a Director (term expiring 2000)............. 25,032,534 971,777 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES
------------ ----------- --------- ----------
<S> <C> <C> <C> <C>
Approval of:
Increasing the number of Directors from 8 to 12.................. 25,936,831 42,738 24,742 0
1997 Stock Option Plan........................................... 21,557,684 496,605 43,393 3,906,629
Crescent Transactions............................................ 21,413,032 49,460 635,096 3,906,723
</TABLE>
ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Exhibits
2(a) Real Estate Purchase and Sale Agreement, dated January 29, 1997, between the Company and
Crescent Real Estate Equities Limited Partnership, which was filed as Exhibit 2(a) to the
Company's current report on Form 8-K filed on April 23, 1997, and is incorporated herein by
reference.
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,
which was filed as Exhibit 2(b) to the Company's current report on Form 8-K filed on April 23,
1997, and is incorporated herein by reference.
2(c) Amendment No. 2, dated May 29, 1997, to the Real Estate Purchase and Sale Agreement, dated
January 29, 1997, between the Company and Crescent Real Estate Equities Limited Partnership,
which was filed as Exhibit 2(c) to the Company's current report on Form 8-K, which was filed on
June 30, 1997, and is incorporated herein by reference.
2(d) Contribution Agreement, dated June 16, 1997 between the Company and Crescent Operating, Inc.,
which was filed as Exhibit 2(d) to the Company's current report on Form 8-K, which was filed on
June 30, 1997, and is incorporated herein by reference.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
4(a) Warrant Purchase Agreement, dated January 29, 1997, between the Company and Crescent Real
Estate Equities Limited Partnership which was filed as Exhibit 4(a) to the Company's current
report on Form 8-K, which was filed on April 23, 1997, and is incorporated herein by reference.
<S> <C> <C>
4(b) Amendment No. 1, dated June 17, 1997, to the Warrant Purchase Agreement, dated January 29,
1997, between the Company and Crescent Real Estate Equities Limited Partnership, which was
filed as Exhibit 4(b) to the Company's current report on Form 8-K, which was filed on June 30,
1997, and is incorporated herein by reference.
10(a) Master Lease Agreement, dated June 16, 1997, between Crescent Real Estate Funding VII, L.P., as
Landlord, and Charter Behavioral Health Systems, LLC, as Tenant, which was filed as Exhibit
99(b) to the Company's current report on Form 8-K, which was filed on June 30, 1997, and is
incorporated herein by reference.
10(b) Master Franchise Agreement, dated June 17, 1997, between the Company and Charter Behavioral
Health Systems, LLC, which was filed as Exhibit 99(c) to the Company's current report on Form
8-K, which was filed on June 30, 1997, and is incorporated herein by reference.
10(c) Form of Franchise Agreement, dated June 17, 1997, between the Company, as Franchisor, and
Franchise Owners, which was filed as Exhibit 99(d) to the Company's current report on Form 8-K,
which was filed on June 30, 1997, and is incorporated herein by reference.
10(d) Subordination Agreement, dated June 16, 1997, between the Company, Charter Behavioral Health
Systems, LLC and Crescent Real Estate Equities Limited Partnership, which was filed as Exhibit
99(e) to the Company's current report on Form 8-K, which was filed on June 30, 1997, and is
incorporated herein by reference.
10(e) Operating Agreement of Charter Behavioral Health systems, LLC, dated June 16, 1997, between the
Company and Crescent Operating, Inc., which was filed as Exhibit 99(f) to the Company's current
report on Form 8-K, which was filed on June 30, 1997, and is incorporated herein by reference.
10(f) Warrant Purchase Agreement, dated June 16, 1997, between the Company and Crescent Operating,
Inc., which was filed as Exhibit 99(g) to the Company's current report on Form 8-K, which was
filed on June 30, 1997, and is incorporated herein by reference.
10(g)* Employment Agreement, dated March 1, 1997, between the Company and E. Mac Crawford.
10(h) Amended and Restated Credit Agreement, dated June 16, 1997, among the Company and Chase
Manhattan Bank, as Administrative Agent and First Union National Bank of North Carolina as
Syndication Agent.
10(i)* 1997 Stock Option Plan of the Company
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
27 Financial Data Schedule
<S> <C> <C>
99 Safe Harbor for Forward-Looking Statements under the Private Litigation Reform Act of 1995:
Certain Cautionary Statements.
</TABLE>
- ------------------------
* Constitutes a management contract or compensatory plan arrangement.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed by the Registrant with
the Securities and Exchange Commission during the quarter ended June 30, 1997.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
DATE OF REPORT ITEM REPORTED AND DESCRIPTION FILED
- ----------------------------- -------------------------------------------------------- -------------------------
<S> <C> <C>
April 23, 1997 Other Events--Crescent Transaction Documents No
June 30, 1997 Disposition of Assets--Crescent Transactions Yes(1)
</TABLE>
- ------------------------
(1) Unaudited Pro Forma Statements of Operations for the fiscal year ended
September 30, 1996 and the six months ended March 31, 1997 and unaudited Pro
Forma Balance Sheet as of March 31, 1997.
29
<PAGE>
FORM 10-Q
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
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 thereunto duly authorized.
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC.
------------------------------------------
(Registrant)
<S> <C>
Date: August 12 , 1997 /s/ CRAIG L. MCKNIGHT
------------------------------------------
Craig L. McKnight
Executive Vice President and
Chief Financial Officer
Date: August 12 , 1997 /s/ HOWARD A. MCLURE
------------------------------------------
Howard A. McLure
Senior Vice President and Controller
(Principal Accounting Officer)
</TABLE>
30
<PAGE>
EXHIBIT 10(g)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of March 1, 1997 by and between Magellan Health Services, Inc., a Delaware
Corporation ("Employer"), and E. Mac Crawford ("Officer").
WHEREAS, on October 1, 1995, Employer and Officer entered into an
employment agreement having a term expiring on December 31, 1997; and Employer
and Officer desire to replace that employment agreement with this Agreement; and
WHEREAS, Employer desires to obtain the continued services of Officer,
and Officer desires to continue to render services to Employer; and
WHEREAS, Employer and Officer desire to set forth the terms and
conditions of Officer's employment with Employer under this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and agreements contained in this Agreement, the parties agree
as follows:
1. Term. Employer agrees to employ Officer, and Officer agrees to
serve Employer, in accordance with the terms of this Agreement, for a term (the
"Term") beginning on the date of this Agreement and ending, unless earlier
terminated in accordance with the provisions of this Agreement, on March 1,
2000.
2. Employment of Officer.
(a) Specific Position. Employer and Officer agree that, subject
to the provisions of this Agreement, Employer will employ Officer and Officer
will serve Employer as Chairman of the Board of Directors, President and Chief
Executive Officer. Employer agrees that Officer's duties under this Agreement
shall be the usual and customary duties of a Chief Executive Officer and,
consistent with the foregoing, as are determined from time to time by the Board
of Directors of Employer (the "Board"), and shall not be inconsistent with the
provisions of the Certificate of Incorporation of Employer or applicable law.
(b) Promotion of Employer's Business. Subject to the provisions
of Section 2(c), during the Term Officer shall devote his full business time and
energy to the business, affairs and interests of Employer and related matters,
and shall use his best efforts and abilities to promote Employer's interests.
Officer agrees that he will diligently endeavor to perform services contemplated
by this Agreement in accordance with the policies established by the Board,
subject to the provisions of the second sentence of Section 2(a).
<PAGE>
(c) Permitted Activities. Officer may serve as an officer,
director, agent or employee of any direct or indirect subsidiary or other
affiliate of Employer but may not serve as an officer, director, agent or
employee of any other business enterprise without the written approval of the
Board; provided, that Officer may make and manage personal business investments
of his choice (and, in so doing, may serve as an officer, director, agent or
employee of entities and business enterprises that are related to such personal
business investments) and serve in any capacity with any civic, educational or
charitable organization, or any governmental entity or trade association,
without seeking or obtaining such written approval of the Board, if such
activities and services do not significantly interfere or conflict with the
performance of his duties under this Agreement.
(d) Principal Office. Officer's principal office and normal
place of work shall be at Employer's principal executive offices.
3. Salary. Employer shall pay Officer a salary in the amount of
$825,000 per year (pro-rated for any partial year during the Term) payable in
equal semi-monthly installments, less state and federal tax and other legally
required and Officer-authorized withholdings. Such salary shall be subject to
review and adjustment by the Board (or a Board Committee) from time to time
consistent with past practice; provided, that, during the Term, such salary may
not be reduced below any previous level paid during the Term as a result of such
review.
4. 1995-1997 Contract Bonus Compensation. In consideration of
services provided by Officer to Employer from October 1, 1995, to December 31,
1997, under the employment agreement referred to in the first "WHEREAS" clause
of this Agreement and under this Agreement, on January 2, 1998, Employer shall
pay in cash to Officer $10 million minus the amount determined under the next
two paragraphs, whichever is applicable.
If, on December 31, 1997, Officer has not exercised, between October
1, 1995 and December 31, 1997, any options held by Officer on October 1, 1995
under Employer's 1992 Stock Option Plan, then the amount shall be the result
obtained by multiplying (i) 462,990 (the number of options held by Officer as of
October 1, 1995 under Employer's 1992 Stock Option Plan) by (ii) the excess of
the lesser of (A) $18.00 and (B) the arithmetic average of the closing sale
price per share of Employer's Common Stock on the New York Stock Exchange (or if
the Common Stock is not then traded on such exchange, on the largest national
securities exchange on which the Common Stock is then traded or, if not then
traded on a national securities exchange, on the NASD market in or on which the
Common Stock is then traded) for the ten trading days immediately preceding the
date of payment, over (iii) $4.36.
If, on December 31, 1997, Officer has exercised, between October 1,
1995 and December 31, 1997, any of such options held by him on October 1, 1995,
then the amount shall be the sum of (a) and (b), as follows:
(a) the result obtained by multiplying (i) the number of options
held by Officer on October 1, 1995 under Employer's 1992 Stock Option Plan,
which options have not been
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exercised as of December 31, 1997, by (ii) the excess of the lesser of (A)
and (B) in the immediately-preceding paragraph, over (iii) $4.36.
(b) the result obtained by multiplying (i) the number of options
held by Officer on October 1, 1995 under Employer's 1992 Stock Option Plan,
which options are exercised by Officer between October 1, 1995 and
December 31, 1997, by (ii) the excess of $18 over $4.36, or $13.64.
If, prior to the date of payment pursuant to this Section 4, Employer
effects a change in capitalization, as described in Section 10 of Employer's
1992 Stock Option Plan, then the number and dollar amounts in (i), (ii)(A) and
(iii) in the second paragraph of this Section 4 and in (a) and (b) of the third
paragraph of this Section 4 shall be adjusted in the manner provided in Section
10 of Employer's 1992 Stock Option Plan (as such plan was worded on October 1,
1995).
A change in the per share exercise price of such options pursuant to
Section 3(b) of the Stock Option Agreement, dated as of July 21, 1992, between
Employer and Officer shall not affect the amount payable to Officer under this
Section 4.
5. Transaction Bonus Compensation. In consideration of Officer's
services to Employer in connection with the transaction described in this
Section 5, Employer shall pay to Officer $2,475,000 promptly upon the closing of
the transactions contemplated by the Real Estate Purchase and Sale Agreement,
dated as of January 29, 1997, between Employer and Crescent Real Estate Equities
Limited Partnership (the "REPS Agreement"), and the OpCo Contribution Agreement
(as defined in the REPS Agreement), and the execution of the Facilities Lease
(as defined in the REPS Agreement), the Franchise Agreement (as defined in the
REPS Agreement), and the Operating Agreement (as defined in the REPS Agreement),
as any or all of the foregoing agreements may be amended, supplemented, restated
or substituted for from time to time prior to or upon the closing of the
transactions contemplated by the REPS Agreement.
6. Benefits.
(a) Fringe Benefits. In addition to the compensation provided
for in Sections 3, 4 and 5, Officer shall be entitled during the Term to such
other benefits of employment with Employer as are now or may after the date of
this Agreement be in effect for (i) salaried officers of Employer or (ii) senior
executives of Employer, including, without limitation, all bonus, incentive and
deferred compensation, pension, stock option, life and other insurance,
disability (insured and uninsured), medical and dental and other benefit plans
or programs; provided, that bonuses, life insurance and disability insurance for
Officer during the Term shall be in amounts and on other terms that are not less
and no less favorable than those provided, on average, by comparable healthcare
and hospital management companies for a comparable officer position.
(b) Expenses. During the Term, Employer shall reimburse Officer
promptly for all reasonable travel, entertainment, parking, business meeting and
similar expenditures
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in pursuit and furtherance of Employer's business upon receipt of reasonable
supporting documentation as required by Employer's policies applicable to its
officers generally.
7. Termination.
(a) Termination Due to Resignation and Termination For Cause. (1)
Officer's employment under this Agreement shall be terminated and, except as
provided in this Section 7, all of his rights to receive salary and other
benefits (except for salary, bonus and other benefits accrued through the date
of termination) shall terminate upon the occurrence of (i) Officer's resignation
other than for "good reason," as defined in Section 7(e), or (ii) termination by
Employer for "cause," as defined below, during the Term. Employer shall have
the right, exercisable upon 30 days' written notice, to terminate, without
liability except as provided in the parenthetical in the preceding sentence,
Officer's employment for "cause" if Officer (i) materially breaches any material
term of this Agreement, (ii) is convicted by a court of competent jurisdiction
of a felony, (iii) refuses, fails or neglects to perform his duties under this
Agreement in a manner substantially detrimental to the business of the Employer,
(iv) engages in illegal or other wrongful conduct substantially detrimental to
the business or reputation of Employer, or (v) develops or pursues interests
substantially adverse to Employer; provided that in the case of clauses (i),
(iii), (iv), or (v), no such termination shall be effective unless (1) Employer
shall have given Officer 30 days' prior written notice of any conduct or
deficiency in performance by Officer that Employer believes could, if not
discontinued or corrected, lead to Officer's termination under this Section 7(a)
in order that Officer shall have had an opportunity to cure such noncomplying
conduct or performance, and (2) Officer shall not have cured such noncomplying
conduct or performance during such notice period.
(2) If this Agreement is terminated due to Officer's resignation
other than for "good reason" as defined in Section 7(e) and if the payment
provided for in Section 4 has not been paid and has not been required to be paid
pursuant to the terms of Section 4, then Employer shall pay to Officer, in
addition to any amounts payable pursuant to Section 7(a)(1), an amount equal to
the result obtained by multiplying (i) the number of options held by Officer as
of October 1, 1995 under Employer's 1992 Stock Option Plan, which options have
not been exercised by Officer between October 1, 1995 and the date of such
termination of this Agreement by (ii) the excess, if any, of (A) $18.00 over (B)
the arithmetic average of the closing sale price per share of Employer's Common
Stock on the New York Stock Exchange (or other exchange or market, as described
in the second paragraph of Section 4) for the ten trading days immediately
preceding the date of termination.
(b) Termination Due to Death or Disability. Officer's
employment and all of his rights to receive salary and other benefits under this
Agreement may be terminated by Employer upon Officer's death, or on 30 days'
written notice from Employer to Officer if Officer has been unable to perform
substantially all of his duties under this Agreement for a period of 180 days,
or can reasonably be expected to be unable to do so for such period, as the
result of physical or mental impairment; provided that upon any termination
pursuant to this Section 7(b), Officer (or in the event of his death, his
estate) shall be entitled to receive the Specified Amount (as defined below),
and such Specified Amount shall be payable in a lump sum on the date of
termination. In addition to the
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Specified Amount, if Officer is terminated due to death or disability, Officer
(or in the event of his death, his estate) shall be entitled to receive the
portion or portions of any bonus or other cash incentive compensation that had
been accrued with respect to Officer on the books of Employer through the date
of termination pursuant to this Section 7(b) or otherwise.
The term "Specified Amount" shall mean the sum of (x) the greater
of (i) the total of all salary payments pursuant to Section 3 that would
thereafter have come due during the Term had there been no such termination or
resignation or (ii) five years' salary pursuant to Section 3, (in each case as
the same may have been extended and assuming a continuation for the remainder of
the Term of then current salary levels); (y), unless the amount described in
this clause (y) has already been paid to Officer pursuant to the provisions of
Section 4, the amount payable to Officer on January 2, 1998, pursuant to
Section 4, except that the references in Section 4 to "December 31, 1997" shall
be changed to the date of termination of this Agreement; and (z), unless the
amount described in this clause (z) has already been paid to Officer pursuant to
the provisions of Section 5, the amount payable to Officer pursuant to Section 5
but only if the conditions described in Section 5 to payment of the amount
payable to Officer pursuant to Section 5 either (1) have been satisfied as of
the date of termination or (2) are satisfied within 180 days after the date of
termination. Any provisions of this Agreement to the contrary notwithstanding,
if a payment is due to Officer pursuant to subclause (2) of clause (z) of the
preceding sentence, the payment of that portion of the Specified Amount shall be
made promptly after satisfaction of the conditions described in Section 5 to
payment of the amount payable to Officer pursuant to Section 5.
(c) Termination Without Cause. Subject to compliance with the
provisions of Section 7(d), Employer shall have the right, exercisable on 30
days' written notice, to terminate Officer's employment under this Agreement
without cause at any time during the Term.
(d) Payments Upon Termination Without Cause. If Officer is
terminated by Employer without cause pursuant to Section 7(c), Officer (i) shall
be entitled to receive the Specified Amount in cash on the date of such
termination; (ii) any stock option or other stock-based compensation plan shall
be governed by the terms of such plans (and any related stock option or similar
agreements); and (iii) the portion or portions of any bonus or other cash
incentive compensation that had been accrued with respect to Officer on the
books of Employer through the date of termination pursuant to this Section 7(d)
or otherwise shall be paid to Officer in cash on the date of such termination.
(e) Termination By Officer For Good Reason. Officer shall be
entitled to terminate his employment for "good reason" and in such event shall
be entitled to all of the salary, benefits and other rights provided in this
Agreement as though the termination was initiated by Employer without "cause".
For purposes of this Agreement, "good reason" shall mean any of the following
events, which event shall continue for 30 days after notice to the Employer,
unless the event occurs with Officer's express prior written consent:
(i) the assignment to Officer of any duties inconsistent with
his status as
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Chairman of the Board of Directors, President and Chief Executive Officer
of Employer or a substantial alteration in the nature or status of his
responsibilities from those in effect immediately prior to October 1, 1995;
(ii) a reduction by Employer in Officer's annual base salary as
in effect from time to time during the Term;
(iii) the failure by Employer to comply with Section 3,
Section 4, Section 5 or Section 6; or
(iv) any other material breach of this Agreement by Employer.
(f) Termination Upon a Change of Control or Failure to Approve
Stock Option Plan. Officer shall be entitled to terminate his employment upon a
change of control or failure to approve stock option plan as described in clause
(c) of this sentence and shall be entitled to (i) all of the salary, benefits
and other rights provided in this Agreement (including those payments provided
under Section 7(d)) as though the termination has been initiated by Employer
without cause, and (ii) a Gross-Up Payment (as defined), to the extent provided
by the second paragraph of this Section 7(f), upon the occurrence of any of the
following events: (a) the acquisition after the date of this Agreement, in one
or more transactions, of beneficial ownership (within the meaning of Rule
13d-3(a)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) by any person or entity (other than Officer) or any group of persons or
entities (other than Officer) who constitute a group (within the meaning of
Section 13(d)(3) of the Exchange Act) of any securities of Employer such that as
a result of such acquisition such person or entity or group beneficially owns
(within the meaning of Rule 13d-3(a)(1) under the Exchange Act) more than 50% of
Employer's then outstanding voting securities entitled to vote on a regular
basis for a majority of the Board; (b) the sale of all or substantially all of
the assets of Employer (including, without limitation, by way of merger,
consolidation, lease or transfer but not including the transactions contemplated
by the REPS Agreement) in a transaction where Employer or the holders of common
stock of Employer do not receive (i) voting securities representing a majority
of the voting power entitled to vote on a regular basis for the Board of
Directors of the acquiring entity or of an affiliate which controls the
acquiring entity, or (ii) securities representing a majority of the equity
interests in the acquiring entity or of an affiliate that controls the acquiring
entity, if other than a corporation; or (c) the failure for any reason of the
stockholders of Employer to approve (in the manner required by the New York
Stock Exchange) on or before September 1, 1997, a non-qualified stock option
plan providing for the granting to officers and employees of Employer and its
subsidiaries of options to purchase at least 1,500,000 shares of Employer's
Common Stock (as adjusted for stock splits, stock dividends and similar changes
in capitalization after the date of this Agreement), which options (i) vest
one-third on each of the first three anniversaries of their date of grant and
(ii) provide for a per share exercise price that is not in excess of the fair
market value of a share of Employer's Common Stock on the date of grant of an
option.
A Gross-Up Payment (as defined) shall be payable upon termination
of
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employment pursuant to this Section 7(f) on and subject to the following terms
and conditions:
(1) If any payment or other benefit (a "Termination Payment") to
Officer under this Section 7(f) is or will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), Employer shall pay to Officer, at the time the applicable
Termination Payment is made, an additional amount (the "Gross-Up Payment") such
that the net amount retained by Officer, after deduction of any Excise Tax on
such Termination Payment and any federal, state and local income tax and Excise
Tax on the Gross-Up Payment, shall be equal to the amount or value of such
Termination Payment. For purposes of determining whether any such Termination
Payment will be subject to the Excise Tax, any other payments or benefits
received or to be received by Officer in connection with an event giving rise to
a Termination Payment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Employer, with any person whose
actions result in a change in control or with any person affiliated with
Employer or such person) shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be treated as being
subject to the Excise Tax. The amount of the Termination Payment that shall be
treated as subject to the Excise Tax shall be equal to the lesser of (i) the
total amount of the Termination Payment or (ii) the amount of excess parachute
payments within the meaning of Sections 280G(b)(1) and (4) of the Code (after
applying the immediately preceding sentence). The full amount of the Gross-Up
Payment shall be treated as being subject to the Excise Tax. The value of any
non-cash benefits or any deferred payment or benefit shall be determined in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
(2) For purposes of determining the amount of any Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
applicable Termination Payment or Gross-Up Payment is made, and shall be deemed
to pay state and local income taxes at the highest marginal rates of taxation in
the state and locality of his residence on the date the applicable Termination
Payment or Gross-Up Payment is made, net of the maximum reduction in federal
income taxes that could be obtained from deduction of such state and local
taxes.
(3) If the Excise Tax or income tax payable with respect to a
Gross-Up Payment as finally determined exceeds the amount taken into account or
paid to Officer at the time the applicable Termination Payment or Gross-Up
Payment is made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the applicable Gross-Up Payment),
Employer shall make an additional Gross-Up Payment in respect of such excess
(plus any interest payable by Officer with respect to such excess) at the time
that the amount of such excess is finally determined.
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8. Confidentiality and Noncompetition.
(a) Confidentiality. Officer acknowledges that, by reason of his
employment with Employer, he may learn trade secrets and obtain other
confidential information concerning the business and policies of Employer and
its subsidiaries. Officer agrees that he will not voluntarily divulge or
otherwise disclose, directly or indirectly, any such trade secrets or other
confidential information concerning the business or policies of Employer or any
of its subsidiaries that he may learn as a result of his employment during the
Term or may have learned prior to the Term, except to the extent such
information is lawfully obtainable from public sources or such use or disclosure
is (i) necessary to the performance of this Agreement and in furtherance of
Employer's best interests, (ii) required by applicable laws, or (iii) authorized
by Employer.
(b) Noncompetition. In order to protect any confidential
information that Officer may learn during the Term and in order to protect any
goodwill that Employer has earned and may earn during the Term, Officer agrees
that, if Officer voluntarily terminates this Agreement without good reason
during the Term, he shall not, at any location in the State of Georgia, for a
period of 12 months after such termination, provide services, as employee,
officer, director, consultant or otherwise, which services are substantially
similar to the hospital management company chief executive officer services
performed by Officer under this Agreement, for any company, firm or entity that
owns and operates (directly or through subsidiaries) more than one hospital and
that owns and operates one or more psychiatric hospitals located in Georgia
within 25 miles of a similar (psychiatric) hospital owned and operated by
Employer and located within the State of Georgia.
9. Miscellaneous.
(a) Succession. This Agreement shall inure to the benefit of
and shall be binding upon Employer, its successors and assigns, but Employer
shall not have the right to assign this Agreement without the prior written
consent of Officer. The obligations and duties of Officer under this Agreement
shall be personal and not assignable.
(b) Notices. Any notice, request, instruction or other document
to be given under this Agreement by any party to the others shall be in writing
and delivered in person or by courier, telegraphed, telexed or sent by facsimile
transmission or mailed by certified mail, postage prepaid, return receipt
requested (such mailed notice to be effective on the date of such receipt is
acknowledged), as follows:
If to Officer:
E. Mac Crawford
275 King Road, N.W.
Atlanta, Georgia 30342
If to Employer:
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Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Attn: Secretary
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains the entire
agreement of the parties relating to the subject matter of this Agreement, and
it replaces and supersedes any prior agreements between the parties relating to
said subject matter, including the employment agreement referred to in the first
"WHEREAS" clause of this Agreement.
(d) Waiver; Amendment. No provision of this Agreement may be
waived except by a written agreement signed by the waiving party. The waiver of
any term or of any condition of this Agreement shall not be deemed to constitute
the waiver of any other term or condition. This Agreement may be amended only
by a written agreement signed by the parties.
(e) Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of Georgia.
(f) Arbitration. Except for an action for injunctive relief,
any disputes or controversies arising under this Agreement shall be settled by
arbitration in Atlanta, Georgia in accordance with the rules of the American
Arbitration Association relating to the arbitration of commercial disputes. The
determination and findings of such arbitrators shall be final and binding on all
parties and may be enforced, if necessary, in the courts of the State of
Georgia.
(g) Attorneys' Fees in Action by Employee on Contract. In the
event of litigation or arbitration between Officer and Employer arising out of
or as a result of this Agreement or the acts of the parties pursuant to this
Agreement, or seeking an interpretation of this Agreement, if Officer is the
party in such litigation or arbitration, in addition to any other judgment or
award, he shall be entitled to receive such sums as the court or panel hearing
the matter shall find to be reasonable as and for attorneys' fees.
(h) Remedies of Employer. Officer acknowledges that the
services he is obligated to render under the provisions of this Agreement are of
a special, unique and intellectual character, which gives this Agreement
peculiar value to Employer. The loss of these services cannot be reasonably or
adequately compensated in damages in an action at law and it would be difficult
(if not impossible) to replace such services. Accordingly, Officer agrees and
consents that, if he materially violates any of the material provisions of this
Agreement, including, without limitation, Section 8, Employer, in addition to
any other rights and remedies available under this Agreement or
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under applicable law, shall be entitled during the remainder of the Term (and,
in the case of Section 8, after the Term to the extent provided in Section 8) to
seek injunctive relief, from a court of competent jurisdiction, restraining
Officer from committing or continuing any violation of this Agreement, or from
the performance of services to any other business entity, or both.
(i) Captions. Captions have been inserted solely for the
convenience of reference and in no way define, limit or describe the scope or
substance of any provisions of this Agreement.
(j) Severability. If this Agreement shall be any reason be or
become unenforceable by any party, this Agreement shall thereupon terminate and
become unenforceable by the other party as well. In all other respects, if any
provision of this Agreement is held invalid or unenforceable, the remainder of
this Agreement shall nevertheless remain in full force and effect and, if any
provision if held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect in all
other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MAGELLAN HEALTH SERVICES, INC.
BY: _________________________________
Name:________________________________
Title:_______________________________
/s/ E. Mac Crawford
_____________________________________
E. Mac Crawford
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Exhibit 10(h)
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of June 16, 1997
among
MAGELLAN HEALTH SERVICES, INC.,
CHARTER BEHAVIORAL HEALTH SYSTEM OF NEW MEXICO, INC.,
THE LENDERS NAMED HEREIN,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
Collateral Agent and an Issuing Bank,
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Syndication Agent and an Issuing Bank
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Definitions
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE II The Credits
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.03. Borrowing Procedure . . . . . . . . . . . . . . . . . . . 31
SECTION 2.04. Evidence of Debt; Repayment of Loans. . . . . . . . . . . 32
SECTION 2.05. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.06. Interest on Loans . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.07. Default Interest. . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.08. Alternate Rate of Interest. . . . . . . . . . . . . . . . 34
SECTION 2.09. Termination and Reduction of Commitments. . . . . . . . . 34
SECTION 2.10. Conversion and Continuation of Borrowings . . . . . . . . 35
SECTION 2.11. Prepayment. . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.12. Repayment of Note Repurchase Borrowings . . . . . . . . . 37
SECTION 2.13. Mandatory Prepayments and Commitment
Reductions. . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 2.14. Reserve Requirements; Change in Circumstances . . . . . . 40
SECTION 2.15. Change in Legality. . . . . . . . . . . . . . . . . . . . 41
SECTION 2.16. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.17. Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . 43
SECTION 2.18. Sharing of Setoffs. . . . . . . . . . . . . . . . . . . . 43
SECTION 2.19. Payments. . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.20. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.21. Assignment of Commitments Under Certain Circumstances;
Duty to Mitigate. . . . . . . . . . . . . . . . . . . . . 46
SECTION 2.22. Letters of Credit . . . . . . . . . . . . . . . . . . . . 47
SECTION 2.23. Additional Borrowers. . . . . . . . . . . . . . . . . . . 50
ARTICLE III Representations and Warranties
SECTION 3.01. Organization; Powers. . . . . . . . . . . . . . . . . . . 51
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.03. Enforceability. . . . . . . . . . . . . . . . . . . . . . 52
SECTION 3.04. Governmental Approvals. . . . . . . . . . . . . . . . . . 52
SECTION 3.05. Financial Statements. . . . . . . . . . . . . . . . . . . 52
SECTION 3.06. No Material Adverse Change. . . . . . . . . . . . . . . . 53
SECTION 3.07. Title to Properties; Possession Under Leases. . . . . . . 53
SECTION 3.08. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.09. Litigation; Compliance with Laws. . . . . . . . . . . . . 53
<PAGE>
SECTION 3.10. Agreements. . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.11. Federal Reserve Regulations . . . . . . . . . . . . . . . 54
SECTION 3.12. Investment Company Act;
Public Utility Holding Company Act. . . . . . . . . . . . 54
SECTION 3.13. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.14. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.15. No Material Misstatements . . . . . . . . . . . . . . . . 54
SECTION 3.16. Employee Benefit Plans. . . . . . . . . . . . . . . . . . 54
SECTION 3.17. Environmental Matters . . . . . . . . . . . . . . . . . . 55
SECTION 3.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 3.19. Security Documents. . . . . . . . . . . . . . . . . . . . 56
SECTION 3.20. Labor Matters . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.21. Solvency. . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE IV Conditions
SECTION 4.01. Effectiveness . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.02. All Credit Events . . . . . . . . . . . . . . . . . . . . 62
SECTION 4.03. Note Repurchase Loans Credit Event. . . . . . . . . . . . 63
SECTION 4.04. New Subsidiary Borrower Credit Event. . . . . . . . . . . 63
ARTICLE V Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties. . . . . . . . . . . 64
SECTION 5.02. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 5.03. Obligations and Taxes . . . . . . . . . . . . . . . . . . 65
SECTION 5.04. Financial Statements, Reports, etc. . . . . . . . . . . . 65
SECTION 5.05. Litigation and Other Notices. . . . . . . . . . . . . . . 67
SECTION 5.06. Employee Benefits . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.09. Compliance with Environmental Laws. . . . . . . . . . . . 68
SECTION 5.10. Preparation of Environmental Reports. . . . . . . . . . . 68
SECTION 5.11. Further Assurances. . . . . . . . . . . . . . . . . . . . 68
SECTION 5.12. Concentration and Disbursement Accounts . . . . . . . . . 68
SECTION 5.13. Remedies Under Franchise Agreement. . . . . . . . . . . . 69
SECTION 5.14. Series A Notes Repurchase . . . . . . . . . . . . . . . . 69
ARTICLE VI Negative Covenants
SECTION 6.01. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6.03. Sale and Leaseback Transactions . . . . . . . . . . . . . 73
SECTION 6.04. Investments, Loans, Advances and Certain Other
Transactions. . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.05. Mergers, Consolidations, Sales of Assets and
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . 74
<PAGE>
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends . . . . . . . . . . . . . . 76
SECTION 6.07. Transactions with Affiliates. . . . . . . . . . . . . . . 78
SECTION 6.08. Other Indebtedness and Agreements . . . . . . . . . . . . 78
SECTION 6.09. Business of the Borrowers and Subsidiaries. . . . . . . . 78
SECTION 6.10. Interest Expense Coverage Ratio . . . . . . . . . . . . . 79
SECTION 6.11. Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . 79
SECTION 6.12. Senior Debt Ratio . . . . . . . . . . . . . . . . . . . . 79
SECTION 6.13. Maintenance of Consolidated EBITDA. . . . . . . . . . . . 79
SECTION 6.14. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE VII Events of Default. . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE VIII The Administrative Agent, the Syndication Agent and the
Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE IX Miscellaneous
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.02. Survival of Agreement . . . . . . . . . . . . . . . . . . 85
SECTION 9.03. Binding Effect. . . . . . . . . . . . . . . . . . . . . . 85
SECTION 9.04. Successors and Assigns. . . . . . . . . . . . . . . . . . 85
SECTION 9.05. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . 88
SECTION 9.06. Right of Setoff . . . . . . . . . . . . . . . . . . . . . 89
SECTION 9.07. APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . . 89
SECTION 9.08. Waivers; Amendment. . . . . . . . . . . . . . . . . . . . 89
SECTION 9.09. Interest Rate Limitation. . . . . . . . . . . . . . . . . 90
SECTION 9.10. Entire Agreement. . . . . . . . . . . . . . . . . . . . . 91
SECTION 9.11. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . 91
SECTION 9.12. Severability. . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 9.13. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 9.14. Headings. . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 9.15. Jurisdiction; Consent to Service of Process . . . . . . . 91
SECTION 9.16. Confidentiality . . . . . . . . . . . . . . . . . . . . . 92
SECTION 9.17. Obligations Joint and Several . . . . . . . . . . . . . . 93
Exhibits, Annex and Schedules
Exhibit A Form of Administrative Questionnaire
Exhibit B-1 Form of Advance Collateral Assignment
Exhibit B-2 Form of Advance Security Agreement
Exhibit C Form of Assignment and Acceptance
Exhibit D-1 Form of Borrowing Request
Exhibit D-2 Form of New Borrower Agreement
Exhibit D-3 Form of Subsidiary Borrower Termination
<PAGE>
Exhibit E Form of Collateral Assignment
Exhibit F Form of Guarantee Agreement
Exhibit G Form of Indemnity, Subrogation and Contribution Agreement
Exhibit H Form of Pledge Agreement
Exhibit I Form of Security Agreement
Exhibit J-1 Form of Opinion of King & Spalding
Exhibit J-2 Form of Opinion of Foreign Counsel
Schedule 1.01(a) Charter IRBs
Schedule 1.01(b) Existing Letters of Credit
Schedule 1.01(c) Guarantors
Schedule 1.01(d) Real Estate for Sale
Schedule 2.01 Commitments
Schedule 3.04 Government Approvals
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.17 Environmental Matters
Schedule 3.18 Insurance
Schedule 4.02(a) Foreign Counsel
Schedule 6.01(a) Indebtedness
Schedule 6.02(a) Liens
Schedule 6.04(m) Investments, Loans and Advances
Schedule 6.06(b) Intercompany Dividend Restrictions and Encumbrances
Schedule 6.06(c) Green Spring Intercompany Dividend Restrictions and
Encumbrances
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 16,
1997, among MAGELLAN HEALTH SERVICES, INC., a Delaware
corporation (the "Parent Borrower"), CHARTER BEHAVIORAL HEALTH
SYSTEM OF NEW MEXICO, INC., a New Mexico corporation, and each
other subsidiary of the Parent Borrower that becomes a
"Subsidiary Borrower" hereunder as provided in Section 2.23
hereof (each, a "Subsidiary Borrower" and collectively, the
"Subsidiary Borrowers" (such term is used herein as modified in
Article I); the Parent Borrower and the Subsidiary Borrowers are
collectively referred to herein as the "Borrowers"); the Lenders
(as defined in Article I), THE CHASE MANHATTAN BANK, a New York
banking corporation, as administrative agent (in such capacity,
the "Administrative Agent") for the Lenders, as collateral agent
(in such capacity, the "Collateral Agent") for the Lenders and as
an issuing bank (in such capacity, an "Issuing Bank"), and FIRST
UNION NATIONAL BANK OF NORTH CAROLINA, a North Carolina banking
corporation, as syndication agent (in such capacity, the
"Syndication Agent") for the Lenders and as an issuing bank (in
such capacity, an "Issuing Bank", and together with The Chase
Manhattan Bank in its capacity as an Issuing Bank, the "Issuing
Banks").
Pursuant to (a) the REIT Purchase Agreement (such term and each other
capitalized term used but not defined herein having the meaning given to it in
Article I), the Parent Borrower will cause Charter Behavioral and its
subsidiaries to sell to Crescent or Crescent Funding (the "Crescent
Transaction") substantially all the real property and related improvements, and
certain fixtures, furniture and equipment and certain other tangible and
intangible personal property, owned by Charter Behavioral and its subsidiaries
and used in the operation of their behavioral health care facilities (the
"Purchased Facilities"); (b) the Contribution Agreement, the Parent Borrower and
certain Subsidiaries will contribute or sell to CBHS and its subsidiaries (the
"Contribution Transaction") certain tangible and intangible personal property
used in connection with the operation of the Purchased Facilities, certain
leasehold interests and certain other tangible and intangible property used in
connection with facilities leased by the Parent Borrower and its subsidiaries
(the "Leased Facilities"); and (c) the Warrant Agreements, the Parent Borrower
will issue to Crescent and the Crescent Affiliate warrants to purchase up to an
aggregate of 2,567,000 shares of the Parent Borrower's common stock. Upon
consummation of the Crescent Transaction, the Contribution Transaction and the
issuance of the Warrants, the Parent Borrower will receive the aggregate
consideration of $400,000,000 in cash (subject to other adjustments in
accordance with the Transaction Documents) (the "Transaction Consideration").
In connection with the foregoing, the Parent Borrower will apply, or
caused to be applied, the Transaction Consideration (a) to refinance the
principal of, and pay all interest, fees and other amounts payable in respect
of, the outstanding loans under the Existing Credit Agreement, (b) to repay or
defease the Charter IRBs, (c) to pay all transaction costs and expenses of the
Parent Borrower and its Subsidiaries in respect of the Transactions,
(d) together with the proceeds of Note Repurchase Loans, to repurchase on the
Series A Notes Repurchase Date all the Series A Notes that are tendered to the
Parent Borrower and not withdrawn in accordance with the Series A Notes Tender
Offer and (e) for general corporate purposes.
<PAGE>
2
The parties hereto are party to the Existing Credit Agreement or have
purchased assignments in outstanding "Loans" and "Commitments" pursuant to
Section 9.04 of the Existing Credit Agreement. The Borrowers have requested
that the Existing Credit Agreement be amended in certain respects and restated
so as to provide, among other things, that the "Refinancing Revolving Credit
Facility" in the Existing Credit Agreement be amended to make available to the
Borrowers the Revolving Loans and Note Repurchase Loans described below and
contemplated hereby. In connection with the foregoing, the Borrowers have
requested the Lenders to extend credit (pursuant to this Amended and Restated
Agreement) in the form of Revolving Loans at any time and from time to time in
an aggregate principal amount at any time outstanding not in excess of
$200,000,000 (less the Note Repurchase Loan Amount and the L/C Exposure). In
addition, if the Note Repurchase Loan Amount is greater than zero, the Parent
Borrower has requested the Lenders to extend credit in the form of Note
Repurchase Loans on the Series A Notes Repurchase Date, in an aggregate
principal amount not to exceed the Note Repurchase Loan Amount. The Borrowers
have requested the Issuing Banks to issue letters of credit, in an aggregate
face amount at any time outstanding not in excess of $50,000,000, to support
payment obligations incurred in the ordinary course of business by the Borrowers
and the Subsidiaries, including to support payment obligations for industrial
revenue bonds that are permitted hereunder. The proceeds of the Revolving Loans
are to be used solely (a) for general corporate purposes, (b) to finance
acquisitions, investments, transactions, stock repurchases and debt repayments
and repurchases, in each case only to the extent permitted hereunder, and (c) to
make advances to CBHS, subject to the restrictions and other conditions set
forth hereunder. The proceeds of the Note Repurchase Loans are to be used solely
to finance the repurchase of the Series A Notes on the Series A Notes Repurchase
Date in accordance with the Series A Notes Tender Offer.
The Lenders are willing (a) to amend and restate the Existing Credit
Agreement and (b) to extend such credit to the Borrowers and each Issuing Bank
is willing to issue such letters of credit for the account of the Borrowers on
the terms and subject to the conditions set forth herein. Accordingly, the
parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any ABR Revolving Loan or ABR Note Repurchase
Loan.
"ABR Note Repurchase Loan" shall mean any Note Repurchase Loan bearing
interest at a rate determined by reference to the Alternate Base Rate in
accordance with the provisions of Article II.
<PAGE>
3
"ABR Note Repurchase Borrowing" shall mean a Borrowing comprised of
ABR Note Repurchase Loans.
"ABR Revolving Loan" shall mean any Revolving Loan bearing interest at
a rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ABR Revolving Borrowing" shall mean a Borrowing comprised of ABR
Revolving Loans.
"Acquired Entity" shall mean the assets, in the case of an acquisition
of assets, or the capital stock or other equity interests (or, if the context
requires, the person that is the issuer of such capital stock or other equity
interests), in the case of an acquisition of capital stock or other equity
interests, acquired by any Borrower or any Guarantor pursuant to a Permitted
Acquisition.
"Acquired Entity EBITDA" shall mean, for purposes of clause (c) of the
definition of Consolidated EBITDA, the net income of any Acquired Entity for any
period plus to the extent deducted in the determination of such Acquired
Entity's net income, the sum of such Acquired Entity's (a) aggregate amount of
income tax expense for such period, (b) aggregate amount of interest expense for
such period and (c) aggregate amount of amortization, depreciation and other
non-cash charges (including employee stock ownership plan expense, stock option
expense, and amortization of goodwill, transaction expenses, excess
reorganization expense, covenants not to compete and other intangible assets)
for such period, all as determined in accordance with GAAP, provided that
(i) all extraordinary gains or losses of such Acquired Entity for such period
and (ii) the gain (or loss) for such period attributable to the sale of any
assets of such Acquired Entity outside the ordinary course of business shall not
be included in such Acquired Entity's net income.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate
in effect for such Interest Period and (b) Statutory Reserves.
"Administrative Agent" shall have the meaning assigned to such term in
the preamble to this Agreement or any successor appointed pursuant to
Article VIII.
"Administrative Agent Fees" shall have the meaning assigned to such
term in Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit A.
"Advance Collateral Assignment" shall mean the Collateral Assignment,
substantially in the form of Exhibit B-1, made by the Parent Borrower in favor
of the Collateral Agent for the benefit of the Secured Parties.
"Advance Security Agreement" shall mean the Security Agreement,
substantially in the form of Exhibit B-2, among the Parent Borrower, CBHS and
the subsidiaries of CBHS.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
<PAGE>
4
"Aggregate Credit Exposure" shall mean the aggregate amount of the
Lenders' Revolving Credit Exposures.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative
Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds Effective Rate
for any reason, including the inability of the Administrative Agent to obtain
sufficient quotations in accordance with the terms of the definition thereof,
the Alternate Base Rate shall be determined without regard to clause (b) of the
preceding sentence until the circumstances giving rise to such inability no
longer exist. Any change in the Alternate Base Rate due to a change in the
Prime Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively. The term "Prime Rate" shall mean the rate of interest per
annum publicly announced from time to time by the Administrative Agent as its
prime rate in effect at its principal office in New York City; each change in
the Prime Rate shall be effective on the date such change is publicly announced
as being effective. The term "Federal Funds Effective Rate" shall mean, for any
day, the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for the day for such transactions received by
the Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Applicable Percentage" shall mean, for any day, with respect to any
Eurodollar Loan or any ABR Loan, or with respect to the Commitment Fees, as the
case may be, the applicable percentage set forth below under the caption
"Eurodollar Spread", "ABR Spread" or "Fee Percentage", as the case may be, based
upon the Leverage Ratio as of the relevant determination date:
Leverage Ratio Eurodollar ABR Fee
Spread Spread Percentage
Category 1 1.25% .25% .375%
Greater than 2.50 to 1.00
Category 2 1.00% .00% .250%
Less than or equal to 2.50 to 1.00 but
greater than 2.00 to 1.00
Category 3 .75% .00% .250%
Less than or equal to 2.00 to 1.00
Each change in the Applicable Percentage resulting from a change in
the Leverage Ratio shall be effective with respect to all Loans, Commitments
and Letters of Credit outstanding on and after the date of delivery to the
Administrative Agent of the financial statements and certificates
<PAGE>
5
required by Section 5.04(a) or (b) indicating such change until the date
immediately preceding the next date of delivery of such financial statements
and certificates indicating another such change. Notwithstanding the
foregoing, (i) until the Parent Borrower has delivered the financial
statements for the first full fiscal quarter ending after the Closing Date,
in accordance with Section 5.04(a) or (b), (ii) at any time during which the
Parent Borrower has failed to deliver the financial statements and
certificates required by Section 5.04(a) or (b), or (iii) at any time after
the occurrence and during the continuance of an Event of Default, the
Leverage Ratio shall be deemed to be in Category 1 for purposes of
determining the Applicable Percentage.
"Asset Sale" shall mean the sale (including any transaction that has
the economic effect of a sale), transfer or other disposition (by way of
merger or otherwise, including sales in connection with a sale and leaseback
transaction permitted pursuant to Section 6.03, or as a result of a
Condemnation Event or a Casualty Event) by the Borrowers or any Guarantor to
any person, other than the Borrowers or any Guarantor, of (a) any capital
stock of the Subsidiary Borrowers or any Guarantor or (b) any other assets of
the Borrowers or any Guarantor (other than inventory, obsolete or worn out
assets, scrap and Permitted Investments, in each case disposed of in the
ordinary course of business), except, (i) sales, transfers or other
dispositions of the Real Estate for Sale; (ii) sales, transfers or other
dispositions of assets on the Closing Date pursuant to the Transaction
Documents, including sales, transfers or other dispositions conducted in
accordance with Section 14.1 of the REIT Purchase Agreement, (iii) sales,
transfers or other dispositions that are Permitted Non-Control Investments or
Permitted Non-Guarantor Transactions, (iv) sales, transfers or other
dispositions of Green Spring capital stock pursuant to the Green Spring
Stockholders' Agreement, (v) any Permitted Post-Closing Crescent Transaction,
(vi) sales, transfers or other dispositions of any assets in one transaction
or a series of related transactions having a value not in excess of $200,000
and (vii) sales of the capital stock of Charter Medical of England Limited
and Societe Anonyme de Metairie, or all or a substantial portion of the
assets of such Foreign Subsidiaries, in each case for consideration not less
than the fair market value thereof (as determined in good faith by the Board
of Directors or a Financial Officer of the Parent Borrower), of which amount
not less than 60% is paid in cash.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit C or such other form as shall be approved by the
Administrative Agent.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrowers" shall have the meaning assigned to such term in the pre-
amble to this Agreement.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"Borrowing Request" shall mean a request by a Borrower in accordance
with the terms of Section 2.03 and substantially in the form of Exhibit D-1.
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which banks in New York City are authorized or required by law to close;
provided, however, that when
<PAGE>
6
used in connection with a Eurodollar Loan, the term "Business Day" shall also
exclude any day on which banks are not open for dealings in dollar deposits
in the London interbank market.
"Capital Lease Obligations" of any person shall mean the obligations
of such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person in accordance
with GAAP, and the amount of such obligations shall be the capitalized amount
thereof determined in accordance with GAAP.
"Casualty Event" shall mean an event pursuant to which any Borrower or
any Guarantor has the right to collect and receive insurance proceeds (other
than business interruption proceeds) under any insurance policies with respect
to any insured casualty to any property of any Borrower or any Guarantor.
"CBHS" shall mean Charter Behavioral Health Systems, LLC, a Delaware
limited liability company, 50% of which is initially owned by the Parent
Borrower and 50% of which is initially owned by the Crescent Affiliate.
"CBHS Borrowing Base" shall have the meaning assigned to the term
"Borrowing Base" in the CBHS Credit Agreement.
"CBHS Commitments" shall have the meaning assigned to the term
"Commitments" in the CBHS Credit Agreement.
"CBHS Credit Agreement" shall mean the Credit Agreement dated as of
June 16, 1997, among CBHS, the subsidiaries of CBHS named therein, the financial
institutions named therein as lenders, The Chase Manhattan Bank, as
administrative agent, collateral agent and an issuing bank thereunder, and First
Union National Bank of North Carolina, as syndication agent and an issuing bank
thereunder.
"CBHS L/C Exposure" shall have the meaning assigned to the term
"L/C Exposure" in the CBHS Credit Agreement.
"CBHS Loan Documents" shall have the meaning assigned to the term
"Loan Documents" in the CBHS Credit Agreement.
"CBHS Loans" shall have the meaning assigned to the term "Loans" in
the CBHS Credit Agreement.
A "Change in Control" shall be deemed to have occurred if (a) any
person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act
of 1934 as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 35% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Parent Borrower, other than any person or group that owns at least 5% of the
capital stock of the Parent Borrower on the Closing Date; (b) a majority of the
seats (other than vacant seats) on the board of directors of the Parent Borrower
shall at any time be occupied by persons who were neither
<PAGE>
7
(i) nominated by the board of directors of the Parent Borrower nor (ii)
appointed by directors so nominated; or (c) any change in control (or similar
event, however denominated) with respect to the Parent Borrower shall occur
under and as defined in any indenture or agreement (other than the Series A
Notes Indenture and Series A Notes as may be applicable as a result of the
Transactions) in respect of Indebtedness for borrowed money in excess of the
aggregate principal amount of $10,000,000 to which the Parent Borrower or any
Guarantor is a party.
"Charter Behavioral" shall mean Charter Behavioral Health Systems,
Inc., a Delaware corporation and a wholly owned subsidiary of the Parent
Borrower.
"Charter IRBs" shall mean the industrial revenue bonds set forth on
Schedule 1.01(a).
"Closing Date" shall mean the date of the first Credit Event.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean all the "Collateral" as defined in any
Security Document.
"Collateral Agent" shall have the meaning assigned to such term in the
preamble to this Agreement or any successor appointed pursuant to Article VIII.
"Collateral Assignment" shall mean the Collateral Assignment,
substantially in the form of Exhibit E, made by the Parent Borrower in favor of
the Collateral Agent for the benefit of the Secured Parties.
"Commitment" shall mean, with respect to each Lender, such Lender's
Revolving Credit Commitment and Note Repurchase Loan Commitment.
"Commitment Fee" shall have the meaning assigned to such term in
Section 2.05(a).
"Condemnation Event" shall mean an event pursuant to which any
Borrower or any Guarantor has the right to collect and receive proceeds as a
result of any action or proceeding for the taking of any property of any
Borrower or any Guarantor, or any part thereof or interest therein, for public
or quasi-public use under the power of eminent domain, by reason of any public
improvement or condemnation proceeding or in any other manner.
"Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Parent Borrower and CBHS dated May , 1997.
"Consolidated Current Assets" shall mean, at any date of
determination, all assets (other than cash and cash-equivalents) that would, in
accordance with GAAP, be classified on a consolidated balance sheet of the
Parent Borrower and the Guarantors as current assets at such date of
determination.
"Consolidated Current Liabilities" shall mean, at any date of
determination, all liabilities (other than, without duplication, (x) the current
portion of long-term Indebtedness and
<PAGE>
8
(y) Revolving Loans) that would, inaccordance with GAAP, be classified on a
consolidated balance sheet of the Parent Borrower and the Guarantors as
current liabilities at such date of determination.
"Consolidated EBITDA" shall mean, for any period, (a) Consolidated Net
Income for such period plus (b) to the extent deducted in the determination of
Consolidated Net Income, the sum of (i) the aggregate amount of income tax
expense for such period, (ii) the aggregate amount of Consolidated Interest
Expense for such period and (iii) the aggregate amount of amortization,
depreciation and other non-cash charges (including employee stock ownership plan
expense, stock option expense and amortization of goodwill, expenses related to
the consummation of the Transactions and other transaction expenses, excess
reorganization expense, covenants not to compete and other intangible assets)
for such period, as determined in accordance with GAAP, and plus, without
duplication, (c) any Acquired Entity EBITDA during such period, calculated on a
pro forma basis as of the first day of such period, and minus, without
duplication, (d) the sum of extraordinary cash charges paid during such period
by the Parent Borrower and the Subsidiaries, excluding any such extraordinary
cash charges paid in respect of (x) the Transactions up to an amount that is not
materially inconsistent with amounts previously disclosed to the Administrative
Agent and the Syndication Agent or (y) any refinancing of Indebtedness permitted
by Section 6.01(n) and Section 6.04(d).
"Consolidated Interest Expense" shall mean, with respect to the Parent
Borrower and the Subsidiaries for any period, the gross interest expense
(including interest expense attributable to Capital Lease Obligations and
Interest Rate Protection Agreements but excluding any non-cash interest expense,
including amortization of deferred loan costs) accrued or paid by the Parent
Borrower and the Subsidiaries for such period, as determined on a consolidated
basis in accordance with GAAP, plus (without duplication) gross interest expense
(including interest expense attributable to Capital Lease Obligations and
interest rate protection agreements but excluding any non-cash interest expense
such as amortization of deferred loan costs) relating to Indebtedness incurred
or assumed by the Parent Borrower or any Subsidiary with respect to the
acquisition of any Acquired Entity during such period, calculated on a pro forma
basis as of the first day of such period.
"Consolidated Net Income" shall mean, for any period, the net income
(or loss) of the Parent Borrower and the Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, provided that (a)
there shall be included in the determination of Consolidated Net Income the net
income (or loss) attributable to each Controlled Venture (it being understood
that such net income (or loss) will be proportionate to the Parent Borrower's
equity interest, direct or indirect, in such Controlled Venture) and (b) there
shall be excluded from the determination of Consolidated Net Income (i) the net
income (or loss) attributable to all Non-Controlled Ventures to the extent that
cash has not been distributed to the Parent Borrower or any of the Subsidiaries,
(ii) all extraordinary gains or losses and (iii) the gain (or loss) attributable
to the sale of any assets of the Parent Borrower or the Subsidiaries permitted
under Section 6.05 or pursuant to the Transactions.
"Consolidated Working Capital" shall mean, at any date of
determination, Consolidated Current Assets at such date of determination minus
Consolidated Current Liabilities at such date of determination.
"Contribution Agreement" shall mean the Contribution Agreement dated
as of June 16, 1997, among the Parent Borrower, Crescent Affiliate and CBHS.
<PAGE>
9
"Contribution Transaction" shall have the meaning given such term in
the preamble to this Agreement.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "Controlling" and "Controlled" shall have meanings
correlative thereto. For purposes of this Agreement, "Control" shall be deemed
to exist if, for financial reporting purposes, the Controlled person's financial
statements are consolidated with the financial statements of the Controlling
person.
"Controlled Non-Guarantor Entities" shall mean partnerships, joint
ventures or Subsidiary Non-Guarantors in which the Parent Borrower or any of the
Subsidiaries have an ownership interest of 50% or greater of the equity
interests therein and that are Controlled by the Parent Borrower.
"Controlled Ventures" shall mean the healthcare partnerships and joint
ventures (i) that are Controlled by the Parent Borrower or any of the
Subsidiaries, (ii) of which the Parent Borrower or any of the Subsidiaries has
an ownership interest of 50% or greater of the equity interests therein and
(iii) of which the partnership documents and any other applicable governing
documents contain no restriction or prohibition of any kind on cash
distributions, other than Permitted Restrictions.
"Credit Event" shall have the meaning assigned to such term in
Section 4.01.
"Crescent" shall mean Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership.
"Crescent Affiliate" shall mean Crescent Operating Inc., a Delaware
corporation, its successors and assigns.
"Crescent Funding" shall mean Crescent Real Estate Funding VII, L.P.,
a Delaware limited partnership, its successors and assigns.
"Crescent Transaction" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Deemed Borrowing Base Cut-Off Date" shall have the meaning assigned
to such term in the CBHS Credit Agreement.
"Default" shall mean any event or condition which upon notice, lapse
of time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Domestic Subsidiaries" shall mean all Subsidiaries incorporated or
organized under the laws of the United States of America, any State thereof or
the District of Columbia.
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10
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"Environmental Claim" shall mean any written accusation, allegation,
notice of violation, claim, demand, order, directive, cost recovery action or
other cause of action by, or on behalf of, any Governmental Authority or any
person for damages, injunctive or equitable relief, personal injury
(including sickness, disease or death), Remedial Action costs, tangible or
intangible property damage, natural resource damages, nuisance, pollution,
any adverse effect on the environment caused by any Hazardous Material, or
for fines, penalties or restrictions, resulting from or based upon (a) the
existence, or the continuation of the existence, of a Release (including
sudden or non-sudden, accidental or non-accidental Releases), (b) exposure to
any Hazardous Material, (c) the presence, use, handling, transportation,
storage, treatment or disposal of any Hazardous Material or (d) the violation
or alleged violation of any Environmental Law or Environmental Permit.
"Environmental Law" shall mean any and all applicable present and
future treaties, laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any
way to the environment, preservation or reclamation of natural resources, the
management, Release or threatened Release of any Hazardous Material or to
health and safety matters, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. Sections 9601 et seq.
(collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. Sections 6901 et seq., the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
Sections 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C.
Sections 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C.
Sections 2601 et seq., the Occupational Safety and Health Act of 1970, as
amended, 29 U.S.C. Sections 651 et seq., the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001 et seq., the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. Sections 300(f) et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 5101 et
seq., and any similar or implementing state or local law, and all amendments
or regulations promulgated under any of the foregoing.
"Environmental Permit" shall mean any permit, approval,
authorization, certificate, license, variance, filing or permission required
by or from any Governmental Authority pursuant to any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with any Loan Party, is treated as a single
employer under Section 414(b) or (c) of the Code, or solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any
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11
amendment to a Plan that would require the provision of security pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined
in Section 412 of the Code or Section 302 of ERISA), whether or not waived;
(d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of
ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the incurrence of any liability under Title IV of
ERISA with respect to the termination of any Plan or the withdrawal or
partial withdrawal of any Loan Party or any of its ERISA Affiliates from any
Plan or Multiemployer Plan; (f) the receipt by any Loan Party or any ERISA
Affiliate from the PBGC or a plan administrator of any notice relating to the
intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (g) the receipt by any Loan Party or any ERISA Affiliate
of any notice concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA; (h) the
occurrence of a "prohibited transaction" with respect to which any Loan Party
or any of its Subsidiaries is a "disqualified person" (within the meaning of
Section 4975 of the Code) or with respect to which any Loan Party or any such
Subsidiary could otherwise be liable; and (i) any other event or condition
with respect to a Plan or Multiemployer Plan that could reasonably be
expected to result in liability of any Loan Party.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Loan" shall mean any Eurodollar Revolving Loan or
Eurodollar Note Repurchase Loan.
"Eurodollar Note Repurchase Borrowing" shall mean a Borrowing
comprised of Eurodollar Note Repurchase Loans.
"Eurodollar Note Repurchase Loan" shall mean any Note Repurchase
Loan bearing interest at a rate determined by reference to the Adjusted LIBO
Rate in accordance with the provisions of Article II.
"Eurodollar Revolving Borrowing" shall mean a Borrowing comprised of
Eurodollar Revolving Loans.
"Eurodollar Revolving Loan" shall mean any Revolving Loan bearing
interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VII.
"Excess Cash Flow" shall mean, for any fiscal year, the excess of
(a) the sum, without duplication, of (i) Consolidated EBITDA, (ii)
extraordinary cash income, if any, not included in Consolidated EBITDA and
(iii) an amount equal to any decrease in Consolidated Working Capital during
such fiscal year minus (b) the sum, without duplication, of (i) taxes paid or
payable in cash by the Parent Borrower and the Subsidiaries on a consolidated
basis during such fiscal year, (ii) Consolidated Interest Expense paid in
cash during such fiscal year, (iii) cash payments made during such fiscal
year in respect of Permitted Acquisitions, Permitted Non-Control Investments,
Permitted Non-Guarantor Transactions, Permitted Stock Repurchases and
maintenance capital
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12
expenditures in the ordinary course of business, (iv) scheduled and mandatory
principal repayments of Indebtedness (other than the Loans) made by the
Borrowers and the Subsidiaries during such fiscal year (excluding (A)
payments of intercompany Indebtedness between or among the Parent Borrower
and the Subsidiaries, (B) principal repayments made in connection with the
refinancing of the Existing Credit Agreement or the Charter IRBs and (C) any
principal repayments to the extent financed by incurring other Indebtedness,
other than Revolving Loans), (v) scheduled principal repayments of Note
Repurchase Loans made during such fiscal year pursuant to Section 2.12, (vi)
optional prepayments of principal of Note Repurchase Loans made during such
fiscal year pursuant to Section 2.11, (vii) an amount equal to any increase
in Consolidated Working Capital during such fiscal year and (viii)
extraordinary cash expenses, if any, paid by the Parent Borrower and the
Subsidiaries and not reflected in the calculation of Consolidated EBITDA;
provided that Excess Cash Flow shall be adjusted to exclude the effect of any
gains, losses, income or expenses attributable to any Prepayment Event.
"Existing Credit Agreement" shall mean the Credit Agreement, dated
as of October 16, 1996, as amended by Amendment No. 1 dated as of March 14,
1997, among the Parent Borrower, the Subsidiaries party thereto, the lenders
party thereto, The Chase Manhattan Bank, as administrative agent, collateral
agent and an issuing bank, and First Union National Bank of North Carolina,
as syndication agent and an issuing bank.
"Existing Letter of Credit" shall mean each letter of credit that
(a) was issued under the Existing Credit Agreement, (b) is outstanding on the
Closing Date and (c) is listed on Schedule 1.01(b).
"Fee Letter" shall mean the letter agreement dated January 30, 1997,
between the Parent Borrower and the Administrative Agent.
"Fees" shall mean the Commitment Fees, the Administrative Agent's
Fees, the L/C Participation Fees and the Issuing Bank Fees.
"Financial Officer" of any corporation shall mean any of the chief
financial officer, principal accounting officer, Treasurer and Controller of
such corporation.
"Foreign Subsidiary" shall mean any Subsidiary that is not a
Domestic Subsidiary.
"Franchise Agreement" shall mean the Master Franchise Agreement
dated as of June 16, 1997, among the Parent Borrower, Charter Franchise
Services, LLC and CBHS, each Franchise Agreement dated as of June 16, 1997,
among the Parent Borrower, Charter Franchise Services, LLC and each
subsidiary of CBHS party thereto and any Franchise Agreement entered into
among Parent Borrower, Charter Franchise Services, LLC and any subsidiary of
CBHS that is acquired or organized after the date of this Agreement.
"Franchise Payment Default" shall mean the failure by CBHS or any
subsidiary of CBHS to pay any fee or other amount that it is obligated to pay
under the Franchise Agreement to the Parent Borrower at the time payment of
such fee or other amount is due in accordance with the terms of the Franchise
Agreement, whether due to the subordination of such payments or other causes.
<PAGE>
13
"GAAP" shall mean generally accepted accounting principles applied
on a consistent basis.
"Governance Remedies" shall mean remedies that are specifically
enumerated in Section 5.9 of the Franchise Agreement.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Green Spring" shall mean Green Spring Health Services, Inc., a
Delaware corporation.
"Green Spring Exchange Agreement" shall mean the agreement dated as
of December 13, 1995, as amended, among Blue Cross and Blue Shield of New
Jersey, Inc., Health Care Service Corporation, Independence Blue Cross,
Pierce County Medical Bureau, Inc. and the Parent Borrower.
"Green Spring Stockholders' Agreement" shall mean the stockholders'
agreement dated as of December 13, 1995, among Green Spring, Blue Cross and
Blue Shield of New Jersey, Inc., Health Care Service Corporation,
Independence Blue Cross, Pierce County Medical Bureau, Inc. and the Parent
Borrower.
"Guarantee" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
to purchase (or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness or (c) to maintain working
capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such Indebtedness; provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business.
"Guarantee Agreement" shall mean the Amended and Restated Guarantee
Agreement, substantially in the form of Exhibit F, made by the Guarantors in
favor of the Collateral Agent for the benefit of the Secured Parties.
"Guarantors" shall mean each person listed on Schedule 1.01(c) and
each other person that becomes party to a Guarantee Agreement as a Guarantor,
and the permitted successors and assigns of each such person.
"Hazardous Materials" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas,
infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law.
<PAGE>
14
"Health Care Law" shall mean any and all applicable current and
future laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions or binding agreements issued, promulgated or entered
into by the Food and Drug Administration, the Health Care Financing
Administration, the Department of Health and Human Services ("HHS"), the
Office of Inspector General of HHS, the Drug Enforcement Administration or
any other Governmental Authority, including any state and/or local
professional licensing laws, certificate of need laws and state reimbursement
laws, relating in any way to the conduct of the business of the Parent
Borrower or any Subsidiary and the provision of health care services
generally.
"Inactive Subsidiary" shall have the meaning assigned to such term
in Section 5.11.
"Indebtedness" of any person shall mean, without duplication, (a)
all obligations of such person for borrowed money, (b) all obligations of
such person evidenced by bonds, debentures, notes or similar instruments, (c)
all obligations of such person upon which interest charges are customarily
paid, (d) all obligations of such person under conditional sale or other
title retention agreements relating to property or assets purchased by such
person, (e) all obligations of such person issued or assumed as the deferred
purchase price of property or services (excluding trade accounts payable and
accrued obligations incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees by such
person of Indebtedness of others, (h) all Capital Lease Obligations of such
person, (i) all obligations (determined on the basis of actual, not notional,
obligations) of such person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements and (j) all obligations of such person as
an account party in respect of letters of credit and bankers' acceptances
issued in support of obligations that constitute Indebtedness under any other
clause of this definition (unless such obligations are fully cash
collateralized), provided that all obligations in respect of letters of
credit shall be deemed Indebtedness to the extent drawings thereunder are
unreimbursed (after any applicable grace period) regardless of the purpose
for which such letter of credit was issued. The Indebtedness of any person
shall include the recourse Indebtedness of any partnership in which such
person is a general partner.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Amended and Restated Indemnity, Subrogation and Contribution Agreement,
substantially in the form of Exhibit G, among the Borrowers, the Guarantors
and the Collateral Agent.
"Insurance Subsidiaries" shall mean (a) Golden Isle Assurance
Company and (b) Plymouth Insurance Company, Ltd., each a corporation
organized under the laws of Bermuda, and their respective successors and
assigns.
"Interest Expense Coverage Ratio" shall mean, as of the last day of
any fiscal quarter, the ratio of (a) Consolidated EBITDA for the period of
four consecutive fiscal quarters ended on such day to (b) Consolidated
Interest Expense for such period (provided that, for purposes of calculating
Consolidated EBITDA and Consolidated Interest Expense for each of the
four-fiscal quarter periods ending September 30, 1997, December 31, 1997, and
March 31, 1998, Consolidated EBITDA and Consolidated Interest Expense, as the
case may be, for such four-fiscal quarter periods shall equal Consolidated
EBITDA and Consolidated Interest Expense, as the case may be, for the period
<PAGE>
15
commencing on July 1, 1997, and ending on (A) September 30, 1997, multiplied
by 4, (B) December 31, 1997, multiplied by 2 and (C) March 31, 1998,
multiplied by 4/3, respectively).
"Interest Payment Date" shall mean, with respect to any Loan, the
last day of the Interest Period applicable to the Borrowing of which such
Loan is a part (and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months'
duration been applicable to such Borrowing), and the date of any prepayment
of such Borrowing or conversion of such Borrowing to a Borrowing of a
different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the
last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as
the applicable Borrower may elect, and (b) as to any ABR Borrowing, the
period commencing on the date of such Borrowing and ending on the earliest of
(i) the last Business Day of March, June, September or December, (ii) the
Maturity Date and (iii) the date such Borrowing is converted to a Borrowing
of a different Type in accordance with Section 2.10 or repaid or prepaid in
accordance with Section 2.11 or 2.12; provided, however, that, in the case of
a Eurodollar Borrowing, if any Interest Period would end on a day other than
a Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first
day of an Interest Period to but excluding the last day of such Interest
Period.
"Interest Rate Protection Agreement" shall mean any interest rate
swap, cap or other agreement or arrangement entered into by any Borrower
designed to protect such Borrower against fluctuations in interest rates and
not for speculation, provided that any such swap, cap agreement or other
arrangement entered into after the Closing Date shall be satisfactory to the
Administrative Agent.
"Issuing Banks" shall have the meaning assigned to such term in the
preamble to this Agreement, except as amended in Section 2.22(i).
"Issuing Bank Fees" shall have the meaning assigned to such term in
Section 2.05(c).
"L/C Commitment" shall mean, with respect to each Issuing Bank, the
commitment of such Issuing Bank to issue Letters of Credit pursuant to
Section 2.22.
"L/C Disbursement" shall mean a payment or disbursement made by an
Issuing Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate principal amount of all L/C Disbursements that have not yet been
reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at
any time shall mean its Pro Rata Percentage of the L/C Exposure at such time.
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16
"L/C Participation Fee" shall have the meaning assigned to such term
in Section 2.05(c).
"Lease" shall mean the Master Lease Agreement dated as of June 16,
1997, and all supplements thereto, among Crescent Funding (as landlord), CBHS
and each facility subsidiary listed therein (as tenant).
"Leased Facilities" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Lenders" shall mean (a) the financial institutions listed on
Schedule 2.01 (other than any such financial institution that has ceased to
be a party hereto pursuant to an Assignment and Acceptance) and (b) any
financial institution that has become a party hereto pursuant to an
Assignment and Acceptance.
"Letter of Credit" shall mean (a) any letter of credit issued
pursuant to Section 2.22 and (b) any Existing Letter of Credit.
"Leverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (a) Total Debt as of such date to (b) Consolidated
EBITDA for the period of four consecutive fiscal quarters ended on such date;
(provided that, for purposes of determining Consolidated EBITDA for each of
the four-fiscal-quarter periods ending September 30, 1997, December 31, 1997,
and March 31, 1998, Consolidated EBITDA for such four-fiscal-quarter periods
shall equal Consolidated EBITDA for the period commencing on July 1, 1997,
and ending on (A) September 30, 1997, multiplied by 4, (B) December 31, 1997,
multiplied by 2 and (C) March 31, 1998, multiplied by 4/3, respectively).
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
any Interest Period, the rate appearing on Page 3750 of the Telerate Service
(or on any successor or substitute page of such Service, or any successor to
or substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations
of interest rates applicable to dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior to
the commencement of such Interest Period, as the rate for dollar deposits
with a maturity comparable to such Interest Period. In the event that such
rate is not available at such time for any reason, then the "LIBO Rate" with
respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to
the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset and (c) in the case of securities, any purchase
option, call or similar right of a third party with respect to such
securities.
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17
"Loan Documents" shall mean this Agreement, the Letters of Credit,
the Guarantee Agreement, the Security Documents and the Indemnity,
Subrogation and Contribution Agreement.
"Loan Parties" shall mean the Borrowers and the Guarantors.
"Loans" shall mean the Revolving Loans and the Note Repurchase Loans.
"Magellan Guarantee Agreement" shall have the meaning assigned to
such term in the CBHS Credit Agreement.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Franchise Payment Default" shall mean any Franchise
Payment Default that could reasonably be expected to have a Material Adverse
Effect. Without limiting the generality of the foregoing sentence, the
failure by CBHS or any of its subsidiaries to pay franchise fees and other
amounts due under the Franchise Agreement to the Parent Borrower in an
aggregate amount greater than $30,000,000 for more than 30 days after such
payment is due in accordance with the terms of the Franchise Agreement
(whether due to subordination of such payments or other causes) shall be
deemed a "Material Franchise Payment Default".
"Material Adverse Effect" shall mean (a) a materially adverse effect
on the business, assets, operations, prospects or condition, financial or
otherwise, of the Parent Borrower and the Subsidiaries taken as a whole, (b)
material impairment of the ability of the Parent Borrower and the other Loan
Parties taken as a whole to perform any of their respective obligations under
any Loan Document to which it is or will be a party or (c) material
impairment of the rights of or benefits available to the Lenders under any
Loan Document (including as a result of any material impairment of the Parent
Borrower's rights or benefits under the Franchise Agreement).
"Maturity Date" shall mean the fifth anniversary of the date of this
Agreement.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" shall mean (a) with respect to any Asset Sale or
any transaction described in Section 6.05(g), the cash proceeds thereof
(including cash and cash equivalents and cash payments received by way of
deferred payment or principal pursuant to a note or installment receivable or
otherwise, but only as and when received), net of (i) costs of sale
(including fees, expenses and payment of the outstanding principal amount of,
premium or penalty, if any, interest and other amounts on any Indebtedness
(other than Loans) repaid under the terms thereof as a result of such Asset
Sale or such transaction), (ii) taxes paid or payable as a result thereof and
(iii) amounts provided as a reserve, in accordance with GAAP, against any
liabilities under any indemnification obligations associated with such Asset
Sale or such transaction (except that, to the extent and at the time any such
amounts are released from such reserve, such amounts shall constitute Net
Cash Proceeds); provided, however, that if the Asset Sale is a result of a
Casualty Event or Condemnation Event, the cash proceeds thereof for purposes
of this definition shall not include proceeds used to replace or repair the
damaged or condemned property, as applicable, within 180 days of receipt of
such proceeds or, if replacement or repair cannot reasonably be completed
within such period, within
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18
360 days of receipt of such proceeds and (b) with respect to any issuance of
Indebtedness for borrowed money, the cash proceeds thereof net of
underwriting commissions, placement fees and other costs and expenses
directly incurred in connection therewith.
"New Borrower Agreement" shall mean any agreement entered into by a
new Subsidiary Borrower, the Administrative Agent and the Collateral Agent
in accordance with Section 2.23 and substantially in the form of Exhibit D-2.
"Non-Controlled Ventures" shall mean all partnerships and joint
ventures (a) in which the Parent Borrower and/or any of the Subsidiaries have
an ownership interest and (b) that are not Controlled Ventures.
"Note Repurchase Borrowing" shall mean a Borrowing comprised of Note
Repurchase Loans.
"Note Repurchase Loan Amount" shall mean the aggregate principal
amount of Note Repurchase Loans that shall be made on the Series A Notes
Repurchase Date, which amount shall be determined by the Parent Borrower on
the Series A Notes Repurchase Date.
"Note Repurchase Loan Commitment" shall mean, with respect to each
Lender, the commitment of such Lender to make Note Repurchase Loans hereunder
as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant
to which such Lender assumed its Note Repurchase Loan Commitment, as
applicable, as the same may be (a) reduced from time to time pursuant to
Section 2.09 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04.
"Note Repurchase Loan Payment Date" shall have the meaning assigned
to such term in Section 2.12(a).
"Note Repurchase Loans" shall mean the term loans made by the
Lenders to the Parent Borrower pursuant to clause (b) of Section 2.01 on the
Series A Notes Repurchase Date. Each Note Repurchase Loan shall be a
Eurodollar Note Repurchase Loan or an ABR Note Repurchase Loan.
"Obligations" shall mean all obligations defined as "Obligations" in
the Guarantee Agreement and the Security Documents.
"Operating Agreement" shall mean the Operating Agreement for CBHS
dated as of June 16, 1997, among the Parent Borrower, Charter Behavioral
Health Systems, Inc. and the Crescent Affiliate.
"Parent Borrower" shall have the meaning assigned to such term in
the preamble to this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred
to and defined in ERISA.
<PAGE>
19
"Perfection Certificate" shall mean the Perfection Certificate
substantially in the form of Annex 1 to the Security Agreement.
"Permitted Acquisition" shall mean any acquisition of an Acquired
Entity that was not preceded by an unsolicited tender offer for such Acquired
Entity by the Parent Borrower or any Guarantor in which the Parent Borrower
or any Guarantor is (x) in the case of an asset or stock purchase, the
purchaser of assets or stock, or (y) in the case of a merger or
consolidation, the surviving entity or the owner of all the capital stock of
the surviving or resulting entity, so long as (a) after giving effect to such
acquisition, (i) the Parent Borrower shall be in compliance, on a pro forma
basis, with all covenants set forth in this Agreement, including then
effective covenants contained in Sections 6.10, 6.11, 6.12 and 6.13, which
shall be recomputed as at the last day of the most recently ended fiscal
quarter (for which financial information has been delivered pursuant to
Section 5.04) of the Parent Borrower as if such acquisition had occurred on
the first day of each relevant period for testing such compliance, and the
Parent Borrower shall have delivered to the Administrative Agent an
officers' certificate to such effect for any acquisition in excess of
$7,500,000, (ii) any Indebtedness of the Acquired Entity that is acquired or
assumed in connection with such acquisition shall be in compliance with
Section 6.01 and (iii) on the date of such acquisition and immediately after
giving effect thereto (including the effect of any Indebtedness incurred or
assumed thereby), no Default or Event of Default shall have occurred and be
continuing, (b) in the case of an asset acquisition, such assets are to be
used, and in the case of an acquisition of capital stock or other equity
interests, the person so acquired is engaged in, a healthcare business or
healthcare businesses or in a reasonably related (ancillary or complementary)
line of business or lines of business and (c) in the case of an acquisition
of capital stock or other equity interests, (i) the Parent Borrower or the
acquiring Guarantor shall acquire at least 50% of the outstanding equity
securities of the Acquired Entity and otherwise Control such Acquired Entity,
(ii) in the case of an Acquired Entity in which no person other than the
Parent Borrower, any Affiliate of the Parent Borrower or any member of
management of the Parent Borrower owns any equity interest, such Acquired
Entity shall become a Guarantor in accordance with Section 5.11 and (iii) all
the capital stock of or other equity interests in such Acquired Entity and
any of the subsidiaries of the Acquired Entity owned by the Parent Borrower
or any Guarantor shall be pledged to the Collateral Agent in accordance with
Section 5.11.
"Permitted CBHS Advances" shall mean any loan or advance by the
Parent Borrower to CBHS, other than any loans and advances made and
outstanding as a "Permitted Non-Control Investment" hereunder, provided that
(a) the aggregate principal amount of such loans or advances outstanding at
any time shall not exceed $65,000,000, (b) no such loans or advances shall be
made or remain outstanding at any time if at such time any CBHS Loans or any
CBHS L/C Exposure shall be outstanding, (c) no such loans or advances may be
made or remain outstanding after the Deemed Borrowing Base Cut-Off Date, (d)
all such loans or advances shall be evidenced by a note from CBHS to the
Parent Borrower, which note shall be pledged by the Parent Borrower to the
Collateral Agent for the benefit of the Secured Parties in accordance with
the Pledge Agreement, (e) all such advances shall be secured by a security
interest in the accounts receivable of CBHS and its wholly owned
subsidiaries, pursuant to the Advance Security Agreement, which security
interest and Agreement shall be assigned to the Collateral Agent for the
benefit of the Secured Parties pursuant to the Advance Collateral Assignment
and (f)(i) no Event of Default and (ii) no event of default under the CBHS
Credit Agreement shall have occurred and be continuing.
<PAGE>
20
"Permitted CBHS Guarantee" shall mean the Guarantee by the Parent
Borrower of CBHS Loans not to exceed an aggregate principal sum of
$65,000,000 at any time up to but excluding the later of (a) the Deemed
Borrowing Base Cut-Off Date and (b) the first date on which the CBHS
Borrowing Base is equal to or greater than the amount of CBHS Loans then
outstanding, provided that on the date such Guarantee is made and immediately
after giving effect thereto, no Event of Default shall have occurred and be
continuing.
"Permitted Debt Repurchase" shall mean any repurchase of Permitted
Subordinated Indebtedness by the Parent Borrower so long as (a) after giving
effect to such repurchase, (i) the Parent Borrower shall be in compliance, on
a pro forma basis, with all covenants set forth in this Agreement, including
then effective covenants contained in Sections 6.10, 6.11, 6.12 and 6.13,
which shall be recomputed as at the last day of the most recently ended
fiscal quarter (for which financial information has been delivered pursuant
to Section 5.04) of the Parent Borrower as if such repurchase had occurred on
the first day of each relevant period for testing such compliance, and the
Parent Borrower shall have delivered to the Administrative Agent an
officers' certificate to such effect for any repurchase in excess of
$10,000,000 and (ii) on the date of such repurchase and immediately after
giving effect thereto, no Default or Event of Default shall have occurred and
be continuing and (b) after giving effect to such repurchase, the aggregate
amount of cash and cash equivalents on the Parent Borrower's consolidated
balance sheet plus the remaining available balance of the Total Revolving
Credit Commitment shall be at least equal to $50,000,000. The term "Permitted
Debt Repurchase" shall also include, without giving effect to and
notwithstanding the restrictions set forth above, the repurchases of the
Series A Notes on the Series A Notes Repurchase Date, pursuant to the Series
A Notes Tender Offer.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America or by any agency, instrumentality or sponsored corporation
thereof to the extent such obligations are rated at least A or the
equivalent thereof by Standard & Poor's Ratings Group or at least A-2 or
the equivalent thereof by Moody's Investors Service, Inc., in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 360 days from
the date of acquisition thereof and having, at such date of acquisition,
a rating from Standard & Poor's Ratings Service of A-1 or from Moody's
Investors Service, Inc. of P-1;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within one year from the date of acquisition
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $250,000,000;
(d) repurchase obligations with a term of not more than 90 days for,
and secured by, underlying securities of the types described in clauses
(a) through (c) above entered into with a bank meeting the qualifications
described in clause (c) above;
<PAGE>
21
(e) other investment instruments offered by financial institutions
which have a combined capital and surplus and undivided profits of not
less than $250,000,000; and
(f) deposits made prior to 1992 and interest and income earned
thereon with respect to the Parent Borrower's obligations under its
Public Issue of 7.5% Dual Currency Swiss Franc Bonds dated 1986 and due
1998/2001.
"Permitted Non-Control Investment" shall mean any investment by the
Parent Borrower or any Guarantor in another corporation or other business
entity so long as (a) after giving effect to such Permitted Non-Control
Investment, (i) the Parent Borrower shall be in compliance, on a pro forma
basis, with all covenants set forth in this Agreement, including then
effective covenants contained in Sections 6.10, 6.11, 6.12 and 6.13, which
shall be recomputed as at the last day of the most recently ended fiscal
quarter (for which financial information has been delivered pursuant to
Section 5.04) of the Parent Borrower as if such investment had occurred on
the first day of each relevant period for testing such compliance, and the
Parent Borrower shall have delivered to the Administrative Agent an officers'
certificate to such effect for any investment in excess of $7,500,000 and
(ii) on the date of such investment and immediately after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing, (b) such investment shall constitute either (i) an investment in
less than 50% of the equity interests of such corporation or other business
entity or (ii) an investment in which, notwithstanding the ownership by the
Parent Borrower or any wholly owned Subsidiary of 50% or more of the equity
interests of such corporation or business entity, neither the Parent Borrower
nor any wholly owned Subsidiary Controls such corporation or other business
entity, (c) all the capital stock of such corporation or other business
entity owned by the Parent Borrower or any Guarantor shall be pledged to the
Collateral Agent in accordance with Section 5.11 and (d) the aggregate amount
of Permitted Non-Control Investments made after the Closing Date and
outstanding at any time shall not exceed $35,000,000 less the amount, if any,
by which the amount of Permitted Non-Guarantor Transactions made after the
Closing Date and outstanding at such time exceeds $35,000,000. Subject to
satisfaction of the foregoing criteria, the term "Permitted Non-Control
Investment" shall include (a) any investment arising as a result of sales or
other dispositions of common stock of a Guarantor permitted pursuant to this
Agreement, (b) transfers of assets to or other investments in entities that
are neither Controlled Non-Guarantor Entities nor Guarantors and (c) the
granting of any Guarantee of any Indebtedness of any such entity. In
addition, "Permitted Non-Control Investment" shall include, without giving
effect to and notwithstanding the restrictions set forth above, (x)
investments made as part of the Transactions or as otherwise existing on the
Closing Date, (y) Permitted CBHS Guarantee and (z) up to $10,000,000 in the
aggregate of additional contributions and/or loans to CBHS in accordance with
the Operating Agreement (as in effect on the date hereof). Notwithstanding
anything to the contrary, Permitted CBHS Advances shall not be deemed
investments in CBHS or its subsidiaries for purposes of this definition of
"Permitted Non-Control Investment".
"Permitted Non-Guarantor Transactions" shall mean any (a) transfer
of assets by the Parent Borrower or any Guarantor to a Controlled
Non-Guarantor Entity, (b) investments by the Parent Borrower or any Guarantor
in Controlled Non-Guarantor Entities, (c) Guarantees by the Parent Borrower
or any Guarantor of any Indebtedness of Controlled Non-Guarantor Entities or
(d) any transaction that causes any Guarantor to become a Controlled
Non-Guarantor Entity, in each case so long as, after giving effect to any
such transaction, the sum of (i) the fair market value of all assets
transferred to Controlled Non-Guarantor Entities (such value to be determined
with respect to each
<PAGE>
22
asset as of the time such asset was transferred), (ii) the amount of
then-outstanding investments in Controlled Non-Guarantor Entities, (iii) the
then-outstanding principal amount of Indebtedness of the Controlled
Non-Guarantor Entities Guaranteed by the Parent Borrower or any Guarantor and
(iv) the value of the equity interests retained by the Parent Borrower or any
Guarantor in all Controlled Non-Guarantor Entities that became Controlled
Non-Guarantor Entities as the result of a Permitted Non-Guarantor Transaction
effected after the Closing Date (such value to be determined with respect to
each Controlled Non-Guarantor Entity as of the time the relevant Permitted
Non-Guarantor Transaction occurred), shall not exceed $35,000,000 plus the
amount, if any, by which $35,000,000 exceeds the amount of Permitted
Non-Control Investments made after the Closing Date and outstanding (without
giving effect to the transactions described in the last sentence of the
definition of "Permitted Non-Control Investment") at the time of such
transaction; provided, further, that after giving effect to any such
Permitted Non-Guarantor Transaction, (i) the Parent Borrower shall be in
compliance, on a pro forma basis, with all covenants set forth in this
Agreement, including then effective covenants contained in Sections 6.10,
6.11, 6.12 and 6.13, which shall be recomputed as at the last day of the most
recently ended fiscal quarter (for which financial information has been
delivered pursuant to Section 5.04) of the Parent Borrower as if such
transaction had occurred on the first day of each relevant period for testing
such compliance, and the Parent Borrower shall have delivered to the
Administrative Agent an officers' certificate to such effect for any
investment in excess of $7,500,000 and (ii) on the date of such transaction
and immediately after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing. The term "Permitted Non-Guarantor
Transactions" shall also include, without giving effect to and
notwithstanding the restrictions set forth above, exchanges under the Green
Spring Exchange Agreement and the purchases pursuant to the Green Spring
Stockholders' Agreement.
"Permitted Post-Closing Crescent Transaction" shall mean a sale,
transfer or other disposition of assets or property related to the behavioral
healthcare businesses that are acquired by the Parent Borrower or any
Subsidiary after the Closing Date to Crescent, CBHS or any of their
respective subsidiaries in accordance with the REIT Purchase Agreement,
provided that (a) each such sale, transfer or other disposition shall be
consummated within 90 days of the acquisition thereof by the Parent Borrower
or any Subsidiary, (b) such sale, transfer or other disposition is for
consideration not less than the fair market value of such assets or property
sold, transferred or disposed of (as determined in good faith by a Financial
Officer of the Parent Borrower) and the purchase price paid therefor by the
Parent Borrower or such Subsidiary; provided, however, that in the event that
the assets or property sold, transferred or otherwise disposed of to Crescent
are a part of a larger group of assets or property acquired by the Parent
Borrower or any Subsidiary, then the Parent Borrower shall deliver a
certificate of a Financial Officer that (i) sets forth in reasonable detail
the derivation of the value allocated to such assets or property sold,
transferred or otherwise disposed of to Crescent and (ii) certifies that such
allocated value and the consideration paid by Crescent for such assets or
property is not less than the fair market value of such assets or property
and not less than the purchase price paid therefor by the Parent or such
Subsidiary, (c) the Parent Borrower shall be in compliance, on a pro forma
basis, with all covenants set forth in this Agreement, including then
effective covenants contained in Sections 6.10, 6.11, 6.12 and 6.13, which
shall be recomputed as at the last day of the most recently ended fiscal
quarter (for which financial information has been delivered pursuant to
Section 5.04) of the Parent Borrower as if such sale, transfer or other
disposition had occurred on the first day of each relevant period for testing
such compliance, and the Parent Borrower shall have delivered to the
Administrative Agent an officers' certificate to such effect for any sale,
transfer or other disposition in excess of $10,000,000 and (d) on the date of
such sale, transfer or other
<PAGE>
23
disposition and immediately after giving effect thereto, no Default or Event
of Default shall have occurred and be continuing.
"Permitted Restrictions" shall mean, with respect to any Controlled
Venture, provisions contained in the governing documents of such Controlled
Venture, that prohibit or otherwise restrict the making of distributions by
such Controlled Venture (a) at any time such Controlled Venture has
outstanding Indebtedness to any owner of equity interests thereof, (b) in the
case of Controlled Ventures that are subject to taxation as a partnership
under the Code, to the extent that such distributions would cause any owner
of equity interests thereof to have a negative balance in its capital
account, (c) without the approval of at least a majority of the (i)
directors, (ii) managers, managing members or members, (iii) general partners
or (iv) the persons or governing body performing a similar function as any of
the foregoing, (d) to the extent such distribution would be prohibited by any
applicable law, rule or regulation, (e) out of or through the use of funds of
such Controlled Venture that the directors, managers, managing members,
members, general partners (or persons or governing body performing similar
functions) have reasonably determined are necessary to pay such Controlled
Venture's current and anticipated cash obligations, including operating
expenses, debt service, acquisitions, capital expenditures and reasonable
reserves, or (f) under other circumstances that are consented to in writing
by the Administrative Agent with respect to such Controlled Venture.
"Permitted Stock Repurchase" shall mean any repurchase by the Parent
Borrower of shares of its common stock so long as (a) after giving effect to
such repurchase, (i) the Parent Borrower shall be in compliance, on a pro
forma basis, with all covenants set forth in this Agreement, including then
effective covenants contained in Sections 6.10, 6.11, 6.12 and 6.13, which
shall be recomputed as at the last day of the most recently ended fiscal
quarter (for which financial information has been delivered pursuant to
Section 5.04) of the Parent Borrower as if such repurchase had occurred on
the first day of each relevant period for testing such compliance, and the
Parent Borrower shall have delivered to the Administrative Agent an officers'
certificate to such effect for any repurchase that exceeds $10,000,000 and
(ii) on the date of such repurchase and immediately after giving effect
thereto, no Default or Event of Default shall exist, (b) the aggregate amount
expended by the Parent Borrower in connection with all Permitted Stock
Repurchases shall not exceed during the term of this Agreement $27,207,346
and (c) after giving effect to any such repurchase, the aggregate amount of
cash and cash equivalents on the Parent Borrower's consolidated balance sheet
plus the remaining available balance of the Total Revolving Credit Commitment
shall be at least equal to $50,000,000.
"Permitted Subordinated Indebtedness" shall mean (a)(i) prior to the
Series A Notes Repurchase Date, the Series A Notes (including the Guarantees
thereof) and (ii) after the Series A Notes Repurchase Date, the Series A
Notes (including the Guarantees thereof) not required to be repurchased
pursuant to the Series A Notes Indenture or the Series A Notes Tender Offer;
(b) any Indebtedness of the Parent Borrower (including any Guarantees
thereof) that refinances the Series A Notes, provided that (i) such
refinancing Indebtedness is in an aggregate principal amount not greater than
the aggregate principal amount of the Series A Notes as of the Closing Date
plus the amount of any premiums required to be paid thereon and fees and
expenses associated with such refinancing; (ii) such refinancing Indebtedness
has a final maturity later than or equal to and a weighted average life
longer than or equal to the remaining life of the Series A Notes determined
as of the date of the refinancing; (iii) such refinancing Indebtedness bears
interest at a fixed rate, which rate shall be, in the good faith judgment of
the Parent Borrower's board of directors, consistent with the market at the
<PAGE>
24
time of issuance for similar Indebtedness; (iv) such refinancing Indebtedness
shall contain subordination and intercreditor provisions that are no more
favorable in any material respect to the holders thereof than the
subordination and intercreditor provisions contained in the indenture
governing the Series A Notes; (v) the negative and financial covenants (if
any) of such refinancing Indebtedness shall not require the Parent Borrower
to maintain any specified financial condition except as a condition to the
taking of certain actions; (vi) each of the covenants, events of default and
other provisions thereof (including any Guarantees thereof) shall be no less
favorable to the Lenders in any material respect than those contained in the
indenture governing the Series A Notes and (vii) on the date that such
refinancing Indebtedness is incurred and immediately after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing; (c) Indebtedness issued pursuant to the Green Spring Exchange
Agreement; and (d) any other Indebtedness of the Parent Borrower that is
subordinated to the Obligations, provided that (i) such Indebtedness has a
maturity that is after the Maturity Date, (ii) such Indebtedness bears
interest at a rate consistent with the market at the time of issuance for
similar Indebtedness; (iii) such Indebtedness shall contain subordination and
intercreditor provisions that are no more favorable in any material respect
to the holders thereof than the subordination and intercreditor provisions
contained in the indenture governing the Series A Notes; (iv) the negative
financial covenants (if any) of such Indebtedness shall not require the
Parent Borrower to maintain any specified financial condition except as a
condition to the taking of certain actions; and (v) each of the covenants,
events of default and other provisions thereof (including any Guarantees
thereof) shall be no less favorable to the Lenders in any material respect
than those contained in the indenture governing the Series A Notes.
"person" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership or government, or any agency
or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which any Loan
Party or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreement" shall mean the Amended and Restated Pledge
Agreement, substantially in the form of Exhibit H, among the Parent Borrower,
the Subsidiaries party thereto and the Collateral Agent for the benefit of
the Secured Parties.
"Prepayment Event" shall mean any event requiring a mandatory
prepayment of Note Repurchase Loans described in Section 2.13(a) or 2.13(c)
or a prepayment of Revolving Loans required pursuant to Section 2.13(f) as a
result of a mandatory commitment reduction pursuant to Section 2.13(e).
"Properties" shall have the meaning assigned to such term in Section
3.17(a).
"Pro Rata Percentage" of any Revolving Credit Lender at any time
shall mean the percentage of the Total Revolving Credit Commitment
represented by such Revolving Credit Lender's Revolving Credit Commitment.
<PAGE>
25
"Public Solutions" shall mean Magellan Public Solutions, Inc., a
Delaware corporation.
"Purchased Facilities" shall have the meaning assigned to such term
in the preamble to this Agreement.
"Real Estate for Sale" shall mean the real property and improvements
having a book value of $[26,195,547] set aside by the Parent Borrower for
sale as set forth in the Parent Borrower's consolidated balance sheet as of
March 31, 1997, and described on Schedule 1.01(d).
"Refinancing Indebtedness" shall have the meaning assigned to such
term in Section 6.01(n).
"Register" shall have the meaning given such term in Section 9.04(d).
"Regulation G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation T" shall mean Regulation T of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REIT Purchase Agreement" shall mean the Real Estate Purchase and
Sale Agreement dated as of January 29, 1997, as amended, between the Parent
Borrower and Crescent.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing, emanating or migrating of any Hazardous
Material in, into, onto or through the environment.
"Remedial Action" shall mean (a) "remedial action" as such term is
defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions
required by any Governmental Authority or voluntarily undertaken to: (i)
cleanup, remove, treat, abate or in any other way address any Hazardous
Material in the environment; (ii) prevent the Release or threat of Release,
or minimize the further Release, of any Hazardous Material so it does not
migrate or endanger or threaten to endanger public health, welfare or the
environment; or (iii) perform studies and investigations in connection with,
or as a precondition to, (i) or (ii) above.
"Required Lenders" shall mean, at any time, Lenders having Revolving
Loans, Note Repurchase Loans, L/C Exposure and unused Revolving Credit and
Note Repurchase Commitments representing at least a majority of the sum of
all Revolving Loans, Note Repurchase Loans outstanding, L/C Exposure and
unused Revolving Credit and Note Repurchase Commitments at such time.
<PAGE>
26
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised of
Revolving Loans.
"Revolving Credit Commitment" shall mean, with respect to each
Lender, the commitment of such Lender to make Revolving Loans hereunder as
set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to
which such Lender assumed its Revolving Credit Commitment, as applicable, as
the same may be (a) reduced from time to time pursuant to Sections 2.09, 2.13
or 2.21 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04.
"Revolving Credit Exposure" shall mean, with respect to any Lender
at any time, the aggregate principal amount at such time of all outstanding
Revolving Loans of such Lender, plus the aggregate amount at such time of
such Lender's L/C Exposure.
"Revolving Credit Lender" shall mean a Lender with a Revolving
Credit Commitment.
"Revolving Loans" shall mean the revolving loans made by the Lenders
to the Borrowers pursuant to clause (a) of Section 2.01. Each Revolving Loan
shall be a Eurodollar Revolving Loan or an ABR Revolving Loan.
"Rights Plan" shall mean the Rights Agreement dated as of July 21,
1992, between the Parent Borrower and First Union Bank of North Carolina, as
Rights Agent (as defined therein).
"Secured Parties" shall have the meaning assigned to such term in
the Security Agreement.
"Security Agreement" shall mean the Amended and Restated Security
Agreement, substantially in the form of Exhibit I, among the Parent Borrower,
the Subsidiaries party thereto and the Collateral Agent for the benefit of
the Secured Parties.
"Security Documents" shall mean the Security Agreement, the Pledge
Agreement, the Collateral Assignment, the Advance Collateral Assignment and
each of the security agreements and other instruments and documents executed
and delivered pursuant to any of the foregoing or pursuant to Section 5.11.
"Senior Debt" shall mean Total Debt but excluding all Permitted
Subordinated Indebtedness.
"Senior Debt Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (a) Senior Debt as of such date to (b) Consolidated
EBITDA for the period of four consecutive fiscal quarters ended on such date
(provided that, for purposes of calculating Consolidated EBITDA for each of
the four-fiscal-quarter periods ending September 30, 1997, December 31, 1997,
and March 31,
<PAGE>
27
1998, Consolidated EBITDA for such four-fiscal-quarter periods shall equal
Consolidated EBITDA for the period commencing on July 1, 1997, and ending on
(A) September 30, 1997, multiplied by 4, (B) December 31, 1997, multiplied by
2 and (C) March 31, 1998, multiplied by 4/3, respectively).
"Series A Notes" shall mean the 11-1/4% Series A Senior Subordinated
Notes due 2004 of the Parent Borrower.
"Series A Notes Indenture" shall mean the Indenture governing the
Series A Notes as in effect on the date hereof and as amended from time to
time in accordance with the provisions hereof.
"Series A Notes Repurchase Date" shall mean the date on which the
Parent Borrower is required to repurchase any Series A Notes tendered to it,
in accordance with the Series A Notes Indenture and the Series A Notes Tender
Offer, which date shall be no later than 70 days after the closing and sale
of the Purchased Facilities under the REIT Purchase Agreement.
"Series A Notes Tender Offer" shall mean the tender offer made by
the Parent Borrower, in accordance with the Series A Notes Indenture, for the
purchase of all issued and outstanding Series A Notes at a purchase price
equal to 101% of the principal amount thereof (plus accrued interest) on the
Series A Notes Repurchase Date.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including
any marginal, special, emergency or supplemental reserves) expressed as a
decimal established by the Board and any other banking authority, domestic or
foreign, to which the Administrative Agent or any Lender (including any
branch, Affiliate or other fronting office making or holding a Loan) is
subject with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities
(as defined in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Loans shall
be deemed to constitute Eurocurrency Liabilities and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions
or offsets that may be available from time to time to any Lender under such
Regulation D. Statutory Reserves shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
"Subordination Agreement" shall mean the Subordination Agreement
dated as of June 16, 1997, among CBHS, Crescent Funding, Charter Franchise
Services, LLC and the Parent Borrower.
"subsidiary" shall mean, with respect to any person (herein referred
to as the "parent"), any corporation, partnership, association or other
business entity of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or
more than 50% of the general partnership interests are, at the time any
determination is being made, owned, controlled or held by the parent or one
or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of the Parent Borrower.
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"Subsidiary Borrower" shall mean Charter Behavioral Health System
of New Mexico, Inc. and each wholly owned Subsidiary that executes a New
Borrower Agreement in accordance with Section 2.23 and that has not ceased to
be a Subsidiary Borrower in accordance with such Section.
"Subsidiary Borrower Termination" shall mean any termination
executed by the Parent Borrower in accordance with Section 2.23 and
substantially in the form of Exhibit D-3.
"Subsidiary Non-Guarantors" shall mean any Subsidiary that is not a
Guarantor.
"Syndication Agent" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Total Debt" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis at any time, all Indebtedness of the
Parent Borrower and the Subsidiaries which at such time would be required to
be reflected as a liability for borrowed money on a consolidated balance
sheet of the Parent Borrower and its consolidated Subsidiaries prepared in
accordance with GAAP, plus (without duplication) the maximum undrawn amount
of any outstanding letters of credit issued pursuant to this Agreement (it
being understood that such letters of credit shall not be included in "Total
Debt" to the extent such letters of credit are issued to support Indebtedness
and the amount of such Indebtedness has been included in "Total Debt").
"Total Revolving Credit Commitment" shall mean, at any time, the
aggregate amount of the Revolving Credit Commitments, as in effect at such
time.
"Transaction Consideration" shall have the meaning assigned to such
term in the preamble to this Agreement.
"Transaction Documents" shall mean the REIT Purchase Agreement, the
Contribution Agreement, the Operating Agreement, the Franchise Agreement, the
Lease, the Subordination Agreement and the Warrant Agreements and all other
agreements to be entered into by the Parent Borrower or any Subsidiary
pursuant thereto or in connection therewith.
"Transactions" shall mean all transactions contemplated by the
Transaction Documents, the Loan Documents and the CBHS Loan Documents.
"Type", when used in respect of any Loan or Borrowing, shall refer
to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, the term
"Rate" shall include the Adjusted LIBO Rate and the Alternate Base Rate.
"Warrant Agreements" shall mean (i) the Warrant Purchase Agreement
dated as of January 29, 1997, between the Parent Borrower and Crescent, and
(ii) the Warrant Purchase Agreement to be executed on the closing of the
Contribution Transaction between the Parent Borrower and the Crescent
Affiliate.
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29
"wholly owned subsidiary" of any person shall mean a subsidiary of
such person of which securities (except for directors' qualifying shares) or
other ownership interests representing 100% of the equity or 100% of the
ordinary voting power or 100% of the general partnership interests are, at
the time any determination is being made, owned, controlled or held by such
person or one or more wholly owned subsidiaries of such person or by such
person and one or more wholly owned subsidiaries of such person.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context shall require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, (a) any reference in
this Agreement to any Loan Document shall mean such document as amended,
restated, supplemented or otherwise modified from time to time and (b) all
terms of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time; provided, however, that for
purposes of determining compliance with the covenants contained in Article
VI, all accounting terms herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP as in effect
on the date of this Agreement and applied on a basis consistent with the
application used in the financial statements referred to in Section 3.05(a).
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, (a) to make Revolving Loans to the
Borrowers, at any time and from time to time on or after the date hereof, and
until the earlier of the Maturity Date and the termination of the Revolving
Credit Commitment of such Lender in accordance with the terms hereof, in an
aggregate principal amount at any time outstanding that will not result in
(i) such Lender's Revolving Credit Exposure exceeding (ii) such Lender's
Revolving Credit Commitment at such time and (b) to make Note Repurchase
Loans to the Parent Borrower on the Series A Notes Repurchase Date in a
principal amount not to exceed such Lender's Note Repurchase Loan Commitment.
Within the limits set forth in clause (a) of the preceding sentence and
subject to the terms, conditions and limitations set forth herein, the
Borrowers may borrow, pay or prepay and reborrow Revolving Loans. Amounts
paid or prepaid in respect of Note Repurchase Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Revolving Credit Commitments or Note Repurchase Loan
Commitments, as applicable; provided, however, that the
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30
failure of any Lender to make any Loan shall not in itself relieve any other
Lender of its obligation to lend hereunder (it being understood, however,
that no Lender shall be responsible for the failure of any other Lender to
make any Loan required to be made by such other Lender). Except for Loans
deemed made pursuant to Section 2.02(f), the Loans comprising any Borrowing
shall be in an aggregate principal amount that is (i) an integral multiple of
$1,000,000 and not less than $5,000,000 or (ii) equal to the remaining
available balance of the applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the applicable
Borrower may request pursuant to Section 2.03. Each Lender may at its option
make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan; provided that any exercise of
such option shall not affect the obligation of the applicable Borrower to
repay such Loan in accord-ance with the terms of this Agreement. Borrowings
of more than one Type may be outstanding at the same time; provided, however,
that the Borrowers shall not be entitled to request any Borrowing that, if
made, would result in more than five Eurodollar Borrowings outstanding
hereunder at any time. For purposes of the foregoing, only Borrowings having
different Interest Periods, regardless of whether they commence on the same
date, shall be considered separate Borrowings.
(c) Except with respect to Loans deemed made pursuant to Section
2.02(f), each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds to such
account in New York City as the Administrative Agent may designate not later
than 11:00 a.m., New York City time, and the Administrative Agent shall by
12:00 (noon), New York City time, credit the amounts so received to a
domestic account designated in the applicable Borrowing Request (provided
that such designated account shall be an account of a Borrower or a
Guarantor) or, if a Borrowing shall not occur on such date because any
condition precedent herein specified shall not have been met, return the
amounts so received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice from
a Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing
in accordance with paragraph (c) above, and the Administrative Agent may, in
reliance upon such assumption, make available to the applicable Borrower on
such date a corresponding amount. If the Administrative Agent shall have so
made funds available then, to the extent that such Lender shall not have made
such portion available to the Administrative Agent, such Lender and the
applicable Borrower severally agree to repay to the Administrative Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to such Borrower
until the date such amount is repaid to the Administrative Agent at (i) in
the case of any Borrower, the interest rate applicable at the time to the
Loans comprising such Borrowing and (ii) in the case of such Lender, a rate
determined by the Administrative Agent to represent its cost of overnight or
short-term funds (which determination shall be conclusive absent manifest
error). If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount shall constitute such Lender's Loan as part
of such Borrowing for purposes of this Agreement.
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(e) Notwithstanding any other provision of this Agreement, the
Borrowers shall not be entitled to request any Borrowing if the Interest
Period requested with respect thereto would end after the Maturity Date.
(f) If an Issuing Bank shall not have received from the applicable
Borrower any payment required to be made to such Issuing Bank by Section
2.22(e) within the time specified in such Section, such Issuing Bank will
promptly notify the Administrative Agent of the L/C Disbursement and the
Administrative Agent will promptly notify each Revolving Credit Lender of
such L/C Disbursement and its Pro Rata Percentage thereof. Each Revolving
Credit Lender shall pay by wire transfer of immediately available funds to
the Administrative Agent not later than 2:00 p.m., New York City time, on
such date (or, if such Revolving Credit Lender shall have received such
notice later than 12:00 (noon), New York City time, on any day, not later
than 10:00 a.m., New York City time, on the immediately following Business
Day), an amount equal to such Revolving Credit Lender's Pro Rata Percentage
of such L/C Disbursement (it being understood that such amount shall be
deemed to constitute an ABR Revolving Loan of such Revolving Credit Lender
and such payment shall be deemed to have reduced the L/C Exposure), and the
Administrative Agent will promptly pay to such Issuing Bank amounts so
received by it from the Revolving Credit Lenders. The Administrative Agent
will promptly pay to such Issuing Bank any amounts received by it from the
applicable Borrower pursuant to Section 2.22(e) prior to the time that any
Revolving Credit Lender makes any payment pursuant to this paragraph (f); any
such amounts received by the Administrative Agent thereafter will be promptly
remitted by the Administrative Agent to the Revolving Credit Lenders that
shall have made such payments and to such Issuing Bank, as their interests
may appear. If any Revolving Credit Lender shall not have made its Pro Rata
Percentage of such L/C Disbursement available to the Administrative Agent as
provided above, such Revolving Credit Lender and the applicable Borrower
severally agree to pay interest on such amount, for each day from and
including the date such amount is required to be paid in accordance with this
paragraph to but excluding the date such amount is paid, to the
Administrative Agent for the account of such Issuing Bank at (i) in the case
of such Borrower, a rate per annum equal to the interest rate applicable to
Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such
Revolving Credit Lender, for the first such day, the Federal Funds Effective
Rate, and for each day thereafter, the Alternate Base Rate.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing
(other than a deemed Borrowing pursuant to Section 2.02(f), as to which this
Section 2.03 shall not apply), a Borrower shall hand deliver or telecopy to
the Administrative Agent a duly completed Borrowing Request (a) in the case
of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time,
three Business Days before a proposed Borrowing, (b) in the case of an ABR
Borrowing made as part of the Note Repurchase Loans on the Series A Notes
Repurchase Date, not later than 11:00 a.m., New York City time on such date,
and (c) in the case of any other ABR Borrowing, not later than 12:00 noon,
New York City time, one Business Day before a proposed Borrowing. Each
Borrowing Request shall be irrevocable, shall be signed by or on behalf of
the applicable Borrower and shall specify the following information: (i)
whether the Borrowing then being requested is to be a Revolving Credit
Borrowing or a Note Repurchase Borrowing and whether such Borrowing is to be
a Eurodollar Borrowing or an ABR Borrowing, provided that any Borrowing on
the Closing Date, and any Borrowing on the Series A Notes Repurchase Date
consisting of Note Repurchase Loans made pursuant to clause (b) above shall
be an ABR Borrowing; (ii) the date of such Borrowing (which shall be a
Business Day); (iii) the number and location of the account to which funds
are to be disbursed
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(which shall be an account that complies with the requirements of Section
2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to
be a Eurodollar Borrowing, the Interest Period with respect thereto;
provided, however, that, notwithstanding any contrary specification in any
Borrowing Request, each requested Borrowing shall comply with the
requirements set forth in Section 2.02. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall
be an ABR Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the applicable Borrower shall
be deemed to have selected an Interest Period of one month's duration. The
Administrative Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.03 (and the contents thereof), and of each
Lender's portion of the requested Borrowing.
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The
Borrowers, jointly and severally, unconditionally promise to pay to the
Administrative Agent for the account of each Lender (i) the principal amount
of each Note Repurchase Loan of such Lender as provided in Section 2.12 and
(ii) the then unpaid principal amount of each Revolving Loan of such Lender
on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrowers
to such Lender resulting from each Loan made by such Lender from time to
time, including the amounts of principal and interest payable and paid to
such Lender from time to time under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it
will record (i) the amount of each Loan made hereunder, the Type thereof and
the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrowers to
each Lender hereunder and (iii) the amount of any sum received by the
Administrative Agent hereunder from any Borrower or any Guarantor and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the existence
and amounts of the obligations therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligations of the
Borrowers to repay the Loans in accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in the
event any Lender shall request and receive a promissory note payable to such
Lender and its registered assigns, the interests represented by such note
shall at all times (including after any assignment of all or part of such
interests pursuant to Section 9.04) be represented by one or more promissory
notes payable to the payee named therein or its registered assigns.
SECTION 2.05. Fees. (a) The Borrowers agree to pay to each
Lender, through the Administrative Agent, on the last Business Day of March,
June, September and December in each year (calculated to such last Business
Day, as applicable, of March, June, September and December) and on the date
on which the applicable Commitment of such Lender shall expire or be
terminated as provided herein, a commitment fee (a "Commitment Fee") equal to
the Applicable Percentage per annum in effect from time to time on the
average daily unused amount of the Commitment of such Lender during the
preceding quarter (or other period commencing with the date of acceptance by
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33
the Borrowers of the Commitment of such Lender or ending with the Maturity
Date or the date on which the applicable Commitments of such Lender shall
expire or be terminated), provided that the aggregate fees payable on any
such day shall not exceed the amount that would have been payable if no
assignment of any Lender's interest had occurred during the applicable three
month period. All Commitment Fees shall be computed on the basis of the
actual number of days elapsed in a year of 360 days. The Commitment Fee due
to each Lender shall commence to accrue on the later of the date of this
Agreement and the date of acceptance by the Borrowers of the applicable
Commitment of such Lender and shall cease to accrue on the date on which the
applicable Commitment of such Lender shall expire or be terminated as
provided herein. Notwithstanding anything to the contrary in this Section
2.05(a), no fees shall be payable upon the expiration or termination of any
Note Repurchase Loan Commitment if (i) such expiration or termination is the
result of the making of a Note Repurchase Loan on the Series A Notes
Repurchase Date or (ii) the applicable Lender's aggregate amount of
Commitments does not decrease as a result of such termination or expiration.
(b) The Borrowers agree to pay to the Administrative Agent, for its
own account, the administrative fees set forth in the Fee Letter at the times
and in the amounts specified therein (the "Administrative Agent Fees").
(c) The Borrowers agree to pay (i) to each Revolving Credit Lender,
through the Administrative Agent, on the last Business Day of March, June,
September and December of each year (calculated to such last Business Day, as
applicable, of March, June, September and December) and on the date on which
the Revolving Credit Commitment of such Revolving Credit Lender shall be
terminated as provided herein, a fee (an "L/C Participation Fee") calculated
on such Revolving Credit Lender's Pro Rata Percentage of the average daily
aggregate L/C Exposure (excluding the portion thereof attributable to
unreimbursed L/C Disbursements) during the preceding quarter (or shorter
period commencing with the date hereof or ending with the Maturity Date or
the date on which all Letters of Credit have been canceled or have expired
and the Revolving Credit Commitments of all Lenders shall have been
terminated) at a rate equal to the Applicable Percentage from time to time
used to determine the interest rate on Revolving Credit Borrowings comprised
of Eurodollar Loans pursuant to Section 2.06; provided that the aggregate
fees payable on any such day shall not exceed the amount that would have been
payable if no assignment of any Revolving Credit Lender's interest had
occurred during the applicable three month period, and (ii) to each Issuing
Bank with respect to each Letter of Credit issued by it, (x) a fee equal to
0.125% per annum of the face amount of such Letter of Credit, payable
quarterly in arrears on the last Business Day of each quarter (calculated to
such last Business Day, as applicable, of March, June, September and
December) and (y) the standard issuance and administration fees specified
from time to time by such Issuing Bank (the "Issuing Bank Fees"). All L/C
Participation Fees and Issuing Bank Fees shall be computed on the basis of
the actual number of days elapsed in a year of 360 days.
(d) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
appropriate, among the Lenders, except that the Issuing Bank Fees shall be
paid directly to the respective Issuing Banks. Once paid, none of the Fees
shall be refundable under any circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of
Section 2.07, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of
365 or 366 days, as the case may be, when the Alternate Base
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34
Rate is determined by reference to the Prime Rate and over a year of 360 days
at all other times) at a rate per annum equal to the Alternate Base Rate plus
the Applicable Percentage in effect from time to time.
(b) Subject to the provisions of Section 2.07, the Loans comprising
each Eurodollar Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum
equal to the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Percentage in effect from time to time.
(c) Interest on each Loan shall be payable on the Interest Payment
Dates applicable to such Loan except as otherwise provided in this Agreement.
The applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest
Period or day within an Interest Period, as the case may be, shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error.
SECTION 2.07. Default Interest. If the Borrowers shall default in
the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, or under any other Loan
Document, the Borrowers shall on demand from time to time pay interest, to
the extent permitted by law, on such defaulted amount to, but excluding, the
date of actual payment (after as well as before judgment) (a) in the case of
overdue principal, at the rate otherwise applicable to such Loan pursuant to
Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per
annum (computed on the basis of the actual number of days elapsed over a year
of 365 or 366 days, as the case may be, when determined by reference to the
Prime Rate and over a year of 360 days at all other times) equal to the sum
of the Alternate Base Rate plus 2.00%.
SECTION 2.08. Alternate Rate of Interest. If, and on each occasion
that, on the day two Business Days prior to the commencement of any Interest
Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered
will not adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or that
reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the
Administrative Agent shall, as soon as practicable thereafter, give written
or telecopy notice of such determination to the Borrowers and the Lenders.
In the event of any such determination, until the Administrative Agent shall
have advised the Borrowers and the Lenders that the circumstances giving rise
to such notice no longer exist, any request by the Borrowers for a Eurodollar
Borrowing pursuant to Section 2.03 shall be deemed to be a request for an ABR
Borrowing. Each determination by the Administrative Agent hereunder shall be
conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The
Note Repurchase Loan Commitments shall automatically terminate at 5:00 p.m.,
New York City time, on the Series A Notes Repurchase Date. The Revolving
Credit Commitments and the L/C Commitments shall automatically terminate on
the Maturity Date. Notwithstanding the foregoing, all the Commitments and
L/C Commitments shall automatically terminate at 5:00 p.m., New York City
time, on June 30, 1997, if the initial Credit Event shall not have occurred
by such time.
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(b) Upon at least two Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrowers may at any time
after the Series A Notes Repurchase Date in whole permanently terminate, or
from time to time in part permanently reduce, the Revolving Credit
Commitments; provided, however, that (i) each partial reduction of the
Revolving Credit Commitments shall be in an integral multiple of $1,000,000
and in a minimum amount of $5,000,000 and (ii) the Total Revolving Credit
Commitment shall not be reduced to an amount that is less than the Aggregate
Credit Exposure at the time.
(c) Each reduction in the Revolving Credit Commitments or the Note
Repurchase Loan Commitments hereunder shall be made ratably among the Lenders
in accordance with their respective applicable Commitments. The Borrowers
shall pay to the Administrative Agent for the account of the Lenders, on the
date of each termination or reduction, the Commitment Fees on the amount of
the Commitments so terminated or reduced accrued to but excluding the date of
such termination or reduction.
(d) The Total Revolving Credit Commitment shall be automatically
reduced on the Series A Notes Repurchase Date by an amount equal to the Note
Repurchase Loan Amount; provided, however, that in the event the outstanding
Notes Repurchase Loans are repaid in full within 12 months after the Series A
Notes Repurchase Date from the net proceeds of the issuance of Permitted
Subordinated Indebtedness or equity capital of the Parent Borrower, then if
requested by the Parent Borrower in writing not less than 20 days prior to
such repayment, subject to the consent of each Lender affected thereby in
accordance with Section 9.08(b), the Total Revolving Credit Commitment shall
be increased by the amount that the Notes Repurchase Loans are so repaid. In
the event that no Note Repurchase Loans are made on the Series A Notes
Repurchase Date, the Note Repurchase Commitment shall automatically terminate
and the Total Revolving Credit Commitment shall not be reduced.
SECTION 2.10. Conversion and Continuation of Borrowings. The
applicable Borrower shall have the right at any time upon prior irrevocable
notice to the Administrative Agent (a) not later than 12:00 (noon), New York
City time, one Business Day prior to conversion, to convert any Eurodollar
Borrowing into an ABR Borrowing, (b) not later than 10:00 a.m., New York City
time, three Business Days prior to conversion or continuation, to convert any
ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar
Borrowing as a Eurodollar Borrowing for an additional Interest Period, and
(c) not later than 10:00 a.m., New York City time, three Business Days prior
to conversion, to convert the Interest Period with respect to any Eurodollar
Borrowing to another permissible Interest Period, subject in each case to the
following:
(i) subject to Section 2.15, each conversion or continuation shall
be made pro rata among the Lenders in accordance with the respective
principal amounts of the Loans comprising the converted or continued
Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
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(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount; accrued interest on any Eurodollar Loan (or portion
thereof) being converted shall be paid by the Borrowers at the time of
conversion;
(iv) if any Eurodollar Borrowing is converted at a time other than
the end of the Interest Period applicable thereto, the Borrowers shall
pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16;
(v) any portion of a Borrowing maturing or required to be repaid in
less than one month may not be converted into or continued as a
Eurodollar Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Note
Repurchase Borrowing that would end later than a repayment date occurring
on or after the first day of such Interest Period if, after giving effect
to such selection, the aggregate outstanding amount of (A) the Eurodollar
Note Repurchase Borrowings with Interest Periods ending on or prior to
such repayment date and (B) the ABR Note Repurchase Borrowings would not
be at least equal to the principal amount of Note Repurchase Borrowings
to be paid on such repayment date; and
(viii) upon notice to the Borrowers from the Administrative Agent
given at the request of the Required Lenders, after the occurrence and
during the continuance of a Default or Event of Default, no outstanding
Loan may be converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section 2.10 shall refer to this
Agreement and specify (i) the identity and amount of the Borrowing that the
applicable Borrower requests be converted or continued, (ii) whether such
Borrowing is to be converted to or continued as a Eurodollar Borrowing or an
ABR Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such Borrowing is to
be converted to or continued as a Eurodollar Borrowing, the Interest Period
with respect thereto. If no Interest Period is specified in any such notice
with respect to any conversion to or continuation as a Eurodollar Borrowing,
the applicable Borrower shall be deemed to have selected an Interest Period
of one month's duration. The Administrative Agent shall advise the Lenders
of any notice given pursuant to this Section 2.10 and of each Lender's
portion of any converted or continued Borrowing. If the applicable Borrower
shall not have given notice in accordance with this Section 2.10 to continue
any Borrowing into a subsequent Interest Period (and shall not otherwise have
given notice in accordance with this Section 2.10 to convert such Borrowing),
such Borrowing shall, at the end of the Interest Period applicable thereto
(unless repaid pursuant to the terms hereof), automatically be continued into
a new Interest Period as an ABR Borrowing.
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SECTION 2.11. Prepayment. (a) The Borrowers shall have the right
at any time and from time to time to prepay any Borrowing, in whole or in
part, upon at least two Business Days' prior written or telecopy notice (or
telephone notice promptly confirmed by written or telecopy notice) to the
Administrative Agent before 11:00 a.m., New York City time; provided,
however, that each partial prepayment shall be in an amount that is an
integral multiple of $1,000,000 and not less than $5,000,000.
(b) Optional prepayments of Note Repurchase Loans shall be applied
as directed by the Parent Borrower against the remaining principal due in
respect of the Note Repurchase Loans.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrowers to prepay such Borrowing
by the amount stated therein on the date stated therein. All prepayments
under this Section 2.11 shall be subject to Section 2.16 but otherwise
without premium or penalty. All prepayments under this Section 2.11 shall be
accompanied by accrued interest on the principal amount being prepaid to the
date of payment.
SECTION 2.12. Repayment of Note Repurchase Borrowings. (a) The
Borrowers shall pay to the Administrative Agent, for the account of the
Lenders, on the dates set forth below or, if any such date is not a Business
Day, on the next preceding Business Day (each such date being a "Note
Repurchase Loan Repayment Date"), a principal amount of the Note Repurchase
Loans (such amount, as adjusted from time to time pursuant to this Section
2.12 and Sections 2.11 and 2.13, being called the "Note Repurchase Loan
Repayment Amount") equal to the percentage set forth below for
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such date of the principal amount of the Note Repurchase Loans outstanding as
of the Series A Notes Repurchase Date, together in each case with accrued and
unpaid interest on the principal amount to be paid to but excluding the date
of such payment:
Date Amount
----------- ------
September 30, 1998 5%
December 31, 1998 5%
March 31, 1999 5%
June 30, 1999 5%
September 30, 1999 5%
December 31, 1999 5%
March 31, 2000 5%
June 30, 2000 5%
September 30, 2000 5%
December 31, 2000 5%
March 31, 2001 5%
June 30, 2001 5%
September 30, 2001 10%
December 31, 2001 10%
March 31, 2002 10%
Maturity Date 10%
(b) To the extent not previously paid, all Note Repurchase Loans
shall be due and payable on the Maturity Date.
(c) All repayments pursuant to this Section 2.12 shall be subject
to Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.13. Mandatory Prepayments and Commitment Reductions. (a)
Not later than the third Business Day following the completion of any Asset
Sale or any transaction described in Section 6.05(g), the Borrowers shall
apply 100% of the Net Cash Proceeds received with respect thereto to prepay
out-standing Note Repurchase Loans in accordance with Section 2.13(d);
provided, however, that no such prepayment shall be required until the
September 30 that is immediately after the completion of any such Asset Sale
if the applicable Net Cash Proceeds plus all other Net Cash Proceeds that
have yet to be applied in accordance with this Section 2.13(a) are less than
$5,000,000.
(b) No later than the earlier of (i) 120 days after the end of each
fiscal year of the Parent Borrower, commencing with the fiscal year ending on
September 30, 1998, and (ii) the date on which the financial statements with
respect to such period are delivered pursuant to Section 5.04(a), the Parent
Borrower shall prepay outstanding Note Repurchase Loans in accordance with
Sec-tion 2.13(d) in an aggregate principal
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39
amount equal to 75% (or, if at such time the aggregate principal amount of
outstanding Note Repurchase Loans is less than $100,000,000, 50%) of Excess
Cash Flow for the fiscal year then ended.
(c) In the event that any Borrower or any Guarantor shall receive
Net Cash Proceeds from the issuance of Indebtedness for money borrowed of any
Borrower or any Subsidiary (other than Indebtedness for money borrowed
permitted pursuant to Section 6.01(i) or Section 6.01(n)), the Borrowers
shall, substantially simultaneously with (and in any event not later than the
third Business Day next following) the receipt of such Net Cash Proceeds,
apply an amount equal to 100% of such Net Cash Proceeds to prepay outstanding
Note Repurchase Loans in accordance with Section 2.13(d); provided, however,
that no such prepayment shall be required until the September 30 that is
immediately after such issuance if the applicable Net Cash Proceeds plus all
other Net Cash Proceeds that have yet to be applied in accordance with this
Section 2.13(c) are less than $5,000,000.
(d) Mandatory prepayments of outstanding Note Repurchase Loans
under this Agreement shall be applied pro rata against the remaining
scheduled installments of principal due in respect of the Note Repurchase
Loans under Sections 2.12(a).
(e) In the event that, upon the occurrence of any event described
in Section 2.13(a), no Note Repurchase Loans are outstanding (or the amount
required to be applied pursuant to such Section exceeds the aggregate
principal amount of outstanding Note Repurchase Loans), Revolving Credit
Commitments shall be reduced pro rata by the amount of the prepayment that
would have been required in respect of Note Repurchase Loans had there been
Note Repurchase Loans outstanding (after giving effect to any prepayment
thereof); provided, however, that no such reduction shall be required until
the September 30 that is immediately after such event if the applicable Net
Cash Proceeds plus all other Net Cash Proceeds that have yet to be applied in
accordance with this Section 2.13(e) are less than $5,000,000. The Borrowers
shall pay to the Administrative Agent for the account of the Revolving Credit
Lenders, on the date of each termination or reduction pursuant to this
Section 2.13(e), the Commitment Fees on the amount of the Revolving Credit
Commitments so terminated or reduced accrued to but excluding the date of
such termination or reduction.
(f) In the event of any termination of all the Revolving Credit
Commitments, the Borrowers shall repay or prepay all outstanding Revolving
Credit Borrowings on the date of such termination. In the event of any
partial reduction of the Revolving Credit Commitments, then (i) at or prior
to the effective date of such reduction, the Administrative Agent shall
notify the Borrowers and the Revolving Credit Lenders of the Aggregate Credit
Exposure after giving effect thereto and (ii) if the Aggregate Credit
Exposure would exceed the Total Revolving Credit Commitment after giving
effect to such reduction, then the Borrowers shall, on the date of such
reduction, repay or prepay Revolving Credit Borrowings in an amount
sufficient to eliminate such excess.
(g) If following any reduction of the Total Revolving Credit
Commitment pursuant to Section 2.13(e) and any payments required pursuant to
Section 2.13(f), the Total Revolving Credit Commitment is less than the L/C
Exposure, the Borrowers shall, on the date of such reduction, replace
out-standing Letters of Credit or deposit an amount in cash in a collateral
account established with the Collateral Agent in accordance with Section
2.22(j), in an amount equal to the amount that the L/C Exposure exceeds the
Total Revolving Credit Commitment upon such date of reduction.
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40
(h) Amounts to be applied pursuant to this Section 2.13 to the
pre-payment of Loans shall be applied, as applicable, first to reduce
outstanding ABR Loans. Any amounts remaining after each such application
shall, at the option of the Parent Borrower, be applied to prepay Eurodollar
Loans immediately and/or shall be deposited in the Prepayment Account (as
defined below). The Administrative Agent shall apply any cash deposited in
the Prepayment Account (i) allocable to Note Repurchase Loans to prepay
Eurodollar Note Repurchase Loans and (ii) allocable to Revolving Loans to
prepay Eurodollar Revolving Loans, in each case on the last day of their
respective Interest Periods (or, at the direction of the Parent Borrower, on
any earlier date) until all outstanding Note Repurchase Loans or Revolving
Loans, as the case may be, have been prepaid or until all the allocable cash
on deposit with respect to such Loans has been exhausted. For purposes of
this Agreement, the term "Prepayment Account" shall mean an account
established by the Parent Borrower with the Administrative Agent and over
which the Administrative Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal for application in accordance
with this paragraph (h). The Administrative Agent will, at the request of
the Parent Borrower, invest amounts on deposit in the Prepayment Account in
Permitted Investments that mature prior to the last day of the applicable
Interest Periods of the Eurodollar Note Repurchase Borrowings or Eurodollar
Revolving Borrowings to be prepaid, as the case may be; provided, however,
that (i) the Administrative Agent shall not be required to make any
investment that, in its sole judgment, would require or cause the
Administrative Agent to be in, or would result in any, violation of any law,
statute, rule or regulation and (ii) the Administrative Agent shall have no
obligation to invest amounts on deposit in the Prepayment Account if a
Default or Event of Default shall have occurred and be continuing. The
Parent Borrower shall indemnify the Administrative Agent for any losses
relating to the investments so that the amount available to prepay Eurodollar
Borrowings on the last day of the applicable Interest Period is not less than
the amount that would have been available had no investments been made
pursuant thereto. Any interest earned on such investments shall be deposited
in the Prepayment Account and reinvested and disbursed as specified above.
If the maturity of the Loans has been accelerated pursuant to Article VII,
the Administrative Agent may, in its sole discretion, apply all amounts on
deposit in the Prepayment Account to satisfy any of the Obligations. The
Parent Borrower hereby grants to the Administrative Agent, for its benefit
and the benefit of the Issuing Banks and the Lenders, a security interest in
the Prepayment Account to secure the Obligations.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof (whether or not
having the force of law) shall change the basis of taxation of payments to
any Lender or an Issuing Bank of the principal of or interest on any
Eurodollar Loan made by such Lender or any Fees or other amounts payable
hereunder (other than changes in respect of taxes imposed on the overall net
income of such Lender or Issuing Bank by the jurisdiction in which such
Lender or Issuing Bank has its principal office or by any political
subdivision or taxing authority therein), or shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by any Lender or
an Issuing Bank (except any such reserve requirement which is reflected in
the Adjusted LIBO Rate) or shall impose on such Lender or Issuing Bank or the
London interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or participation
therein, and the result of any of the foregoing shall be to increase the cost
to such Lender of making or maintaining any Eurodollar
<PAGE>
41
Loan or increase the cost to any Lender or Issuing Bank of issuing or
maintaining any Letter of Credit or purchasing or maintaining a participation
therein or to reduce the amount of any sum received or receivable by such
Lender or Issuing Bank hereunder (whether of principal, interest or
otherwise) by an amount deemed by such Lender or Issuing Bank to be material,
then the Borrowers will pay to such Lender or Issuing Bank, as the case may
be, upon demand such additional amount or amounts as will compensate such
Lender or Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or an Issuing Bank shall have determined that the
adoption after the date hereof of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in
any such law, rule, regulation, agreement or guideline (whether such law,
rule, regulation, agreement or guideline has been adopted) or in the
interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by
any Lender (or any lending office of such Lender) or an Issuing Bank or any
Lender's or Issuing Bank's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
Governmental Authority has or would have the effect of reducing the rate of
return on such Lender's or Issuing Bank's capital or on the capital of such
Lender's or Issuing Bank's holding company, if any, as a consequence of this
Agreement or the Loans made or participations in Letters of Credit purchased
by such Lender pursuant hereto or the Letters of Credit issued by such
Issuing Bank pursuant hereto to a level below that which such Lender or
Issuing Bank or such Lender's or Issuing Bank's holding company could have
achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lender's or Issuing Bank's policies and the policies
of such Lender's or Issuing Bank's holding company with respect to capital
adequacy) by an amount deemed by such Lender or Issuing Bank to be material,
then from time to time the Borrowers shall pay to such Lender or Issuing
Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or Issuing Bank or such Lender's or Issuing Bank's
holding company for any such reduction suffered.
(c) A certificate of a Lender or Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or an Issuing Bank or
its holding company, as applicable, as specified in paragraph (a) or (b)
above shall be delivered to the Borrowers and shall be conclusive absent
manifest error. Such certificate (i) shall set forth in reasonable detail the
conditions giving rise to a circumstance or situation under Section 2.14(a)
or (b), and (ii) shall set forth the calculations of the amounts to be paid
by the applicable Borrower (which calculations shall be made in the same
manner as for similar outstanding loans made by such Lender of a similar type
and amount as Loans by such Lender under this Agreement to persons of
creditworthiness similar to that of the Parent Borrower), and, if made in
accordance with this sentence, shall be conclusive absent manifest error.
The Borrowers shall pay such Lender or Issuing Bank the amount shown as due
on any such certificate delivered by it within 10 days after its receipt of
the same.
(d) Failure or delay on the part of any Lender or any Issuing Bank
to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital shall not constitute
a waiver of such Lender's or Issuing Bank's right to demand such
compensation. The protection of this Section shall be available to each
Lender and Issuing Bank regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, agreement,
guideline or other change or condition that shall have occurred or been
imposed.
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42
SECTION 2.15. Change in Legality. (a) Notwithstanding any other
provision of this Agreement, if, after the date hereof, any change in any law
or regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it
unlawful for any Lender to make or maintain any Eurodollar Loan or to give
effect to its obligations as contemplated hereby with respect to any
Eurodollar Loan, then, by written notice to the Borrowers and to the
Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not
thereafter (for the duration of such unlawfulness) be made by such Lender
hereunder (or be continued for additional Interest Periods and ABR Loans
will not thereafter (for such duration) be converted into Eurodollar
Loans), where-upon any request for a Eurodollar Borrowing (or to convert
an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar
Borrowing for an additional Interest Period) shall, as to such Lender
only, be deemed a request for an ABR Loan (or a request to continue an
ABR Loan as such for an additional Interest Period or to convert a
Eurodollar Loan into an ABR Loan, as the case may be), unless such
declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the effective
date of such notice as provided in paragraph (b) below.
If any Lender shall exercise its rights under (i) or (ii) above, all payments
and prepayments of principal that would otherwise have been applied to repay
the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay
the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrowers by
any Lender shall be effective as to each Eurodollar Loan made by such Lender,
if lawful, on the last day of the Interest Period currently applicable to
such Eurodollar Loan; in all other cases such notice shall be effective on
the date of receipt by the Borrowers.
SECTION 2.16. Indemnity. The Borrowers, jointly and severally,
shall indemnify each Lender against any loss (but excluding lost profits) or
expense that such Lender may sustain or incur as a consequence of (a) any
event, other than a default by such Lender in the performance of its
obligations hereunder, which results in (i) such Lender receiving or being
deemed to receive any amount on account of the principal of any Eurodollar
Loan prior to the end of the Interest Period in effect therefor, (ii) the
conversion of any Eurodollar Loan to an ABR Loan, or the conversion of the
Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to
be made pursuant to a conversion or continuation under Section 2.10) not
being made after notice of such Loan shall have been given by the Borrowers
hereunder (any of the events referred to in this clause (a) being called a
"Breakage Event") or (b) any default in the making of any payment or
prepayment required to be made hereunder. In the case of any Breakage Event,
such loss shall include an amount equal to the excess, as reasonably
determined by such Lender, of (i) its cost of obtaining funds for the
Eurodollar Loan that is the subject of such Breakage Event for
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43
the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or that would have been in effect) for such Loan
over (ii) the amount of interest likely to be realized by such Lender in
redeploying the funds released or not utilized by reason of such Breakage
Event for such period. A certificate of any Lender setting forth any amount
or amounts which such Lender is entitled to receive pursuant to this Section
2.16 shall be delivered to the Borrowers and shall be conclusive absent
manifest error.
SECTION 2.17. Pro Rata Treatment. Except as required under Section
2.15, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the
Commitment Fees, each reduction of the Revolving Credit Commitments or the
Note Repurchase Loan Commitments and each conversion of any Borrowing to or
continuation of any Borrowing as a Borrowing of any Type shall be allocated
pro rata among the Lenders in accordance with their respective applicable
Commitments (or, if such applicable Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Loans). Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may,
in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it
shall, through the exercise of a right of banker's lien, setoff or
counterclaim against the Borrowers or any other Loan Party, or pursuant to a
secured claim under Section 506 of Title 11 of the United States Code or
other security or interest arising from, or in lieu of, such secured claim,
received by such Lender under any applicable bankruptcy, insolvency or other
similar law or otherwise, or by any other means, obtain payment (voluntary or
involuntary) in respect of any Loan or Loans or L/C Disbursement as a result
of which the unpaid principal portion of its Revolving Loans and Note
Repurchase Loans and participations in L/C Disbursements shall be
proportionately less than the unpaid principal portion of the Revolving Loans
and Note Repurchase Loans and participations in L/C Disbursements of any
other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Revolving Loans and Note
Repurchase Loans and L/C Exposure, as the case may be, of such other Lender,
so that the aggregate unpaid principal amount of the Revolving Loans and Note
Repurchase Loans and L/C Exposure and participations in Revolving Loans and
Note Repurchase Loans and L/C Exposure held by each Lender shall be in the
same proportion to the aggregate unpaid principal amount of all Revolving
Loans and Note Repurchase Loans and L/C Exposure then outstanding as the
principal amount of its Revolving Loans and Note Repurchase Loans and L/C
Exposure prior to such exercise of banker's lien, setoff or counterclaim or
other event was to the principal amount of all Revolving Loans and Note
Repurchase Loans and L/C Exposure outstanding prior to such exercise of
banker's lien, setoff or counterclaim or other event; provided, however, that
if any such purchase or purchases or adjustments shall be made pursuant to
this Section 2.18 and the payment giving rise thereto shall thereafter be
recovered, such purchase or purchases or adjustments shall be rescinded to
the extent of such recovery and the purchase price or prices or adjustment
restored without interest. The Borrowers expressly consent to the foregoing
arrangements and agree that any Lender holding a participation in a Revolving
Loan and Note Repurchase Loan or L/C Disbursement deemed to have been so
purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the Borrowers to
such Lender by reason thereof as fully as if such Lender had made a Loan
directly to the Borrowers in the amount of such participation.
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44
SECTION 2.19. Payments. (a) The Borrowers shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement
or any Fees or other amounts) hereunder and under any other Loan Document not
later than 12:00 (noon), New York City time, on the date when due in
immediately available dollars, without setoff, defense or counterclaim. Each
such payment (other than Issuing Bank Fees, which shall be paid directly to
the respective Issuing Banks, and other than payments pursuant to Sections
2.14, 2.16, 2.20 and 9.05, which shall be made to the persons entitled
thereto) shall be made to the Administrative Agent at its offices at One
Chase Manhattan Plaza, 8th Floor, New York, New York 10081.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that 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 interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by or on behalf of
the Borrowers or any Loan Party hereunder and under any other Loan Document
shall be made, in accordance with Section 2.19, free and clear of and without
deduction for any and all current or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding (i) income taxes imposed on the net income of the
Administrative Agent, any Lender or either Issuing Bank (or any permitted
assignee thereof, (any such entity a "Transferee")) and (ii) franchise taxes
imposed on the net income of the Administrative Agent, any Lender or an
Issuing Bank (or Transferee), in each case by the jurisdiction under the laws
of which the Administrative Agent, such Lender or an Issuing Bank (or
Transferee) is organized or any political sub-division thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, being called "Taxes"). If the
Borrowers or any Loan Party shall be required to deduct any Taxes from or in
respect of any sum payable hereunder or under any other Loan Document to the
Administrative Agent, any Lender or an Issuing Bank (or any Transferee), (i)
the sum payable shall be increased by the amount (an "additional amount")
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.20) the
Administrative Agent, such Lender or an Issuing Bank (or Transferee), as the
case may be, shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrowers or such Loan Party shall
make such deductions and (iii) the Borrowers or such Loan Party shall pay the
full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrowers agree to pay to the relevant
Governmental Authority in accordance with applicable law any current or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or under
any other Loan Document or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement or any other Loan Document
("Other Taxes").
(c) The Borrowers shall indemnify the Administrative Agent, each
Lender and each Issuing Bank (or Transferee) for the full amount of Taxes and
Other Taxes paid by the Administrative Agent, such Lender or such Issuing
Bank (or Transferee), as the case may be, and any liability (including
penalties, interest and expenses (including reasonable attorney's fees and
expenses)) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally
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45
asserted by the relevant Governmental Authority. A certificate as to the
amount of such payment or liability prepared by the Administrative Agent, a
Lender or an Issuing Bank (or Transferee), or the Administrative Agent on its
behalf and accompanied by a copy of any relevant notices received from a
Governmental Authority and any return or form prepared or filed by the
Administrative Agent, a Lender or an Issuing Bank (or Transferee) in
connection with such payment or liability, absent manifest error, shall be
conclusive for all purposes. Such indemnification shall be made within 30
days after the date the Administrative Agent, any Lender or any Issuing Bank
(or Transferee), as the case may be, makes written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes
or Other Taxes by the Borrowers or any other Loan Party to the relevant
Governmental Authority, the Borrowers or such other Loan Party will deliver
to the Administrative Agent, at its address referred to in Section 9.01, the
original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(e) Each Lender (or Transferee) that is organized under the laws of
a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender") shall deliver to the Parent
Borrower and the Administrative Agent two copies of either United States
Internal Revenue Service Form 1001 or Form 4224, or, in the case of a
Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under
Section 871(h) or 881(c) of the Code with respect to payments of "portfolio
interest", a Form W-8, or any subsequent versions thereof or successors
thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate
representing that such Non-U.S. Lender is not a bank for purposes of Section
881(c) of the Code, is not a 10-percent shareholder (within the meaning of
Section 871(h)(3)(B) of the Code) of the Borrowers and is not a controlled
foreign corporation related to the Borrowers (within the meaning of Section
864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Borrowers under this Agreement and
the other Loan Documents. Such forms shall be delivered by each Non-U.S.
Lender on or before the date it becomes a party to this Agreement and on or
before the date, if any, such Non-U.S. Lender changes its applicable lending
office by designating a different lending office (a "New Lending Office").
In addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Notwithstanding any other provision of this Section 2.20(e), a
Non-U.S. Lender shall not be required to deliver any form pursuant to this
Section 2.20(e) that such Non-U.S. Lender is not legally able to deliver.
(f) The Borrowers shall not be required to indemnify any Non-U.S.
Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of
United States Federal withholding tax pursuant to paragraph (a) or (c) above
to the extent that (i) the obligation to withhold amounts with respect to
United States Federal withholding tax existed on the date such Non-U.S.
Lender became a party to this Agreement or, with respect to payments to a New
Lending Office, the date such Non-U.S. Lender designated such New Lending
Office with respect to a Loan or a Letter of Credit; provided, however, that
this paragraph (f) shall not apply (x) to any Transferee or New Lending
Office that becomes a Transferee or New Lending Office as a result of an
assignment, transfer or designation made at the request of the Borrowers and
(y) to the extent the indemnity payment or additional amounts any Transferee,
or any Lender (or Transferee), acting through a New Lending Office, would be
entitled to receive (without regard to this paragraph (f)) do not exceed the
indemnity
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46
payment or additional amounts that the person making the assignment, or
transfer to such Transferee, or Lender (or Transferee) making the designation
of such New Lending Office, would have been entitled to receive in the
absence of such assignment, transfer or designation or (ii) the obligation to
pay such additional amounts would not have arisen but for a failure by such
Non-U.S. Lender to comply with the provisions of paragraph (e) above.
(g) Nothing contained in this Section 2.20 shall require any Lender
or Issuing Bank (or any Transferee) or the Administrative Agent to make
available any of its tax returns (or any other information that it deems to
be confidential or proprietary).
SECTION 2.21. Assignment of Commitments Under Certain
Circumstances; Duty to Mitigate. (a) If (i) any Lender delivers a
certificate requesting compensation pursuant to Section 2.14, (ii) any Lender
delivers a notice described in Section 2.15 or (iii) the Borrowers are
required to pay any additional amount to any Lender or any Governmental
Authority on account of any Lender pursuant to Section 2.20, the Borrowers
may, at their sole expense and effort (including with respect to the
processing and recordation fee referred to in Section 9.04(b)), upon notice
to such Lender and the Administrative Agent, require such Lender or Issuing
Bank to transfer and assign, without recourse (in accordance with and subject
to the restrictions contained in Section 9.04), all of its interests, rights
and obligations under this Agreement to an assignee that shall assume such
assigned obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (x) such assignment shall not
conflict with any law, rule or regulation or order of any court or other
Governmental Authority having jurisdiction, (y) the Borrowers shall have
received the prior written consent of the Administrative Agent (and, if a
Revolving Credit Commitment is being assigned, of each Issuing Bank), which
consent shall not unreasonably be withheld, and (z) the Borrowers or such
assignee shall have paid to the affected Lender in immediately available
funds an amount equal to the sum of the principal of and interest accrued to
the date of such payment on the outstanding Loans or L/C Disbursements of
such Lender, respectively, plus all Fees and other amounts accrued for the
account of such Lender hereunder (including any amounts under Section 2.14
and Section 2.16); provided further that, if prior to any such transfer and
assignment the circum-stances or event that resulted in such Lender's claim
for compensation under Section 2.14 or notice under Section 2.15 or the
amounts paid pursuant to Section 2.20, as the case may be, cease to cause
such Lender to suffer increased costs or reductions in amounts received or
receivable or reduction in return on capital, or cease to have the
consequences specified in Section 2.15, or cease to result in amounts being
payable under Section 2.20, as the case may be (including as a result of any
action taken by such Lender pursuant to paragraph (b) below), or if such
Lender shall waive its right to claim further compensation under Section 2.14
in respect of such circumstances or event or shall withdraw its notice under
Section 2.15 or shall waive its right to further payments under Section 2.20
in respect of such circumstances or event, as the case may be, then such
Lender shall not thereafter be required to make any such transfer and
assignment hereunder.
(b) If (i) any Lender shall request compensation under Section
2.14, (ii) any Lender delivers a notice described in Section 2.15 or (iii)
the Borrowers are required to pay any additional amount to any Lender or any
Governmental Authority on account of any Lender, pursuant to Section 2.20,
then such Lender shall use reasonable efforts (which shall not require such
Lender to incur an unreimbursed loss or unreimbursed cost or expense or
otherwise take any action inconsistent with its internal policies or legal or
regulatory restrictions or suffer any disadvantage or burden deemed by it to
be significant) (x) to file any certificate or document (including any
document
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contesting the imposition of any such amount or requesting a refund of such
amount by any relevant Governmental Authority) reasonably requested in
writing by the Borrowers or (y) to assign its rights and delegate and
transfer its obligations hereunder to another of its offices, branches or
affiliates, if such filing or assignment would reduce its claims for
compensation under Section 2.14 or enable it to withdraw its notice pursuant
to Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as
the case may be, in the future. The Borrowers hereby agree to pay all
reasonable costs and expenses incurred by any Lender in connection with any
such filing or assignment, delegation and transfer. Any Lender receiving any
refund or rebate of any amounts paid by a Borrower pursuant to Section 2.20
shall promptly pay the same to the applicable Borrower.
SECTION 2.22. Letters of Credit. (a) General. Any Borrower may
request the issuance by either Issuing Bank of a Letter of Credit for such
Borrower's own account, in a form reasonably acceptable to the Administrative
Agent and such Issuing Bank, at any time and from time to time while the
Revolving Credit Commitments remain in effect. This Section shall not be
construed to impose an obligation upon either Issuing Bank to issue any
Letter of Credit that is inconsistent with the terms and conditions of this
Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. In order to request the issuance of a Letter of Credit (or to
amend, renew or extend an existing Letter of Credit), any Borrower or any
Guarantor shall hand deliver or telecopy to an Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of
issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, the date of issuance, amendment, renewal or extension,
the date on which such Letter of Credit is to expire (which shall comply with
paragraph (c) below), the face amount of such Letter of Credit, the name and
address of the beneficiary thereof and such other information as shall be
necessary to prepare such Letter of Credit. Following receipt of such notice
and prior to the issuance of the requested Letter of Credit or the applicable
amendment, renewal or extension, the Administrative Agent shall notify the
Borrowers and the applicable Issuing Bank of the amount of the Aggregate
Credit Exposure after giving effect to (i) the issuance, amendment, renewal
or extension of such Letter of Credit, (ii) the issuance or expiration of
each other Letter of Credit that is to be issued or will expire on or prior
to the requested date of issuance of such Letter of Credit and (iii) the
borrowing or repayment of any Revolving Loans that (based upon notices
delivered to the Administrative Agent by the Borrowers) are to be borrowed or
repaid on or prior to the requested date of issuance of such Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended
only if, and upon issuance, amendment, renewal or extension of each Letter of
Credit the Borrowers shall be deemed to represent and warrant that, after
giving effect to such issuance, amendment, renewal or extension (A) the L/C
Exposure shall not exceed $50,000,000 and (B) the Aggregate Credit Exposure
shall not exceed the Total Revolving Credit Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the
close of business on the earlier of (i) the date one year after the date of
the issuance of such Letter of Credit and (ii) the date that is five Business
Days prior to the Maturity Date, unless such Letter of Credit expires by its
terms on an earlier date.
(d) Participations. By the issuance of a Letter of Credit and
without any further action on the part of the applicable Issuing Bank or the
Revolving Credit Lenders, the Issuing Bank in respect of such Letter of
Credit hereby grants to each Revolving Credit Lender, and each such
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48
Lender hereby acquires from such Issuing Bank, a participation in such Letter
of Credit equal to such Lender's Pro Rata Percentage of the aggregate amount
available to be drawn under such Letter of Credit, effective upon the
issuance of such Letter of Credit. In consideration and in furtherance of
the foregoing, each Revolving Credit Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of
such Issuing Bank, such Lender's Pro Rata Percentage of each L/C Disbursement
made by such Issuing Bank and not reimbursed by the Borrowers (or, if
applicable, another party pursuant to its obligations under any other Loan
Document) forthwith on the date due as provided in Section 2.02(f). Each
Revolving Credit Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a
Default or an Event of Default, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, the Borrowers shall pay to the
Administrative Agent an amount equal to such L/C Disbursement not later than
2:00 p.m. on the day the Borrowers shall have received notice from such
Issuing Bank that payment of such draft will be made, or, if the Borrowers
shall have received such notice later than 10:00 a.m., New York City time, on
any Business Day, not later than 10:00 a.m., New York City time, on the
immediately following Business Day.
(f) Obligations Absolute. The Borrowers' obligations to reimburse
L/C Disbursements as provided in paragraph (e) above shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, under any and all circumstances whatsoever,
and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit
or any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other right
that the Borrowers, any other party guaranteeing, or otherwise obligated
with, the Borrowers, any Subsidiary or other Affiliate thereof or any
other person may at any time have against the beneficiary under any
Letter of Credit, either Issuing Bank, the Administrative Agent or any
Lender or any other person, whether in connection with this Agreement,
any other Loan Document or any other related or unrelated agreement or
transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;
(v) payment by an Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of either
Issuing Bank, the Lenders, the Administrative Agent or any other person
or any other event or circumstance
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49
whatsoever, whether or not similar to any of the foregoing, that might,
but for the provisions of this Section, constitute a legal or equitable
discharge of the Borrowers' obligations hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrowers hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or willful misconduct of either Issuing Bank. However, the
foregoing shall not be construed to excuse an Issuing Bank from liability to
the Borrowers to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrowers to the extent permitted by applicable law) suffered by the
Borrowers that are caused by such Issuing Bank's gross negligence or willful
misconduct in determining whether drafts and other documents presented under
a Letter of Credit comply with the terms thereof; it is understood that an
Issuing Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary and, in making any payment under any Letter of
Credit (i) an Issuing Bank's exclusive reliance on the documents presented to
it under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals
the amount of such draft and whether or not any document presented pursuant
to such Letter of Credit proves to be insufficient in any respect, if such
document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be
inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in
any immaterial respect of the documents presented under such Letter of Credit
with the terms thereof shall, in each case, be deemed not to constitute
willful misconduct or gross negligence of such Issuing Bank.
(g) Disbursement Procedures. An Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent
a demand for payment under a Letter of Credit. Such Issuing Bank shall as
promptly as possible give telephonic notification, confirmed by telecopy, to
the Administrative Agent and the Borrowers of such demand for payment and
whether such Issuing Bank has made or will make an L/C Disbursement
thereunder (it being understood that such notice shall not be required if
prior to any L/C Disbursement the Borrowers have made available to the
applicable Issuing Bank funds sufficient to reimburse such Issuing Bank for
such L/C Disbursement), provided that any failure to give or delay in giving
such notice shall not relieve the Borrowers of their obligation to reimburse
such Issuing Bank and the Revolving Credit Lenders with respect to any such
L/C Disbursement. The Administrative Agent shall promptly give each
Revolving Credit Lender notice thereof.
(h) Interim Interest. If on any date an Issuing Bank shall make
any L/C Disbursement in respect of a Letter of Credit, then, unless the
Borrowers shall reimburse such L/C Disbursement in full on such date, the
unpaid amount thereof shall bear interest for the account of such Issuing
Bank, for each day from and including the date of such L/C Disbursement, to
but excluding the earlier of the date of payment by the Borrowers or the date
on which interest shall commence to accrue thereon as provided in Section
2.02(f), at the rate per annum that would apply to such amount if such amount
were an ABR Loan.
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(i) Resignation or Removal of an Issuing Bank. An Issuing Bank may
resign at any time by giving 180 days' prior written notice to the
Administrative Agent, the Lenders and the Borrowers, and may be removed at
any time by the Borrowers by notice to such Issuing Bank, the Administrative
Agent and the Lenders. Subject to the last sentence of this paragraph (i),
upon the acceptance of any appointment as an Issuing Bank hereunder by a
Lender that shall agree to serve as a successor Issuing Bank, such successor
shall succeed to and become vested with all the interests, rights and
obligations of the retiring Issuing Bank and the retiring Issuing Bank shall
be discharged from its obligations to issue additional Letters of Credit
hereunder. At the time such removal or resignation shall become effective,
the Borrowers shall pay all accrued and unpaid fees due to the retiring
Issuing Bank pursuant to Section 2.05(c)(ii). The acceptance of any
appointment as an Issuing Bank here-under by a successor Lender shall be
subject to approval, unless an Event of Default has occurred and is
continuing, by the Parent Borrower (which approval shall not be unreasonably
withheld) and shall be evidenced by an agreement entered into by such
successor, in a form satisfactory to the Borrowers and the Administrative
Agent, and, from and after the effective date of such agreement, (i) such
successor Lender shall have all the rights and obligations of the previous
Issuing Bank under this Agreement and the other Loan Documents and (ii)
references herein and in the other Loan Documents to the term "Issuing Bank"
shall be deemed to include such successor or any previous Issuing Bank, or to
such successor and all previous Issuing Banks, as the context shall require.
After the resignation or removal of an Issuing Bank hereunder, the retiring
Issuing Bank shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Bank under this Agreement and the other
Loan Documents with respect to Letters of Credit issued by it prior to such
resignation or removal, but shall not be required to issue additional Letters
of Credit.
(j) Cash Collateralization. If (i) any Event of Default shall
occur and be continuing or (ii) the Total Revolving Credit Commitment is less
than the L/C Exposure, the Borrowers shall, on the Business Day they receive
notice from the Administrative Agent or the Required Lenders thereof and of
the amount to be deposited, deposit in an account with the Collateral Agent,
for the benefit of the Revolving Credit Lenders, an amount in cash equal to
the L/C Exposure as of such date. Such deposit shall be held by the
Collateral Agent as collateral for the payment and performance of the
Obligations. The Collateral Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal, over such account. Other than
any interest earned on the investment of such deposits in Permitted
Investments, which investments shall be made by the Collateral Agent and
selected in its sole discretion, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall (i) automatically be applied by the
Administrative Agent to reimburse the Issuing Banks for L/C Disbursements for
which they have not been reimbursed, (ii) be held for the satisfaction of the
reimbursement obligations of the Borrowers for the L/C Exposure at such time
and (iii) if the maturity of the Loans has been accelerated (but, if there
are Note Repurchase Loans outstanding, subject to the consent of Revolving
Credit Lenders holding participations in outstanding Letters of Credit
representing greater than 50% of the aggregate undrawn amount of all
outstanding Letters of Credit), be applied to satisfy the Obligations. If the
Borrowers are required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent
not applied as aforesaid) shall be returned to the Borrowers within three
Business Days after all Events of Default have been cured or waived. If the
Borrowers are required to provide an amount of cash collateral hereunder
pursuant to Section 2.13(g), such amount shall be returned to the Borrowers
from time to time to the extent that the amount of such cash collateral held
by the Collateral Agent exceeds the excess, if any,
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51
of the aggregate L/C Exposure over the Total Revolving Credit Commitment;
provided, that such return shall not be required at any time that an Event of
Default has occurred and is continuing.
SECTION 2.23. Additional Borrowers. The parties hereto agree that
wholly owned Domestic Subsidiaries that are not Borrowers as of the Closing
Date may enter into and become a party to this Agreement by executing a New
Borrower Agreement. Upon execution and delivery after the date hereof by the
Administrative Agent, the Collateral Agent and such a wholly owned Subsidiary
of a New Borrower Agreement, such Subsidiary shall become a Borrower
hereunder with the same force and effect as if originally named as a Borrower
herein. The Parent Borrower may terminate any Subsidiary Borrower's
interests, rights and obligations under this Agreement by executing and
delivering to the Administrative Agent a Subsidiary Borrower Termination with
respect to such Subsidiary, whereupon such Subsidiary shall cease to be a
Subsidiary Borrower and a party to this Agreement. Notwithstanding the
preceding sentence, no Subsidiary Borrower Termination will become effective
as to any Subsidiary Borrower at a time when any principal of or interest on
any Revolving Loan to such Subsidiary Borrower shall be outstanding
hereunder, provided that such Subsidiary Borrower Termination shall be
effective to terminate such Subsidiary Borrower's right to make further
Borrowings under this Agreement unless and until such Subsidiary executes
subsequent to such termination a New Borrower Agreement. The execution and
delivery of a New Borrower Agreement or a Subsidiary Borrower Termination
shall not require the consent of any other Borrower hereunder. The rights
and obligations of each Borrower hereunder shall remain in full force and
effect notwithstanding the addition of any new Borrower or termination of any
Borrower as a party to this Agreement.
ARTICLE III
Representations and Warranties
Each of the Borrowers represents and warrants to the Administrative
Agent, the Syndication Agent, the Collateral Agent, the Issuing Banks and
each of the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrowers, the
Subsidiaries and CBHS (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has all
requisite power and authority to own its property and assets and to carry on
its business as now conducted and as proposed to be conducted, including
after giving effect to the Transaction Documents, (c) is qualified to do
business in, and is in good standing in, every jurisdiction where such
qualification is required, except where the failure so to qualify could not
reasonably be expected to result in a Material Adverse Effect, and (d) has
the organizational power and authority to execute, deliver and perform its
obligations under each of the Loan Documents and Transaction Documents and
each other agreement or instrument contemplated hereby to which it is or will
be a party and, in the case of the Borrowers, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and
performance by each Loan Party and CBHS of each of the Loan Documents and
Transaction Documents to which it is a party, the borrowings hereunder and
the Transactions (a) have been duly authorized by all requisite
organizational and, if required, stockholder action and (b) will not (i)
violate (A) in any material respect any provision of law, statute, rule or
regulation (including any Health Care Law), or any
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52
provision of the certificate or articles of incorporation or other
constitutive documents or by-laws of the Borrowers or any Subsidiary, (B) any
order of any Governmental Authority or (C) any provision of any indenture,
agreement or other instrument to which the Borrowers or any Subsidiary is a
party or by which any of them or any of their property is or may be bound,
(ii) be in conflict with, result in a breach of or constitute (alone or with
notice or lapse of time or both) a default under, or give rise to any right
to accelerate or to require the prepayment, repurchase or redemption of any
obligation under any such indenture, agreement or other instrument, other
than (x) the Series A Notes Indenture (but only with respect to the
requirement to make an offer to repurchase the Series A Notes as a result of
the Transactions) and (y) the Charter IRBs being paid or defeased in
connection with the Transactions, or (iii) result in the creation or
imposition of any Lien upon or with respect to any property or assets now
owned or hereafter acquired by the Borrowers or any Subsidiary (other than
any Lien created hereunder or under the Security Documents).
SECTION 3.03. Enforceability. This Agreement has been duly
executed and delivered by the Borrowers and constitutes, and each other Loan
Document when executed and delivered by each Loan Party thereto will
constitute, a legal, valid and binding obligation of such Loan Party
enforceable against such Loan Party in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or any other action by any
Governmental Authority is or will be required in connection with the
Transactions, except for (a) the filing of Uniform Commercial Code financing
statements and filings with the United States Patent and Trademark Office and
the United States Copyright Office, (b) such as have been made or obtained
and are in full force and effect and (c) such other filings as are set forth
on Schedule 3.04 that the Borrowers reasonably expect to be made within six
months following the Closing Date.
SECTION 3.05. Financial Statements. (a) The Parent Borrower has
heretofore furnished to the Lenders its consolidated balance sheets and
statements of operations and cash flows and changes in stockholders' equity
(i) as of and for the fiscal year ended September 30, 1996, audited by and
accompanied by the opinion of Arthur Anderson LLP, independent public
accountants, and (ii) except for a statement of changes in stockholders'
equity, as of and for the fiscal quarter and the portion of the fiscal year
ended March 31, 1997, certified by its chief financial officer. Such
financial state-ments present fairly in all material respects the financial
condition and results of operations and cash flows of the Parent Borrower and
its consolidated Subsidiaries as of such dates and for such periods. Such
balance sheets and the notes thereto disclose all material liabilities,
direct or contingent, of the Parent Borrower and its consolidated
Subsidiaries as of the dates thereof. Such financial statements were
prepared in accordance with GAAP applied on a consistent basis, except that
the financial statements described in clause (ii) are condensed and comply as
to form and presentation with the requirements of Form 10-Q of the forms
promulgated under the Securities Exchange Act of 1934.
(b) The Parent Borrower has heretofore delivered to the Lenders its
unaudited pro forma consolidated balance sheet as of March 31, 1997, prepared
giving effect to the Transactions as if they had occurred on such date. Such
pro forma balance sheet has been prepared in good faith by the Parent
Borrower, based on the assumptions used to prepare the pro forma financial
information contained in the Confidential Information Memorandum (which
assumptions are believed by the Parent Borrower on the date hereof and on the
Closing Date to be reasonable), is based on the best information available to
the Parent Borrower as of the date of delivery thereof, accurately reflects
in
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53
all material respects all adjustments required on a pro forma basis to be
made to give effect to the Transactions and presents fairly in all material
respects on a pro forma basis the estimated consolidated financial position
of the Parent Borrower and its consolidated Subsidiaries as of March 31,
1997, assuming that the Transactions had actually occurred at March 31, 1997.
SECTION 3.06. No Material Adverse Change. Except for the
Transaction Documents and the effect of the Transactions, there has been no
material adverse change in the business, assets, operations, prospects,
condition, financial or otherwise, or material agreements of (a) the Parent
Borrower and the Subsidiaries, taken as a whole, since September 30, 1996,
and (b) CBHS and its subsidiaries, taken as a whole, since March 31, 1997.
SECTION 3.07. Title to Properties; Possession Under Leases. (a)
Each of the Borrowers and the Subsidiaries has good and marketable title to,
or valid leasehold interests in, all its material properties and assets,
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties and
assets for their intended purposes. All such material properties and assets
are free and clear of Liens, other than Liens expressly permitted by Section
6.02.
(b) Each of the Borrowers and the Subsidiaries has complied with
all material obligations under all leases to which it is a party and that are
material to the Borrowers and the Subsidiaries taken as a whole and all such
leases are in full force and effect. Each of the Borrowers and the
Subsidiaries enjoys peaceful and undisturbed possession under all such
material leases in which a Borrower or a Subsidiary is a lessee.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the
Closing Date a list of all Subsidiaries and the percentage ownership
interest, direct or indirect, of the Parent Borrower therein. The shares of
capital stock or other ownership interests so indicated on Schedule 3.08 are
fully paid and non-assessable and are owned by the Parent Borrower, directly
or indirectly, free and clear of all Liens, except Liens under the Loan
Documents.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set
forth on Schedule 3.09, there are not any actions, suits or proceedings at
law or in equity or by or before any Governmental Authority now pending or,
to the knowledge of the Parent Borrower, threatened against or affecting any
Borrower or any Subsidiary or any business, property or rights of any such
person (i) that involve any Loan Document or the Transactions or (ii) as to
which there is a reasonable probability of an adverse determination and that,
if adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect.
(b) None of the Borrowers or any of the Subsidiaries or any of
their respective material properties or assets is in violation of, nor will
the continued operation of their material properties and assets as currently
conducted (or as proposed to be conducted pursuant to the Transaction
Documents) violate, any law, rule or regulation (including any Health Care
Law or Environmental Law), or is in default with respect to any judgment,
writ, injunction, decree or order of any Governmental Authority, where such
violation or default could reasonably be expected to result in a Material
Adverse Effect.
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SECTION 3.10. Agreements. (a) Except for the effect of the
Transactions, none of the Borrowers or any of the Subsidiaries is a party to
any agreement or instrument or subject to any organizational restriction that
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(b) None of the Borrowers or any of the Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument (including any Transaction Document) to which it is a party or by
which it or any of its properties or assets are or may be bound, where such
default could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of the
Borrowers or any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit
will be used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, for any purpose that entails a violation of, or
that is inconsis-tent with, the provisions of the Regulations of the Board,
including Regulation G, T, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act. Neither any Borrower nor any Subsidiary is (a) an "investment
company" as defined in, or subject to regulation under, the Investment
Company Act of 1940 or (b) a "holding company" as defined in, or subject to
regulation under, the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the proceeds
of the Loans and will request the issuance of Letters of Credit only for the
purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrowers and the
Subsidiaries has filed or caused to be filed all Federal and state income tax
returns and all other material tax returns or materials required to have been
filed by it and has paid or caused to be paid all material taxes due and
payable by it and all assessments received by it, except taxes that are being
contested in good faith by appropriate proceedings and for which such
Borrower or such Subsidiary, as applicable, shall have set aside on its books
adequate reserves.
SECTION 3.15. No Material Misstatements. None of (a) the
Confidential Information Memorandum or (b) any other information, report,
financial statement, exhibit or schedule furnished by or on behalf of the
Parent Borrower to the Administrative Agent or any Lender in connection with
the negotiation of any Loan Document or included therein or delivered
pursuant thereto contained, contains or will contain any material
misstatement of fact or omitted, omits or will omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were, are or will be made, not misleading;
provided that to the extent any such information, report, financial
statement, exhibit or schedule was based upon or constitutes a forecast or
projection, the Parent Borrower represents only that it acted in good faith
and utilized reasonable assumptions and due care in the preparation of such
information, report, financial statement, exhibit or schedule.
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SECTION 3.16. Employee Benefit Plans. Each of the Borrowers and
its ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Borrowers
or any of its ERISA Affiliates. The present value of all benefit liabilities
under each Plan (based on those assumptions used to fund such Plan) did not,
as of the last annual valuation date applicable thereto, exceed by more than
$2,000,000 the fair market value of the assets of such Plan, and the present
value of all benefit liabilities of all underfunded Plans (based on those
assumptions used to fund each such Plan) did not, as of the last annual
valuation dates applicable thereto, exceed by more than $7,500,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.17. Environmental Matters. Except as set forth in
Schedule 3.17:
(a) The properties owned or operated by the Borrowers and the
Subsidiaries (the "Properties") do not contain any Hazardous Materials in
amounts or concentrations which (i) constitute, or constituted a violation
of, (ii) require Remedial Action under, or (iii) could give rise to liability
under, Environmental Laws, which violations, Remedial Actions and
liabilities, in the aggregate, could result in a Material Adverse Effect;
(b) The Properties and all operations of the Borrowers and the
Subsidiaries are in compliance, and in the last three years have been in
compliance, with all Environmental Laws and all necessary Environmental
Permits have been obtained and are in effect, except to the extent that such
non-compliance or failure to obtain any necessary permits, in the aggregate,
could not result in a Material Adverse Effect;
(c) There have been no Releases or threatened Releases at, from,
under or proximate to the Properties or otherwise in connection with the
operations of the Borrowers or the Subsidiaries, which Releases or threatened
Releases, in the aggregate, could result in a Material Adverse Effect;
(d) Neither the Borrowers nor any of the Subsidiaries has received
any notice of an Environmental Claim in connection with the Properties or the
operations of the Borrowers or the Subsidiaries or with regard to any person
whose liabilities for environmental matters any of the Borrowers or the
Subsidiaries has retained or assumed, in whole or in part, contractually, by
operation of law or otherwise, which, in the aggregate, could result in a
Material Adverse Effect, nor do the Borrowers or the Subsidiaries have reason
to believe that any such notice will be received or is being threatened; and
(e) Hazardous Materials have not been transported from the
Properties, nor have Hazardous Materials been generated, treated, stored or
disposed of at, on or under any of the Properties in a manner that could give
rise to liability under any Environmental Law, nor have the Borrowers or the
Subsidiaries retained or assumed any liability, contractually, by operation
of law or otherwise, with respect to the generation, treatment, storage or
disposal of Hazardous Materials, which transportation, generation, treatment,
storage or disposal, or retained or assumed liabilities, in the aggregate,
could result in a Material Adverse Effect.
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SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete
and correct description of all insurance maintained by the Borrowers or by
the Borrowers for their Subsidiaries as of the date hereof and the Closing
Date. As of each such date, such insurance is in full force and effect and
all premiums have been duly paid. The Parent Borrower and the Subsidiaries
have insurance in such amounts and covering such risks and liabilities as are
in accordance with normal industry practice.
SECTION 3.19. Security Documents. (a) The Pledge Agreement is
effective to create in favor of the Collateral Agent, for the ratable benefit
of the Secured Parties, a legal, valid and enforceable security interest in
the Collateral (as defined in the Pledge Agreement) and, when the Collateral
is delivered to the Collateral Agent, the Pledge Agreement shall constitute a
fully perfected first priority Lien on, and security interest in, all right,
title and interest of the pledgors thereunder in such Collateral, in each
case prior and superior in right to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Security Agreement) and, when financing statements in appropriate form are
filed in the offices specified on Schedule 6 to the Perfection Certificate,
the Security Agreement shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the grantors
thereunder in such Collateral in which a security interest may be perfected
by filing such financing statements (other than the Intellectual Property, as
defined in the Security Agreement), in each case prior and superior in right
to any other person, other than with respect to Liens expressly permitted by
Section 6.02.
(c) When the Security Agreement is filed in the United States
Patent and Trademark Office and the United States Copyright Office, the
Security Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the grantors thereunder in the
Intellectual Property (as defined in the Security Agreement), in each case
prior and superior in right to any other person (it being understood that
subsequent recordings in the United States Patent and Trademark Office and
the United States Copyright Office may be necessary to perfect a lien on
registered trademarks, trademark applications and copyrights acquired by the
grantors after the date hereof).
(d) Each of the Collateral Assignment and Advance Collateral
Assignment (upon its execution) is effective to create in favor of the
Collateral Agent for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Collateral Assignment or the Advance Collateral Assignment, as applicable)
and, when financing statements in appropriate form are filed in appropriate
filing offices, each of the Collateral Assignment and the Advance Collateral
Assignment shall constitute a fully perfected Lien on, and security interest
in, all right, title and interest of the Parent Borrower in such Collateral
in which a security interest may be perfected by filing such financing
statements, in each case prior and superior in right to any other person,
other than with respect to Liens expressly permitted by Section 6.02.
SECTION 3.20. Labor Matters. As of the date hereof and the Closing
Date, there are no strikes, lockouts or slowdowns against any Borrower or any
Subsidiary pending or, to the knowledge of any Borrower, threatened. The
hours worked by and payments made to employees of the Borrowers and the
Subsidiaries have not been in violation in any material respect of the Fair
Labor
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57
Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters. All payments due from any Borrower or any
Subsidiary, or for which any claim may be made against any Borrower or any
Subsidiary, on account of wages and employee health and welfare insurance and
other benefits, have in all material respects been paid or accrued as a
liability on the books of such Borrower or such Subsidiary. The consummation
of the Transactions will not give rise to any right of termination or right
of renegotiation on the part of any union under any collective bargaining
agreement to which any Borrower or any Subsidiary is bound.
SECTION 3.21. Solvency. Immediately after the consummation of the
Transactions to occur on the Closing Date and the making of each Loan on the
Closing Date and after giving effect to the application of the proceeds of
such Loans and the rights of indemnity, contribution and subrogation of the
Loan Parties, (i) the fair value of the assets of each Loan Party will exceed
its debts and liabilities, subordinated, contingent or otherwise; (ii) the
present fair saleable value of the property of each Loan Party will be
greater than the amount that will be required to pay the probable liability
of its debts and other liabilities, subordinated, contingent or otherwise, as
such debts and other liabilities become absolute and matured; (iii) each Loan
Party will be able to pay its debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured; and
(iv) each Loan Party will not have unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted following the Closing Date.
ARTICLE IV
Conditions
The obligations of the Lenders to make Loans and of the Issuing
Banks to issue Letters of Credit hereunder are subject to the satisfaction of
the following conditions:
SECTION 4.01. Effectiveness. The effectiveness of this Amended and
Restated Credit Agreement shall be subject to the satisfaction of each of the
following conditions:
(a) The Administrative Agent and the Syndication Agent shall have
received, on behalf of themselves, the Lenders and the Issuing Banks, a
favorable written opinion of (i) King & Spalding, counsel for the
Borrowers, substantially to the effect set forth in Exhibit J-1 and (ii)
each foreign counsel listed on Schedule 4.02(a), substantially to the
effect set forth in Exhibit J-2, in each case (A) dated the Closing Date,
(B) addressed to the Issuing Banks, the Administrative Agent, the
Syndication Agent and the Lenders, and (C) covering such other matters
relating to the Loan Documents, the Transaction Documents and the
Transactions as the Administrative Agent or the Syndication Agent shall
reasonably request, and the Borrowers hereby request such counsel to
deliver such opinions.
(b) All legal matters incident to this Agreement, the Borrowings
and extensions of credit hereunder and the other Loan Documents and the
Transaction Documents shall be satisfactory to the Lenders, to the
Issuing Banks and to Cravath, Swaine & Moore, counsel for the
Administrative Agent and the Syndication Agent.
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(c) The Administrative Agent and the Syndication Agent shall have
received (i) a copy of the certificate or articles of incorporation,
including all amendments thereto, of each Loan Party, certified as of a
recent date by the Secretary of State of the state of its organization,
and a certificate as to the good standing of each Loan Party as of a
recent date, from such Secretary of State; (ii) a certificate of the
Secretary or Assistant Secretary of each Loan Party dated the Closing
Date and certifying (A) that attached thereto is a true and complete copy
of the by-laws of such Loan Party as in effect on the Closing Date and at
all times since a date prior to the date of the resolutions described in
clause (B) below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of such Loan Party
authorizing the execution, delivery and performance of the Loan Documents
and the Transaction Documents to which such person is a party and, in the
case of the Borrowers, the borrowings hereunder, and that such
resolutions have not been modified, rescinded or amended and are in full
force and effect, (C) that the certificate or articles of incorporation
of such Loan Party have not been amended since the date of the last
amendment thereto shown on the certificate of good standing furnished
pursuant to clause (i) above, and (D) as to the incumbency and specimen
signature of each officer executing any Loan Document or Transaction
Document or any other document delivered in connection herewith on behalf
of such Loan Party; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above; and (iv) such other
documents as the Lenders, the Issuing Banks or Cravath, Swaine & Moore,
counsel for the Administrative Agent and the Syndication Agent, may
reasonably request.
(d) The Administrative Agent and the Syndication Agent shall have
received a certificate, dated the Closing Date and signed by a Financial
Officer of the Parent Borrower, confirming compliance with the conditions
precedent set forth in paragraphs (b), (c), (d) and (e) of Section 4.02.
(e) The Administrative Agent and the Syndication Agent shall have
received all Fees and other amounts due and payable on or prior to the
Closing Date, including, to the extent invoiced, reimbursement or payment
of all out-of-pocket expenses required to be reimbursed or paid by the
Borrowers hereunder or under any other Loan Document.
(f) The Pledge Agreement shall have been duly executed by the
parties thereto and delivered to the Collateral Agent and shall be in
full force and effect, and each of the Borrowers and the Guarantors shall
have duly and validly pledged thereunder all the Pledged Securities (as
defined in the Pledge Agreement) to the Collateral Agent for the ratable
benefit of the Secured Parties and certificates representing such Pledged
Securities, accompanied by instruments of transfer and stock powers
endorsed in blank, shall be in the actual possession of the Collateral
Agent; provided that (i) neither the Parent Borrower nor any Guarantor
that is a Domestic Subsidiary shall be required to pledge any capital
stock of Societe Anonyme De La Metairie or more than 65% of the capital
stock of any Foreign Subsidiary and (ii) no Foreign Subsidiary shall be
required to pledge the capital stock of any of its Foreign Subsidiaries.
(g) The Security Agreement shall have been duly executed by the
Loan Parties thereto and shall have been delivered to the Collateral
Agent and shall be in full force and
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59
effect on such date and each document (including each Uniform Commercial
Code financing statement) required by law or reasonably requested by the
Administrative Agent or the Syndication Agent to be filed, registered or
recorded in order to create in favor of the Collateral Agent for the
benefit of the Secured Parties a valid, legal and perfected
first-priority security interest in and lien on the Collateral (subject
to any Lien expressly permitted by Section 6.02) described in such
agreement shall have been delivered to the Collateral Agent.
(h) The Collateral Assignment shall have been duly executed by the
Parent Borrower and shall have been delivered to the Collateral Agent and
shall be in full force and effect on such date and each document
(including each Uniform Commercial Code financing statement) required by
law or reasonably requested by the Administrative Agent or the
Syndication Agent to be filed, registered or recorded in order to create
in favor of the Collateral Agent for the benefit of the Secured Parties a
valid, legal and perfected first-priority security interest in and lien
on the Collateral (subject to any Lien expressly permitted by Section
6.02) described in such agreement shall have been delivered to the
Collateral Agent.
(i) The Collateral Agent shall have received the results of a
search of the Uniform Commercial Code filings (or equivalent filings)
made with respect to the Loan Parties in the states (or other
jurisdictions) in which the chief executive office of each such person is
located and the other jurisdictions in which Uniform Commercial Code
filings (or equivalent filings) are to be made pursuant to the preceding
paragraph, together with copies of the financing statements (or similar
documents) disclosed by such search, and accompanied by evidence
satisfactory to the Collateral Agent that the Liens indicated in any such
financing statement (or similar document) would be permitted under
Section 6.02 or have been released or documents providing for the release
of such financing statements (or similar documents) have been delivered
to the Collateral Agent.
(j) The Guarantee Agreement shall have been duly executed by each
Guarantor, shall have been delivered to the Collateral Agent and shall be
in full force and effect.
(k) The Indemnity, Subrogation and Contribution Agreement shall
have been duly executed by each Loan Party, shall have been delivered to
the Collateral Agent and shall be in full force and effect.
(l) The Collateral Agent shall have received a Perfection
Certificate with respect to the Loan Parties dated the Closing Date and
duly executed by a Responsible Officer of the Parent Borrower.
(m) Except for the Transaction Documents and the effect of the
Transactions, there has been no material adverse change in the business,
assets, operations, prospects, condition, financial or otherwise, or
material agreements of (i) the Parent Borrower and the Subsidiaries,
taken as a whole, since December 31, 1996, (ii) Crescent since December
31, 1996 or (iii) CBHS and its subsidiaries, taken as a whole, since
March 31, 1997, and there shall not have occurred any event, or none of
the Administrative Agent, the Syndication Agent or the Lenders shall have
discovered or other-wise become aware of information not previously known
by the Administrative Agent, the Syndication Agent or any such Lender
that, in each case, in the
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reasonable judgment of the Administrative Agent, the Syndication Agent or
the Required Lenders, could reasonably be expected to have a Material
Adverse Effect.
(n) Prior to or substantially contemporaneously with the first
Credit Event, the Parent Borrower and the Subsidiaries shall have
received in cash an aggregate amount equal to the Transaction
Consideration, pursuant to the Transaction Documents.
(o) The Transactions shall have been consummated or shall be
consummated simultaneously with the first Credit Event in accordance with
applicable law, in accordance with the Transaction Documents (without
giving effect to any amendment or waiver of any condition set forth in
the Transaction Documents not approved by the Lenders).
(p) Substantially contemporaneously with the first Credit Event,
all the Charter IRBs shall have been repaid in full or defeased and all
obligations thereunder shall have been discharged or provided for, as the
case may be.
(q) The Borrowers shall have repaid in full the principal of all
loans outstanding, interest thereon and other amounts due and payable
under the Existing Credit Agreement, and the Aggregate Credit Exposure
under the Existing Credit Agreement shall be zero, except for the
Existing Letters of Credit.
(r) After giving effect to the Transactions, the Borrowers and the
Subsidiaries shall have outstanding no Indebtedness or preferred stock
other than (i) the Loans hereunder, (ii) the Series A Notes, (iii) the
Charter IRBs that have been fully defeased by the Parent Borrower and
(iv) the Indebtedness set forth on Schedule 6.01 or otherwise permitted
pursuant to Section 6.01.
(s) Each of the Transaction Documents shall have been executed and
delivered by the parties thereto and shall be in full force and effect,
in each case, in form and substance satisfactory to the Lenders.
(t) The Lenders shall be satisfied that (i) the consummation of the
Transactions will not (A) violate any applicable law (including any
Health Care Law), statute, rule or regulation or (B) conflict with, or
result in a default or event of default under, (x) any indenture relating
to any existing Indebtedness of any Loan Party or any subsidiary of any
Loan Party that is not being repaid, repurchased or redeemed in full on
or prior to the Closing Date in connection with the Transactions or any
other indenture of any Loan Party or any subsidiary of any Loan Party to
be in effect after the Closing Date or (y) any other material agreement
of any Loan Party or any subsidiary of any Loan Party and (ii) following
the consummation of the Transactions, the Parent Borrower, CBHS and their
respective subsidiaries, through the conduct of their business, will not
violate in any material respect any applicable law (including any Health
Care Law), statute, rule or regulation.
(u) The Lenders shall have received an unaudited pro forma
consolidated balance sheet of the Parent Borrower as of March 31, 1997,
after giving effect to the Transactions as if they had occurred on such
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61
date, which balance sheet shall be consistent in all material respects
with the forecasts previously provided to the Lenders.
(v) All governmental consents and approvals and all material third
party consents required to be obtained for the consummation of the
Transactions shall have been obtained and all applicable waiting and
appeal periods (including waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976) shall have expired or been terminated.
(w) The Administrative Agent and the Syndication Agent shall have
had the opportunity to review existing environmental reports in form,
scope and substance reasonably satisfactory to them, as to any
environmental hazards, liabilities or Remedial Action to which any
Borrower or any of the Subsidiaries may be subject and shall be
reasonably satisfied with the nature and cost of any such hazards,
liabilities or Remedial Action and with the applicable Borrower's or
applicable Subsidiary's plans with respect thereto.
(x) The Administrative Agent and the Syndication Agent shall be
reasonably satisfied with the organizational structure and equity
ownership of (i) the Parent Borrower and the Subsidiaries and (ii) CBHS
and its subsidiaries, in each case after giving effect to the
Transactions.
(y) There shall be no litigation or administrative proceeding or
other legal or regulatory developments, actual or threatened, that in the
reasonable judgment of the Lenders (i) would be reasonably likely to
result in a Material Adverse Effect, (ii) would be reasonably likely to
result in any material restriction or limitation or impose any burdensome
conditions on the Transactions or (iii) would be materially inconsistent
with the assumptions underlying the projections previously furnished to
the Lenders.
(z) The Lenders shall be reasonably satisfied with the amount and
nature of any pension benefit plan exposure and liability to which the
Parent Borrower and the Subsidiaries may be subject, and their plans with
respect thereto.
(aa) The Lenders shall be reasonably satisfied in all respects with
the tax position and the contingent tax and other liabilities of the
Parent Borrower and the Subsidiaries, after giving effect to the
Transactions, and with the plans of the Parent Borrower with respect
thereto.
(ab) The Administrative Agent and the Syndication Agent shall be
reasonably satisfied with the sufficiency of the available Revolving
Loans to meet the ongoing working capital requirements of the Parent
Borrower and the Subsidiaries following the consummation of the
Transactions.
(ac) The Lenders shall have received financial projections for (i)
the Parent Borrower and the Subsidiaries and (ii) CBHS and its
subsidiaries, in each case for fiscal years 1997 through 2002, in form
and substance reasonably satisfactory to the Administrative Agent and the
Syndication Agent, which projections shall not be materially inconsistent
with the projections previously provided to the Lenders.
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(ad) The minority stockholders of Green Spring shall have executed
a waiver, or other written agreement or legally binding acknowledgement,
relinquishing all rights available to them as a result of the
consummation of the Transactions to require the Parent Borrower or any
Subsidiary to purchase shares of common stock of Green Spring held by
such stockholders.
(ae) The Lenders shall be reasonably satisfied with (i) the Parent
Borrower's and the Subsidiaries' arrangements for the retention of
management and other key employees and (ii) the amounts of cash payments
to be made to the executives of the Parent Borrower and the Subsidiaries
in connection with any "change of control" event that may be deemed to
have occurred as a result of the Transactions.
(af) The Lenders shall be reasonably satisfied with the management
and employees of CBHS (or, if applicable, with CBHS's plans for hiring
management and employees), after giving effect to the Transactions, and
with the arrangements for the retention of such management and employees.
(ag) The Administrative Agent and the Syndication Agent shall be
reasonably satisfied with the sufficiency of the available Revolving
Loans to meet the ongoing working capital requirements of the Parent
Borrower and its Subsidiaries.
(ah) The CBHS Credit Agreement shall have been duly executed and
delivered by the parties thereto and shall be in full force and effect,
and each of the conditions precedent set forth in Section 4.01 and
Section 4.02 of the CBHS Credit Agreement shall have been satisfied or
waived as provided therein.
SECTION 4.02. All Credit Events. On the date of each Borrowing,
including on the date of each issuance of a Letter of Credit (each such event
being called a "Credit Event"):
(a) The Administrative Agent shall have received a Borrowing
Request as required by Section 2.03 (or such notice shall have been
deemed given in accordance with Section 2.03) or, in the case of the
issuance of a Letter of Credit, the applicable Issuing Bank and the
Administrative Agent shall have received a notice requesting the issuance
of such Letter of Credit as required by Section 2.22(b).
(b) Except in the case of a Borrowing that does not increase the
aggregate principal amount of Loans outstanding of any Lender, the
representations and warranties set forth in Article III shall be true and
correct in all material respects on and as of the date of such Credit
Event with the same effect as though made on and as of such date, except
to the extent such representations and warranties expressly relate to an
earlier date.
(c) Each Borrower and each other Loan Party shall be in compliance
with all the terms and provisions set forth herein and in each other Loan
Document on its part to be observed or performed, and at the time of and
immediately after such Credit Event, no Event of Default or Default shall
have occurred and be continuing.
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(d) Each of the Franchise Agreement and the Lease shall be in full
force and effect in accordance with their respective terms.
(e) There shall not have occurred and be continuing any Material
Franchise Payment Default.
Each Credit Event shall be deemed to constitute a representation and warranty
by each Borrower on the date of such Credit Event as to the matters specified
in paragraphs (b) (except as aforesaid), (c), (d) and (e) of this Section
4.02.
SECTION 4.03. Note Repurchase Loans Credit Event. On or prior to
the Series A Notes Repurchase Date:
(a) The Parent Borrower shall have delivered a certificate signed
by a Financial Officer (i) setting forth the Note Repurchase Loan Amount
and (ii) acknowledging the reduction of the Total Revolving Credit
Commitment by the Note Repurchase Loan Amount.
(b) Substantially contemporaneously with the making of the Note
Repurchase Loans, each of the Series A Notes tendered (and not withdrawn)
pursuant to the Series A Notes Tender Offer shall have been purchased by
the Parent Borrower.
SECTION 4.04. New Subsidiary Borrower Credit Event. On the date of
the first Borrowing by any Subsidiary Borrower that was not a Subsidiary
Borrower on the Closing Date:
(a) The Administrative Agent (or its counsel) shall have received
(either at such time or in connection with the initial borrowing
hereunder) from each party thereto either (i) a counterpart of the
applicable New Borrower Agreement or (ii) written evidence satisfactory
to the Administrative Agent (which may include telecopy transmission of a
signed signature page thereof) that such party has signed a counterpart
of such New Borrower Agreement.
(b) The Administrative Agent shall have received such documents
(including legal opinions) and certificates as the Administrative Agent
or its counsel may reasonably request relating to the organization,
existence and good standing of such Subsidiary Borrower and the
authorization of the transactions relating to such Subsidiary Borrower
and any other legal matters relating to such Subsidiary Borrower and the
applicable New Borrower Agreement, all in form and substance satisfactory
to the Administrative Agent and its counsel.
ARTICLE V
Affirmative Covenants
Each Borrower covenants and agrees with each Lender that so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document shall have been
paid in full and all Letters of Credit have been canceled or have expired and
all
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64
amounts drawn thereunder have been reimbursed in full, unless the Required
Lenders shall otherwise consent in writing, the Borrowers will, and will
cause each of the Subsidiaries (unless otherwise set forth below) to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or
cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence, except as otherwise expressly permitted
under Section 6.05.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights,
licenses, permits, franchises, authorizations, patents, copyrights,
trademarks and trade names material to the conduct of its business; comply in
all material respects with all applicable laws, rules, regulations (including
any Health Care Law or Environmental Law) and decrees and orders of any
Governmental Authority, whether now in effect or hereafter enacted; and at
all times maintain and preserve all property material to the conduct of such
business and keep such property in good repair, working order and condition
and from time to time make, or cause to be made, all needful and proper
repairs, renewals, additions, improvements and replacements thereto necessary
in order that the business carried on in connection therewith may be properly
conducted at all times.
SECTION 5.02. Insurance. (a) Keep its insurable properties
adequately insured at all times by financially sound and reputable insurers;
maintain such other insurance, to such extent and against such risks,
including fire and other risks insured against by extended coverage, as is
customary with companies in the same or similar businesses operating in the
same or similar locations, including public liability insurance against
claims for personal injury or death or property damage occurring upon, in,
about or in connection with the use of any properties owned, occupied or
controlled by it; and maintain such other insurance as may be required by law.
(b) Cause all policies of casualty insurance to be endorsed or
otherwise amended to include a "standard" or "New York" lender's loss payable
endorsement, in form and substance satisfactory to the Administrative Agent
and the Collateral Agent, which endorsement shall provide that, from and
after the Closing Date, if the insurance carrier shall have received written
notice from the Administrative Agent or the Collateral Agent of the
occurrence of an Event of Default, the insurance carrier shall pay all
proceeds otherwise payable to the Borrowers or the Loan Parties under such
policies directly to the Collateral Agent; cause all such policies to provide
that none of the Borrowers, the Administrative Agent, the Syndication Agent,
the Collateral Agent or any other party shall be a coinsurer thereunder and
to contain a "Replacement Cost Endorsement" (for at least 85% of replacement
cost), without any deduction for depreciation, and such other provisions as
the Administrative Agent or the Collateral Agent may reasonably require from
time to time to protect their interests; deliver original or certified copies
of all such policies to the Collateral Agent; cause each such policy to
provide that it shall not be canceled, modified or not renewed (i) by reason
of nonpayment of premium upon less than 10 days' prior written notice thereof
by the insurer to the Administrative Agent and the Collateral Agent (giving
the Administrative Agent and the Collateral Agent the right to cure defaults
in the payment of premiums) or (ii) for any other reason upon less than 30
days' prior written notice thereof by the insurer to the Administrative Agent
and the Collateral Agent; deliver to the Administrative Agent and the
Collateral Agent, prior to the cancelation, modification or nonrenewal of any
such policy of insurance, a copy of a renewal or replacement policy (or other
evidence of renewal of a policy previously delivered to the Administrative
Agent and the Collateral Agent)
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together with evidence satisfactory to the Administrative Agent and the
Collateral Agent of payment of the premium therefor.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and
other obligations promptly and in accordance with their terms and pay and
discharge promptly when due all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits or in respect of its
property, before the same shall become delinquent or in default, as well as
all lawful claims for labor, materials and supplies or otherwise that, if
unpaid, might give rise to a Lien upon such properties or any part thereof
(other than where failure to so do could not be reasonably expected to have a
Material Adverse Effect); provided, however, that such payment and discharge
shall not be required with respect to any such tax, assessment, charge, levy
or claim so long as the validity or amount thereof shall be contested in good
faith by appropri-ate proceedings and such Borrower or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto in
accordance with GAAP and such contest operates to suspend collection of the
contested obligation, tax, assessment or charge and enforcement of a Lien.
SECTION 5.04. Financial Statements, Reports, etc. In the case of
the Parent Borrower, furnish to the Administrative Agent, the Syndication
Agent and each Lender:
(a) within five Business Days after any filing of its annual report
on Form 10-K with the Securities and Exchange Commission (but in no event
later than 120 days after the end of each fiscal year), (i) its
consolidated balance sheet and related statements of operations, changes
in stockholders' equity and cash flows, all audited by Arthur Andersen
LLP or any other "Big 6" accounting firm and accompanied by an opinion of
such accountants (which shall not be qualified in any material respect)
to the effect that such consolidated financial statements fairly present
in all material respects the financial condition, results of operations,
changes in stockholders' equity and cash flows of the Parent Borrower and
its consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied; and (ii) an unaudited consolidated balance
sheet and statement of operations for each of Green Spring and Public
Solutions.
(b) within five Business Days after any filing of its quarterly
report on Form 10-Q with the Securities and Exchange Commission (but in
no event later than 60 days after the end of each of the first three
fiscal quarters of each fiscal year), commencing with the report for the
fiscal quarter ending September 30, 1997, (i) its consolidated balance
sheet and related statements of operations and cash flows showing the
financial condition of the Parent Borrower and its consolidated
Subsidiaries, all certified by one of its Financial Officers as fairly
presenting in all material respects the financial condition and results
of operations of the Parent Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP, applied on a basis
consistent with the application of GAAP to the Parent Borrower's most
recent financial statements delivered pursuant to Section 5.04(a),
subject to normal year-end audit adjustments, the absence of notes that
are not required by GAAP and the condensed presentation permitted by Form
10-Q of the forms promulgated under the Securities Exchange Act of 1934
and (ii) consolidated balance sheets and statements of operations of each
of Green Spring and Public Solutions, showing the financial condition of
Green Spring and Public Solutions, in the cases of (i) and (ii) of this
paragraph as of the close of such fiscal
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quarter and the results of its operations and the operations of such
Subsidiaries during such fiscal quarter and the then elapsed portion of
the fiscal year.
(c) within 30 days after the end of each month (other than the last
month of any fiscal quarter), commencing with the month ending July 31,
1997, its unaudited consolidated balance sheet and related statements of
income and cash flows, showing the consolidated financial condition of
the Parent Borrower and its consolidated subsidiaries, in all cases as of
the close of such month and the consolidated results of its operations
and cash flows during such month and the then-elapsed portion of the
fiscal year;
(d) concurrently with any delivery of financial statements under
paragraph (a) or (b) above, a certificate of the accounting firm or
Financial Officer opining on or certifying such statements (which
certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal interpretations)
(i) certifying that no Event of Default or Default has occurred or, if
such an Event of Default or Default has occurred, specifying the nature
and extent thereof and any corrective action taken or proposed to be
taken with respect thereto and (ii) setting forth computations in
reasonable detail satisfactory to the Administrative Agent demonstrating
compliance with the covenants contained in Sections 6.10, 6.11, 6.12 and
6.13 (it being under-stood that nothing herein requires such computation
to be prepared by an accounting firm), provided that if the accounting
firm and other independent certified public accountants of recognized
national standing are prohibited by applicable industry guidelines from
delivering such certificates, the Parent Borrower shall no longer be
required to cause the delivery of such certificate;
(e) not later than the date financial statements are delivered
pursuant to Section 5.04(a) and (b), a report in form and substance
satisfactory to the Administrative Agent, of (i) all Permitted
Acquisitions consummated during such quarter, which shall include the
total consideration for each such Permitted Acquisition (including a
breakdown of any Indebtedness permitted under Section 6.01(d)) from the
Closing Date through the end of such quarter; (ii) the aggregate sales
price of assets sold or disposed of pursuant to each transaction that
constitutes an Asset Sale permitted hereunder from the Closing Date
through the end of such fiscal quarter and a schedule that identifies
each such sale or disposition; (iii) all Permitted Debt Repurchases and
all Permitted Stock Repurchases, which shall include the amount of
securities purchased pursuant thereto, from the Closing Date through the
end of such quarter, segregated by type of security; and (iv) all
Permitted Non-Guarantor Transactions and all Permitted Non-Control
Investments, which shall (A) include the value of such Transactions and
Investments completed during the period from the Closing Date through the
end of such quarter and (B) in the case of Permitted Non-Control
Investments, describe the management structure of the entity into which
such investment is made;
(f) promptly after the same become publicly available, copies of
all periodic and other reports (including the Parent Borrower's quarterly
report on Form 10-Q for the fiscal quarter ending June 30, 1997), proxy
statements and other materials (except for registration statements on
Form S-8) filed by any Borrower or any Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or
all of the functions of said Commission, or with any national securities
exchange, or distributed to its stockholders, as the case may be;
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67
(g) promptly, from time to time, such other information regarding
the operations, business affairs and financial condition of any Borrower
or any Subsidiary, or compliance with the terms of any Loan Document, as
the Administrative Agent or any Lender may reasonably request; and
(h) within five Business Days after their availability (but in no
event later than the beginning of the third month of each fiscal year), a
copy of the budget for its consolidated statements of income and cash
flows for each fiscal year, with a certificate signed by a Financial
Officer certifying that such budget has been prepared in good faith.
SECTION 5.05. Litigation and Other Notices. Furnish to the
Administrative Agent prompt written notice of the following:
(a) any (i) Event of Default or Default or (ii) Franchise Payment
Default, that in the case of subclause (ii), continues uncured for a
period of three Business Days, in each case specifying the nature and
extent thereof and the corrective action (if any) taken or proposed to be
taken with respect thereto;
(b) the termination of the Lease or the Franchise Agreement;
(c) the failure of CBHS to pay any scheduled rent under the Lease
within three Business Days after the same has become due;
(d) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against any Borrower or any Affiliate thereof that could
reasonably be expected to result in a Material Adverse Effect; and
(e) any development (including any developments related to any
Health Care Law) that has resulted in, or could reasonably be expected to
result in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code relating to
employee benefits and (b) furnish to the Administrative Agent (i) as soon as
possible after, and in any event within 10 days after any Responsible Officer
of any Borrower or any ERISA Affiliate knows or has reason to know that, any
ERISA Event has occurred that, alone or together with any other ERISA Event,
could reasonably be expected to have a Material Adverse Effect.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Keep proper books of record and account in which in all
material respects full, true and correct entries in conformity with GAAP and
all requirements of law are made of all dealings and transactions in relation
to its business and activities. Each Loan Party will, and will cause each of
its Subsidiaries to, permit any representatives designated by the
Administrative Agent, the Syndication Agent or any Lender to visit and
inspect the financial records and the properties of any Borrower or any
Subsidiary at reasonable times and as often as reasonably requested of the
Parent Borrower and to make extracts from and copies of such financial
records, and permit any representatives designated by the Administrative
Agent or any Lender to discuss after reasonable
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68
notice to the Parent Borrower the affairs, finances and condition of any
Borrower or any Subsidiary with the officers thereof and independent
accountants therefor; provided, that all such visits and inspections shall be
subject to health, safety and patient confidentiality procedures regularly
enforced by the Subsidiaries that provide patient care.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and
request the issuance of Letters of Credit only for the purposes set forth in
the preamble to this Agreement.
SECTION 5.09. Compliance with Environmental Laws. Comply, and
cause all lessees and other persons occupying its Properties to comply, in
all material respects with all Environmental Laws and Environmental Permits
applicable to its operations and Properties; obtain and renew all material
Environmental Permits necessary for its operations and Properties; and
conduct any Remedial Action in accordance with Environmental Laws.
SECTION 5.10. Preparation of Environmental Reports. If a Default
caused by reason of a breach of Section 3.17 or 5.09 shall have occurred and
be continuing, at the request of the Required Lenders through the
Administrative Agent, provide to the Lenders within 45 days after such
request, at the expense of the Borrowers, an environmental site assessment
report for the Properties which are the subject of such Default prepared by
an environmental consulting firm acceptable to the Administrative Agent and
indicating the presence or absence of Hazardous Materials and the estimated
cost of any compliance or Remedial Action in connection with such Properties.
SECTION 5.11. Further Assurances. Execute any and all further
documents, financing statements, agreements and instruments, and take all
further action (including filing Uniform Commercial Code and other financing
statements) that may be required under applicable law, or that the Required
Lenders, the Administrative Agent or the Collateral Agent may reasonably
request, in order to effectuate the transactions contemplated by the Loan
Documents and in order to grant, preserve, protect and perfect the validity
and first priority of the security interests created or intended to be
created by the Security Documents. The Borrowers will cause any subsequently
acquired or organized wholly owned Domestic Subsidiary (other than any wholly
owned Subsidiary that has total assets not in excess of $500,000 and has no
Indebtedness other than to any Borrower or any Guarantor (an "Inactive
Subsidiary")) or any wholly owned Domestic Subsidiary upon ceasing to be an
Inactive Subsidiary to become a party to the Guarantee Agreement, Indemnity
Subrogation and Contribution Agreement and each applicable Security Document
in the manner provided therein. In addition, from time to time, the
Borrowers and the Guarantors will, at their cost and expense, promptly secure
the Obligations by pledging or creating, or causing to be pledged or created,
perfected security interests with respect to assets acquired subsequent to
the Closing Date as required by any Security Document. Such security
interests and Liens will be created under the Security Documents and other
security agreements and other instruments and documents in form and substance
satisfactory to the Collateral Agent, and the Borrowers shall deliver or
cause to be delivered to the Lenders all such instruments and documents
(including legal opinions and lien searches) as the Collateral Agent shall
reasonably request to evidence compliance with this Section. Each Borrower
agrees to provide such evidence as the Collateral Agent shall reasonably
request as to the perfection and priority status of each such security
interest and Lien.
SECTION 5.12. Concentration and Disbursement Accounts. The Parent
Borrower shall maintain with a financial institution that is a Lender one or
more accounts to be used by the Parent Borrower as its principal concentration
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69
and disbursement accounts in a manner and following procedures consistent
with past business practices.
SECTION 5.13. Remedies Under Franchise Agreement. In the event
that a Franchise Payment Default shall have occurred and be continuing, the
Parent Borrower shall, upon the request of the Administrative Agent, the
Syndication Agent and the Required Lenders, exercise all remedies under the
Franchise Agreement (including Governance Remedies) that are so requested and
are available to the Parent Borrower under the Franchise Agreement, provided,
that the Parent Borrower shall not be required to comply with this Section
5.13 if at the time of such request (a) no Event of Default (other than any
Event of Default described in paragraphs (a), (e) or (m) of Article VII
hereof or any Event of Default described in paragraph (d) of Article VII
relating to provisions other than those contained in Article VI hereof) shall
have occurred and be continuing or (b) no Loans are outstanding and there is
no Aggregate Credit Exposure outstanding.
SECTION 5.14. Series A Notes Repurchase. On the Series A Notes
Repurchase Date, the Parent Borrower shall repurchase all Series A Notes
tendered (and not withdrawn) in accordance with applicable law, the Series A
Notes Tender Offer and the Series A Notes Indenture.
ARTICLE VI
Negative Covenants
Each Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in
full and all Letters of Credit have been canceled or have expired and all
amounts drawn thereunder have been reimbursed in full, unless the Required
Lenders shall otherwise consent in writing, the Borrowers will not, and will
not cause or permit any of the Subsidiaries (other than the Subsidiary
Non-Guarantors, except with respect to Sections 6.01, 6.06(c) and 6.09) to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to
exist any Indebtedness, except for Indebtedness satisfying one of the
following paragraphs:
(a) Indebtedness existing on the date hereof and set forth on
Schedule 6.01(a);
(b) Indebtedness created hereunder and under the other Loan
Documents;
(c) unsecured Indebtedness of the Parent Borrower, provided that (i)
the aggregate amount of scheduled principal payments in respect of such
Indebtedness that can be due on a date that is on or prior to the
Maturity Date cannot exceed $25,000,000; (ii) such Indebtedness contains
covenants (including financial and negative covenants) and events of
default that are no more restrictive in any material respect than the
analogous covenants and events of default contained in this Agreement;
and (iii) on the date that any such Indebtedness is incurred and
immediately after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing;
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(d) unsecured Indebtedness (i) assumed by the Parent Borrower or any
Subsidiary in connection with a Permitted Acquisition made after the date
hereof or (ii) of any Subsidiary acquired after the date hereof pursuant
to a Permitted Acquisition, which Indebtedness, in each case, exists at
the time of such Permitted Acquisition and is not created in
contemplation of such Permitted Acquisition, provided that the aggregate
principal amount of such Indebtedness (for all Subsidiaries) shall not
exceed $25,000,000 at any time outstanding;
(e) unsecured Indebtedness of any Subsidiary in an aggregate
principal amount (for all the Subsidiaries) not to exceed $10,000,000 at
any time outstanding, provided that (i) the aggregate amount of scheduled
principal payments in respect of such Indebtedness that can be due on a
date that is on or prior to the Maturity Date cannot exceed $5,000,000,
(ii) such Indebtedness contains covenants (including financial and
negative covenants) and events of default that are no more restrictive in
any material respect than the analogous covenants and events of default
contained in this Agreement; and (iii) on the date that any such
Indebtedness is incurred and immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing;
provided, further, that the aggregate principal amount of such
Indebtedness plus the aggregate principal amount of Indebtedness of the
Subsidiaries permitted under clause (d)(ii) above shall not exceed
$25,000,000 at any time outstanding;
(f) secured Indebtedness of the Parent Borrower or any Subsidiary
(including purchase money Indebtedness) in an aggregate principal amount
(for the Parent Borrower and all the Subsidiaries) not to exceed
$10,000,000 at any time outstanding, provided that (i) such Indebtedness
contains covenants (including financial and negative covenants) and
events of default that are no more restrictive in any material respect
than the analogous covenants and events of default contained in this
Agreement; (ii) on the date that any such Indebtedness is incurred and
immediately after giving effect thereto, no Default or Event of Default
shall exist and be continuing; and (iii) the aggregate principal amount
of such Indebtedness shall not exceed 80% of the fair market value of the
assets and property securing such Indebtedness (as determined in good
faith by a Financial Officer of the Parent Borrower at the time of
incurrence);
(g) Guarantees in respect of Indebtedness permitted pursuant to this
Section 6.01 (except that Guarantees by the Parent Borrower and the
Guarantors of Indebtedness of Controlled Non-Guarantor Entities shall be
limited to Permitted Non-Guarantor Transactions);
(h) Indebtedness of the Parent Borrower, any wholly owned Subsidiary
or any Guarantor to any other wholly owned Subsidiary, any other
Guarantor or the Parent Borrower, so long as such Indebtedness is
subordinated to all Indebtedness incurred pursuant hereto and pursuant to
the Guarantee Agreement and evidenced by a note pledged to the Collateral
Agent for the benefit of the Lenders to the extent required by the Pledge
Agreement;
(i) Indebtedness incurred pursuant to any sale and leaseback
transaction permitted by Section 6.03;
(j) Indebtedness incurred under any Interest Rate Protection
Agreement;
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(k) Permitted Subordinated Indebtedness;
(l) the Permitted CBHS Guarantee;
(m) Indebtedness incurred in connection with any Permitted
Non-Guarantor Transaction; and
(n) extensions, renewals or refinancings of Indebtedness under
paragraphs (a), (c) and (d) so long as (i) such Indebtedness
("Refinancing Indebtedness") is in an aggregate principal amount not
greater than the aggregate principal amount of the Indebtedness being
extended, renewed or refinanced plus the amount of any premiums required
to be paid thereon and fees and expenses associated therewith, (ii) such
Refinancing Indebtedness has a later or equal final maturity and a longer
or equal weighted average life than the Indebtedness being extended,
renewed or refinanced, (iii) the interest rate applicable to such
Refinancing Indebtedness shall be a market interest rate (as determined
in good faith by a Financial Officer of the Parent Borrower) as of the
time of such extension, renewal or refinancing, (iv) if the Indebtedness
being extended, renewed or refinanced is subordinated to the Obligations,
such Refinancing Indebtedness is subordinated to the Obligations to the
same extent as the Indebtedness being extended, renewed or refinanced,
(v) each of the covenants, events of default or other provisions thereof
(including any Guarantees thereof) shall be substantially no less
favorable to the Lenders than those contained in the Indebtedness being
refinanced and (vi) at the time and after giving effect to such
extension, renewal or refinancing, no Default or Event of Default shall
have occurred and be continuing.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any
Lien on any property or assets (including stock or other securities of any
person, including any Subsidiary) now owned or hereafter acquired by it or on
any income or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Parent Borrower and the
Subsidiaries existing on the date hereof and set forth in Schedule
6.02(a); provided that such Liens shall secure only those obligations
which they secure on the date hereof;
(b) any Lien created under the Loan Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by any Borrower or any Subsidiary pursuant to a
Permitted Acquisition, provided that (i) such Lien is not created in
contemplation of or in connection with such acquisition and (ii) such
Lien does not apply or extend to any other property or assets of any
Borrower or any Subsidiary;
(d) Liens for taxes not yet due or which are being contested in
compliance with Section 5.03 or Liens for unpaid local or state taxes
that are not in the aggregate material;
(e) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not in the aggregate material;
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(f) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(g) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than Capital Lease
Obligations), statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary
course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions on
use of real property and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not substantial
in amount and do not materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the business of
the Borrowers and the Subsidiaries taken as a whole;
(i) purchase money security interests in real property, improvements
thereto or equipment hereafter acquired (or, in the case of improvements,
constructed) by any Borrower or any Subsidiary; provided that (i) such
security interests secure Indebtedness permitted by Section 6.01, (ii)
such security interests are incurred, and the Indebtedness secured
thereby is created, within 180 days after such acquisition (or
construction), (iii) the Indebtedness secured thereby does not exceed the
lesser of the cost and the fair market value of such real property,
improvements or equipment at the time of such acquisition (or
construction) and (iv) such security interests do not apply to any other
property or assets of any Borrower or any Subsidiary;
(j) any Lien securing Indebtedness permitted by Section 6.01(f),
provided that such Lien does not apply or extend to any other assets or
property of any Borrower or any Subsidiary;
(k) any Lien on an asset sold pursuant to a sale and leaseback
transaction permitted by Section 6.03, provided that such Lien does not
apply or extend to any other assets or property of any Borrower or any
Subsidiary;
(l) any Lien securing Indebtedness permitted by 6.01(h), provided
that such Indebtedness is subordinated and evidenced by a note pledged in
accordance with Section 6.01(h);
(m) Liens securing Refinancing Indebtedness, to the extent that the
Indebtedness being refinanced was originally permitted to be secured
pursuant to this Section 6.02, provided that any such Lien does not apply
or extend to any property or assets of any Borrower or any Subsidiary
other than property or assets subject to the Liens securing the
Indebtedness being refinanced;
(n) bankers' liens and Liens (other than any Lien imposed by ERISA)
incurred or deposits made in the ordinary course of business consistent
with past practices in connection with title insurance, purchase
agreements, judgment liens (if released, bonded or stayed within 60 days)
and leases and subleases;
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(o) prejudgment liens in respect of property of a Foreign Subsidiary
that are incurred in connection with a claim or action against such
Foreign Subsidiary before a court or tribunal outside of the United
States, provided that such liens do not, individually or in the
aggregate, have a Material Adverse Effect;
(p) Liens on the assets of the Insurance Subsidiaries securing self
insurance and reinsurance obligations and letters of credit or bonds
issued in support of such self insurance and reinsurance obligations,
provided that the assets subject to such Liens shall only be assets of
the Insurance Subsidiaries; and
(q) deposits made prior to 1992 plus interest and income earned
thereon to secure the Parent Borrower's obligations in respect of its
Public Issue of 7.5% Dual Currency Swiss Franc Bonds dated 1986 and due
1998/2001.
SECTION 6.03. Sale and Leaseback Transactions. Enter into any
arrangement, directly or indirectly, with any person whereby it shall sell or
transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred, provided that
the Parent Borrower and the Subsidiaries may enter into any such transaction
so long as (i) the aggregate fair market value of assets subject to all such
transactions (as determined in good faith by the board of directors of the
Parent Borrower at the time of the applicable transaction) shall not exceed
on a cumulative basis during the term of this Agreement $10,000,000 (less the
aggregate principal amount of Indebtedness permitted under Section 6.01(f)
outstanding at any time), (ii) all the proceeds of any such transaction shall
be in cash (except for obligations assumed by the purchaser thereof) and the
Net Cash Proceeds shall be applied to prepay Note Repurchase Loans or reduce
Revolving Credit Commitments as required by Section 2.13 and (iii) on the
date that any such transaction is consummated and immediately after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing.
SECTION 6.04. Investments, Loans, Advances and Certain Other
Transactions. Purchase, hold or acquire any capital stock, evidences of
indebtedness or other securities of, make or permit to exist any loans or
advances to, or make or permit to exist any investment or any other interest
in, any other person, or transfer any assets to any Controlled Non-Guarantor
Entity, or engage in any transaction that causes any Guarantor to become a
Controlled Non-Guarantor Entity, except:
(a) investments made by the Parent Borrower or any Subsidiary (i)
prior to the date hereof in the capital stock of the Subsidiaries that
are existing on the date hereof and (ii) after the date hereof in the
capital stock of the Borrowers, the Guarantors and the Inactive
Subsidiaries;
(b) Permitted Investments;
(c) Permitted Acquisitions;
(d) Permitted Debt Repurchases;
(e) Permitted Non-Guarantor Transactions;
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(f) Permitted Non-Control Investments;
(g) Permitted Stock Repurchases;
(h) Permitted CBHS Advances;
(i) loans and advances to (i) directors, officers and employees not
in excess of $5,000,000 at any time outstanding and (ii) physicians and
other health care professionals not in excess of $5,000,000, in each case
in the ordinary course of business and consistent with past practices;
(j) investments in real property in the ordinary course of business
and consistent with past practices not in excess of $5,000,000 at any
time outstanding so long as such property is being used or will be used
by an officer or employee of any Borrower or Guarantor primarily as a
residence;
(k) investments consisting of non-cash consideration from a sale of
assets that is permitted pursuant to Section 6.05;
(l) loans or advances by the Parent Borrower, any wholly owned
Subsidiary or any Guarantor to the Parent Borrower, any wholly owned
Subsidiary or any Guarantor that are permitted under Section 6.01(h),
provided that such loans or advances are subordinated and evidenced by a
note pledged in accordance with Section 6.01(h);
(m) investments, loans or advances existing on the date hereof and
set forth on Schedule 6.04(m);
(n) investments in the ordinary course of business and consistent
with past practices in property (including debt and equity securities)
issued by debtors as part of the reorganization of such debtors, provided
that such property is issued in exchange for property originally issued
when such debtors were solvent and was obtained in the ordinary course of
business;
(o) investments by any Foreign Subsidiary in instruments or
securities of the highest grade investment available in local currencies
or in certificates of deposit (or comparable instruments) of any bank
with which such Subsidiary regularly transacts business;
(p) any Interest Rate Protection Agreement permitted under Section
6.01(j); and
(q) acquisitions by the Parent Borrower of shares of the capital
stock of Green Spring pursuant to the Green Spring Exchange Agreement or
the Green Spring Stockholders' Agreement; provided, that no such
acquisition shall be permitted as a result of the consummation of the
Transactions.
SECTION 6.05. Mergers, Consolidations, Sales of Assets and
Acquisitions. Merge into or consolidate with any other person, or permit any
other person to merge into or consolidate with it, or conduct any Asset Sale
or
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sell any equity interests in Green Spring or CBHS or purchase, lease or
otherwise acquire (in one transaction or a series of transactions) all or any
substantial part of the assets of any other person, except:
(a) if at the time thereof and immediately after giving effect
thereto no Event of Default or Default shall have occurred and be
continuing (i) any wholly owned Subsidiary or any Guarantor may merge or
consolidate into any Borrower or Guarantor in a transaction in which such
Borrower or Guarantor is the surviving corporation and no person other
than the Borrower, the Parent Borrower, a Guarantor or any wholly owned
Domestic Subsidiary receives any consideration, (ii) any Borrower (other
than the Parent Borrower) may merge into or consolidate with any wholly
owned Subsidiary or Guarantor in a transaction in which no person other
than a Borrower, Guarantor or wholly owned Domestic Subsidiary receives
any consideration and the surviving or resulting corporation upon the
consummation of such merger or consolidation is or becomes a Borrower and
(iii) any wholly owned Subsidiary or any Guarantor may merge into or
consolidate with any other wholly owned Subsidiary in a transaction in
which the surviving entity is a wholly owned Domestic Subsidiary and no
person other than any Borrower or a wholly owned Domestic Subsidiary
receives any consideration and so long as the surviving entity is a
Guarantor or becomes a Guarantor to the extent required by Section 5.11;
(b) the Parent Borrower and the Subsidiaries may conduct any Asset
Sale, provided that the fair market value of all the assets sold,
transferred or otherwise disposed of pursuant to this Section 6.05(b)
(excluding any Casualty Event or Condemnation Event) shall not exceed
$10,000,000 on a cumulative basis during the term of this Agreement (as
determined in good faith by a Financial Officer of the Parent Borrower),
provided, that the Net Cash Proceeds from any such sale shall be applied
to the extent required by Section 2.13 and provided, further, that any
Asset Sale otherwise permitted by this Section 6.05(b) shall not be
permitted unless (A) such sale, transfer or other disposition is for
consideration at least (x) 85% of which is cash, if there are any Note
Repurchase Loans out-standing at the time of such sale, transfer or other
disposition, or (y) 70% of which is cash, if there are no outstanding
Note Repurchase Loans at the time of such sale, transfer or other
disposition, and (B) such consideration is at least equal to the fair
market value of the assets sold, transferred or disposed of (as
determined in good faith by a Financial Officer of the Parent Borrower);
(c) the Parent Borrower may sell equity interests in Green Spring,
provided that at no time shall the Parent Borrower cease to own a
majority of the equity interests in Green Spring;
(d) the Parent Borrower may sell equity interests in CBHS, provided
that at no time shall (i) the Parent Borrower cease to own at least 25%
of the equity interests in CBHS and (ii) the equity interests in CBHS
owned by the Parent Borrower be less than the equity interests in CBHS
owned by any other person or group, unless in the case of clause (ii),
the Parent Borrower has, at such time, the right or ability by contract
or otherwise to elect or designate for election more than 20% of the
governing board of CBHS;
(e) the Parent Borrower or any Subsidiary may make Permitted
Acquisitions;
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(f) any sale and leaseback transaction permitted by Section 6.03 may
be effected, provided that the Net Cash Proceeds from such sale shall be
applied as required by Section 2.13;
(g) any transfer of assets made in connection with any Permitted
Non-Control Investment or any Permitted Non-Guarantor Transaction may be
effected, provided that any Net Cash Proceeds from such transfer shall be
applied as required by Section 2.13;
(h) any Subsidiary may liquidate and distribute assets to any other
Subsidiary, a Guarantor or the Parent Borrower, provided that if the
Subsidiary that is being liquidated is a Guarantor or a Borrower, the
Subsidiary that receives the assets pursuant to following such
liquidation shall be a Guarantor or a Borrower; and
(i) any Loan Party or any Subsidiary may lease or sublease (whether
as lessor or lessee) properties in the ordinary course of business and
consistent with past practice;
SECTION 6.06. Dividends and Distributions; Restrictions on Ability
of Subsidiaries to Pay Dividends. (a) Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, with respect to any shares of its capital stock or directly or
indirectly redeem, purchase, retire or otherwise acquire for value (or permit
any Subsidiary to purchase or acquire) any shares of any class of its capital
stock or set aside any amount for any such purpose; provided, however, that:
(i) any Subsidiary may declare and pay dividends or make other
istributions to any Borrower or any wholly owned Subsidiary;
(ii) Permitted Stock Repurchases may be effected;
(iii) the Parent Borrower may repurchase common stock distributed in
the ordinary course of business consistent with past practices to trusts
pursuant to any employee-related benefit plan (including any employee
stock ownership plan);
(iv) the Parent Borrower may acquire warrants and options for the
purchase of capital stock acquired upon the exercise of such warrants or
options, including pursuant to the Warrant Agreements, provided that the
sole consideration for any such warrants or options shall be the Parent
Borrower's common stock;
(v) the Parent Borrower may purchase, redeem or otherwise acquire
for nominal consideration rights in connection with the Rights Plan;
(vi) any Guarantor may declare and pay dividends pro rata to its
shareholders, partners or other equity holders, as the case may be; and
(vii) so long as no Default or Event of Default shall have occurred
and be continuing, the Parent Borrower may declare and pay in each fiscal
year pro rata cash dividends on its capital stock in a cumulative amount
for such fiscal year not to exceed 6% of (x) the cash proceeds received by
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the Parent Borrower, net of underwriter's and broker's fees and
commissions and costs and expenses incurred in connection therewith, from
issuances of its common stock after the Closing Date pursuant to public
or private offerings less (y) all amounts spent by the Parent Borrower to
repurchase any shares of its common stock pursuant to a Permitted Stock
Repurchase.
(b) Permit any of its subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective, any
encumbrance or restriction on the ability of any such subsidiary to (i) pay
any dividends or make any other distributions on its capital stock or any
other interest or (ii) make or repay any loans or advances to the Parent
Borrower or the parent of such subsidiary (dividends, distributions and other
payments described in sub-clauses (i) and (ii) are collectively referred to
herein as "Upstream Payments"), other than encumbrances and restrictions:
(A) pursuant to the Loan Documents;
(B) existing under, or by reason of, applicable law;
(C) contained in any debt instrument governing (x) Indebtedness of a
Subsidiary that becomes a Borrower or (y) Indebtedness of a Guarantor
acquired or assumed pursuant to a Permitted Acquisition if such
Indebtedness was permitted by Section 6.01(d) or constitutes a
refinancing thereof permitted by Section 6.01(n), provided that (x) such
instrument was in existence at the time of such acquisition and was not
created in contemplation of or in connection with the applicable
Permitted Acquisition, (y) a Financial Officer of the Parent Borrower
reasonably believes at the time such Indebtedness is acquired that the
terms of such instrument will not encumber or restrict the ability of
such acquired Subsidiary to make an Upstream Payment, except upon a
default or an event of default under such Indebtedness and (z) such
instrument contains no express encumbrances, or restrictions on the
ability of such acquired Subsidiary to make an Upstream Payment, except
upon a default or an event of default under such Indebtedness;
(D) existing on the date hereof and set forth on Schedule 6.06(b);
(E) contained in sale and leaseback agreements permitted by Section
6.03 and any debt instrument governing any Indebtedness permitted by
Section 6.01(f); and
(F) that are Permitted Restrictions in the case of a Controlled
Venture.
(c) Permit Green Spring, directly or indirectly, to create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of Green Spring to pay or make any Upstream
Payments, other than encumbrances and restrictions:
(A) pursuant to the Loans Documents;
(B) existing under, or by reason of, applicable law;
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(C) contained in any debt instrument governing Indebtedness of Green
Spring acquired or assumed pursuant to an acquisition if such
Indebtedness or the refinancing thereof was permitted by Section 6.01,
provided that (x) such instrument was in existence at the time of such
acquisition and was not created in contemplation of or in connection with
the applicable acquisition, (y) a Financial Officer of the Parent
Borrower reasonably believes at the time such Indebtedness is acquired or
assumed that the terms of such instrument will not encumber or restrict
the ability of Green Spring to make an Upstream Payment, except upon a
default or an event of default under such Indebtedness and (z) such
instrument contains no express encumbrances or restrictions on the
ability of Green Spring to make an Upstream Payment, except upon a
default or an event of default under such Indebtedness.
(D) existing on the date hereof and set forth on Schedule 6.06(c);
(E) contained in any sale and leaseback agreement or any debt
instrument governing any Indebtedness permitted by Section 6.01(f); and
(F) that are Permitted Restrictions.
SECTION 6.07. Transactions with Affiliates. Sell or transfer any
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its Affiliates,
except that any Borrower or any Subsidiary may engage in any of the foregoing
transactions in the ordinary course of business at prices and on terms and
conditions substantially not less favorable to such Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated
third parties, provided that the foregoing restriction shall not apply to any
Permitted Non-Guarantor Transaction.
SECTION 6.08. Other Indebtedness and Agreements. (a) Permit any
waiver, supplement, modification, amendment, termination or release of any
indenture, instrument or agreement governing any Indebtedness or preferred
stock of any Borrower or any Subsidiary, or modify its charter or by-laws, in
each case to the extent that any such waiver, supplement, modification,
amendment, termination or release would be adverse to the Lenders in any
material respect.
(b) Permit any waiver, supplement, modification, amendment,
termination or release of any Transaction Document to which it is a party
after the Closing Date, to the extent that any such waiver, supplement,
modification, amendment, termination or release would be adverse to the
interest of the Lenders in any material respect, without the consent of the
Required Lenders.
(c) Make any distribution, whether in cash, property, securities or
a combination thereof, other than scheduled payments of principal and
interest as and when due (to the extent not prohibited by applicable
subordination provisions), in respect of, or pay, or offer or commit to pay,
or directly or indirectly redeem, repurchase, retire or otherwise acquire for
consideration, or set apart any sum for the aforesaid purposes, any
subordinated Indebtedness for borrowed money of any Loan Party or any
Subsidiary, except for (i) the refinancing of Indebtedness in connection with
the consummation of the Transactions, (ii) Permitted Debt Repurchases, (iii)
the refinancings of Indebtedness permitted by Section 6.01 and (iv)
Indebtedness permitted pursuant to Section 6.01(h).
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SECTION 6.09. Business of the Borrowers and Subsidiaries. Engage at
any time in any business or business activity that is not a health care business
or activity and business activities reasonably related (ancillary or
complementary) to such business or business activity.
SECTION 6.10. Interest Expense Coverage Ratio. Permit the Interest
Expense Coverage Ratio as of the end of any fiscal quarter, beginning with the
fiscal quarter ending on September 30, 1997, to be less than 2.00 to 1.00.
SECTION 6.11. Leverage Ratio. Permit the Leverage Ratio as of the
end of any fiscal quarter, beginning with the fiscal quarter ending on
September 30, 1997, to be in excess of 4.00 to 1.00.
SECTION 6.12. Senior Debt Ratio. Permit the Senior Debt Ratio as of
the end of any fiscal quarter, beginning with the fiscal quarter ending on
September 30, 1997, to be in excess of 2.00 to 1.00.
SECTION 6.13. Maintenance of Consolidated EBITDA. Permit for any
period of four consecutive fiscal quarters ending on the last day of any fiscal
quarter, commencing September 30, 1997, the Consolidated EBITDA for the Parent
Borrower to be less than $80,000,000; provided: that, for purposes of
determining Consolidated EBITDA for each of the four-fiscal-quarters ending
September 30, 1997, December 31, 1997, and March 31, 1998, Consolidated EBITDA
shall equal Consolidated EBITDA for the period commencing July 1, 1997, and
ending on (A) September 30, 1997, multiplied by 4, (B) December 31, 1997,
multiplied by 2 and (C) March 31, 1998, multiplied by 4/3, respectively.
SECTION 6.14. Fiscal Year. Change the end of its fiscal year from
September 30 to any other date.
ARTICLE VII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or in
connection with any Loan Document or the borrowings or issuances of Letters
of Credit hereunder, or any representation, warranty, statement or
information contained in any report, certificate, financial statement or
other instrument furnished in connection with or pursuant to any Loan
Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
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(c) default shall be made in the payment of any Fee, any L/C
Disbursement that is not satisfied by a deemed Loan pursuant to the second
sentence of Section 2.02(f) or interest on any Loan or L/C Disbursement or
any other amount (other than an amount referred to in (b) above) due under
any Loan Document, when and as the same shall become due and payable, and
such default shall continue unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by any
Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05, 5.08, 5.12 or 5.14 or in Article VI;
(e) default shall be made in the due observance or performance by any
Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in (b), (c) or
(d) above) and such default shall continue unremedied for a period of
15 days after notice thereof from the Administrative Agent or any Lender to
the Borrowers;
(f) any Borrower or any Subsidiary shall (i) fail to pay any principal
or interest, regardless of amount, due in respect of any Indebtedness
(other than any Indebtedness evidenced by any Loan Document) in a principal
amount in excess of $10,000,000, when and as the same shall become due and
payable (subject to any grace period), or (ii) fail to observe or perform
any other term, covenant, condition or agreement contained in any agreement
or instrument evidencing or governing any such Indebtedness if the effect
of any failure referred to in this clause (ii) is to cause, or to permit
the holder or holders of such Indebtedness or a trustee on its or their
behalf to cause, such Indebtedness to become due prior to its stated
maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of any Borrower or any Subsidiary, or of a
substantial part of the property or assets of any Borrower or a Subsidiary,
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Borrower
or any Subsidiary or for a substantial part of the property or assets of
any Borrower or a Subsidiary or (iii) the winding-up or liquidation of any
Borrower or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(h) any Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal,
state or foreign bankruptcy, insolvency, receivership or similar law,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in (g) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Borrower or any Subsidiary or for a substantial part of the property or
assets of any Borrower or any Subsidiary, (iv) file an answer admitting the
material allegations of a petition filed against it in any proceeding
relating to the above, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in
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writing its inability or fail generally to pay its debts as they become
due or (vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against any Borrower, any
Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 60 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of any Borrower or any
Subsidiary to enforce any such judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events,
could reasonably be expected to have a Material Adverse Effect;
(k) the Lease shall cease to be in full force and effect in accordance
with the respective terms thereof;
(l) there shall have occurred and be continuing a Material Franchise
Payment Default;
(m) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by any Borrower or any
other Loan Party not to be, a valid, perfected, first priority (except as
otherwise expressly provided in this Agreement or such Security Document)
security interest in the securities, assets or properties covered thereby,
except to the extent that any such loss of perfection or priority results
from the failure of the Collateral Agent to maintain possession of
certificates representing securities pledged under the Pledge Agreement;
(n) any Loan Document or the Franchise Agreement shall not be for any
reason, or shall be asserted by any Loan Party not to be, in full force and
effect and enforceable in accordance with its terms; or
(o) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to any Borrower
or any Subsidiary described in paragraph (g) or (h) above), and at any time
thereafter during the continuance of such event, the Administrative Agent may,
and at the request of the Required Lenders shall, by notice to the Borrowers,
take either or both of the following actions, at the same or different times:
(i) terminate forthwith the Commitments and (ii) declare the Loans then out-
standing to be forthwith due and payable in whole or in part, whereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrowers accrued hereunder and under any other Loan Document, shall become
forthwith due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Borrowers,
anything contained herein or in any other Loan Document to the contrary
notwithstanding; and in any event with respect to any Borrower or any Subsidiary
described in paragraph (g) or (h) above, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with accrued
interest thereon and any unpaid accrued
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Fees and all other liabilities of the Borrowers accrued hereunder and under
any other Loan Document, shall automatically become due and payable, without
presentment, demand, protest or any other notice of any kind, all of which
are hereby expressly waived by the Borrowers, anything contained herein or in
any other Loan Document to the contrary notwithstanding. If any Event of
Default has occurred and is continuing, the Collateral Agent may exercise
rights and remedies as provided in the Collateral Assignment and the Advance
Collateral Assignment.
ARTICLE VIII
The Administrative Agent, the Syndication Agent and the Collateral Agent
In order to expedite the transactions contemplated by this Agreement,
The Chase Manhattan Bank is hereby appointed to act as Administrative Agent and
Collateral Agent and First Union National Bank of North Carolina is hereby
appointed to act as Syndication Agent, in each case on behalf of the Lenders and
the Issuing Banks (for purposes of this Article VIII, the Administrative Agent,
the Syndication Agent and the Collateral Agent are referred to collectively as
the "Agents"). Each of the Lenders and each assignee of any such Lender and
each Issuing Bank, hereby irrevocably authorizes the Agents to take such actions
on behalf of such Lender or assignee or Issuing Bank and to exercise such powers
as are specifically delegated to the Agents by the terms and provisions hereof
and of the other Loan Documents, together with such actions and powers as are
reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders and the Issuing Banks, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders and the Issuing Banks
all payments of principal of and interest on the Loans, all payments in respect
of L/C Disbursements and all other amounts due to the Lenders hereunder, and
promptly to distribute to each Lender or the applicable Issuing Bank its proper
share of each payment so received; (b) to give notice on behalf of each of the
Lenders to the Borrowers of any Event of Default specified in this Agreement of
which the Administrative Agent has actual knowledge acquired in connection with
its agency hereunder; (c) pursuant to Section 5.13, request the Parent Borrower
to exercise all remedies under the Franchise Agreement (including Governance
Remedies); and (d) to distribute to each Lender copies of all notices, financial
statements and other materials delivered by the Borrowers or any other Loan
Party pursuant to this Agreement or the other Loan Documents as received by the
Administrative Agent. Without limiting the generality of the foregoing, the
Administrative Agent and the Collateral Agent are hereby expressly authorized to
execute any and all documents (including releases) with respect to the
Collateral and the rights of the Secured Parties with respect thereto, as
contemplated by and in accordance with the provisions of this Agreement and the
Security Documents. The Borrowers agree that the Administrative Agent may
designate prior to the Closing Date any other Lender with the title co-agent and
that any such co-agent shall not be obligated to perform any duties in such
capacity as a co-agent.
Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or willful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrowers or any other Loan Party of any of the terms, conditions, covenants or
agreements contained in any Loan Document. The Agents shall not be responsible
to the Lenders for the due execution, genuineness,
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83
validity, enforceability or effectiveness of this Agreement or any other Loan
Documents, instruments or agreements. The Agents shall in all cases be fully
protected in acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Lenders. Each Agent shall, in
the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper person or persons. Neither the
Agents nor any of their respective directors, officers, employees or agents
shall have any responsibility to the Borrowers or any other Loan Party on
account of the failure of or delay in performance or breach by any Lender or
any Issuing Bank of any of its obligations hereunder or to any Lender or any
Issuing Bank on account of the failure of or delay in performance or breach
by any other Lender or Issuing Bank or the Borrowers or any other Loan Party
of any of their respective obligations hereunder or under any other Loan
Document or in connection herewith or therewith. Each of the Agents may
execute any and all duties hereunder by or through agents or employees and
shall be entitled to rely upon the advice of legal counsel selected by it
with respect to all matters arising hereunder and shall not be liable for any
action taken or suffered in good faith by it in accordance with the advice of
such counsel.
The Lenders hereby acknowledge that none of the Agents shall be under
any duty to take any discretionary action permitted to be taken by it pursuant
to the provisions of this Agreement unless it shall be requested in writing to
do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, any of the Agents may resign at any time by notifying the
Lenders and the Borrowers. Upon any such resignation, the Required Lenders,
with the consent of the Parent Borrower (which consent shall not be unreasonably
withheld), shall have the right to appoint a successor, provided the consent of
the Parent Borrower shall not be required if an Event of Default has occurred
and is continuing. If no successor shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Agent gives notice of its resignation, then the retiring Agent may, on
behalf of the Lenders, appoint a successor Agent, with the consent of the Parent
Borrower (which consent shall not be unreasonably withheld), which shall be a
bank that is a Lender and has a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such bank, provided the consent of the
Parent Borrower shall not be required if an Event of Default has occurred and is
continuing. Upon the acceptance of any appointment as Agent hereunder by a
successor bank, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations hereunder. After the
Agent's resignation hereunder, the provisions of this Article and Section 9.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrowers or any Subsidiary or
other Affiliate thereof as if it were not an Agent.
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Each Lender agrees (a) to reimburse the Agents, on demand, in the
amount of its pro rata share (based on its Commitments hereunder) of any
expenses incurred for the benefit of the Lenders by the Agents, including
counsel fees and compensation of agents and employees paid for services rendered
on behalf of the Lenders, that shall not have been reimbursed by the Borrowers
or any other Loan Party and (b) to indemnify and hold harmless each Agent and
any of its directors, officers, employees or agents, on demand, in the amount of
such pro rata share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by or asserted against it in its capacity as Agent or any of them
in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have been
reimbursed by the Borrowers or any other Loan Party, provided that no Lender
shall be liable to an Agent or any such other indemnified person for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements that are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Agent or any of
its directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Agents or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to any Borrower, to it in care of the Parent Borrower at
3414 Peachtree Road, NE, Suite 1400, Atlanta, GA 30326, Attention of
Treasurer (Telecopy No. (404) 814-5823);
(b) if to the Administrative Agent or the Collateral Agent, to Chase
Manhattan Bank Agency Services Corporation, One Chase Manhattan Plaza,
8th Floor, New York, New York 10081, Attention of Sandra Miklave (Telecopy
No. (212) 552-7500), with a copy to The Chase Manhattan Bank, at 270 Park
Avenue, New York, New York 10017, Attention of Dawn Lee Lum (Telecopy
No. (212) 270-3279);
(c) if to the Syndication Agent, to First Union National Bank of North
Carolina, 301 South College Street, Charlotte, North Carolina 28288,
Attention of Sue Patterson (Telecopy No. 704-383-9144); and
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(d) if to a Lender, to it at its address (or telecopy number) set
forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Loan Parties herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Banks and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Banks, regardless of any investigation made by the Lenders or the
Issuing Banks or on their behalf, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any Fee or any
other amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or any Letter of Credit is outstanding and so long as the
Commitments have not been terminated. The provisions of Sections 2.14, 2.16,
2.20 and 9.05 shall remain operative and in full force and effect regardless of
the expiration of the term of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the Loans, the
expiration of the Commitments, the expiration of any Letter of Credit, the
invalidity or unenforceability of any term or provision of this Agreement or any
other Loan Document, or any investigation made by or on behalf of the
Administrative Agent, the Syndication Agent, the Collateral Agent, any Lender or
any Issuing Bank.
SECTION 9.03. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrowers, the Administrative Agent and
the Syndication Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the Borrowers, the
Administrative Agent and the Syndication Agent, the Issuing Banks or the Lenders
that are contained in this Agreement shall bind and inure to the benefit of
their respective permitted successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, (x) the Parent Borrower (unless an Event of Default
shall have occurred and is continuing), the Administrative Agent and the
Syndication Agent (and, in the case of any assignment of a Revolving Credit
Commitment, the Issuing Banks) must give their prior written
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consent to such assignment (which consent shall not be unreasonably withheld)
and (y) the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5,000,000 (or, if less, the entire remaining amount of such
Lender's Commitment), (ii) the parties to each such assignment shall execute
and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of $3,500, (iii) the assignee,
if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire and (iv) the assignment by any Lender of any
portion of its Commitments or any portion of the Loans owing to such Lender
must include (A) a ratable portion of its Commitments and its CBHS
Commitments and a ratable portion of Loans and CBHS Loans owing to such
Lender and (B) a ratable portion of its Revolving Credit Commitments and Note
Repurchase Loan Commitments and Revolving Loans and Note Repurchase Loans
owing to such Lender. Upon acceptance and recording pursuant to paragraph
(e) of this Section 9.04, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, (A) the assignee thereunder shall
be a party hereto and, to the extent of the interest assigned by such
Assignment and Acceptance, have the rights and obligations of a Lender under
this Agreement and (B) the assigning Lender thereunder shall, to the extent
of the interest assigned by such Assignment and Acceptance, be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections
2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and
not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Revolving Credit Commitment and its Note Repurchase Loan Commitment, and the
outstanding balance of its Revolving Loans and Note Repurchase Loans, in each
case without giving effect to assignments thereof which have not become
effective, are as set forth in such Assignment and Acceptance, (ii) except as
set forth in (i) above, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto, or the financial condition of any Borrower
or any Subsidiary or the performance or observance by any Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto;
(iii) such assignee represents and warrants that it is legally authorized to
enter into such Assignment and Acceptance; (iv) such assignee confirms that it
has received a copy of this Agreement, together with copies of the most recent
financial statements referred to in Section 3.05(a) or delivered pursuant to
Section 5.04 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, the Syndication Agent, the Collateral
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Administrative Agent and the Collateral
Agent to take such action as agent
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on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent and the Collateral Agent, respectively,
by the terms hereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance
with their terms all the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of
the Borrowers, shall maintain at one of its offices a copy of each Assignment
and Acceptance delivered to it and a register for the recordation of the names
and addresses of the Lenders, and the Commitment of, and principal amount of the
Loans owing to, each Lender pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive and the Borrowers,
the Administrative Agent, the Issuing Banks, the Collateral Agent and the
Lenders may treat each person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrowers, the Issuing Banks, the Collateral Agent and any
Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in
paragraph (b) above and, if required, the written consent of the Parent
Borrower, the Issuing Banks, the Administrative Agent and the Syndication Agent
to such assignment, the Administrative Agent shall (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Lenders and the Issuing Banks. No
assignment shall be effective unless it has been recorded in the Register as
provided in this paragraph (e).
(f) Each Lender may without the consent of the Borrowers, the Issuing
Banks or the Administrative Agent sell participations to one or more banks or
other entities in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided, however, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
participating banks or other entities shall be entitled to the benefit of the
cost protection provisions contained in Sections 2.14, 2.16 and 2.20 to the same
extent as if they were Lenders and (iv) the Borrowers, the Administrative Agent,
the Syndication Agent, the Issuing Banks and the Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole right to
enforce the obligations of the Borrowers relating to the Loans or
L/C Disbursements and to approve any amendment, modification or waiver of any
provision of this Agreement and the other Loan Documents (other than amendments,
modifications or waivers decreasing any fees payable hereunder or the amount of
principal of or the rate at which interest is payable on the Loans, extending
any scheduled principal payment date or date fixed for the payment of interest
on the Loans or increasing or extending the Commitments or releasing from any
Lien granted under any Security Document all or any substantial part of the
Collateral (except with respect to sales or transfers of, and other transactions
relating to, Collateral permitted pursuant to any Loan Document)).
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(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure of
information designated by the Borrowers as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information on
terms no less restrictive than those applicable to the Lenders pursuant to
Section 9.16.
(h) Any Lender may at any time assign all or any portion of its
rights under this Agreement to a Federal Reserve Bank to secure extensions of
credit by such Federal Reserve Bank to such Lender; provided that no such
assignment shall release a Lender from any of its obligations hereunder or
substitute any such Bank for such Lender as a party hereto. In order to
facilitate such an assignment to a Federal Reserve Bank, the Borrowers shall, at
the request of the assigning Lender, duly execute and deliver to the assigning
Lender a promissory note or notes evidencing the Loans made to the Borrowers by
the assigning Lender hereunder.
(i) The Borrowers shall not assign or delegate any of their
respective rights or duties hereunder without the prior written consent of the
Administrative Agent, the Syndication Agent, the Issuing Banks and each Lender,
and any attempted assignment without such consent shall be null and void.
SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree to pay
all reasonable out-of-pocket expenses incurred by the Administrative Agent, the
Syndication Agent, the Collateral Agent and the Issuing Banks in connection with
the syndication of the credit facilities provided for herein and the preparation
and administration of this Agreement and the other Loan Documents or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby or thereby
contemplated shall be consummated) or incurred by the Administrative Agent, the
Syndication Agent, the Collateral Agent, an Issuing Bank or any Lender in
connection with the enforcement or protection of its rights in connection with
this Agreement and the other Loan Documents or in connection with the Loans made
or Letters of Credit issued hereunder, including the reasonable fees, charges
and disbursements of Cravath, Swaine & Moore, counsel for the Administrative
Agent, the Syndication Agent and the Collateral Agent, and, in connection with
any such enforcement or protection, the reasonable fees, charges and
disbursements of any other counsel for the Administrative Agent, the Syndication
Agent, the Collateral Agent, an Issuing Bank or any Lender.
(b) The Borrowers agree, jointly and severally, to indemnify the
Administrative Agent, the Syndication Agent, the Collateral Agent, each
co-agent, each Lender and each Issuing Bank, each Affiliate of any of the fore-
going persons and each of their respective directors, officers, employees and
agents (each such person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees, charges and disbursements,
incurred by or asserted against any Indemnitee arising out of, in any way
connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective obligations
thereunder or the consummation of the Transactions and the other transactions
contemplated thereby, (ii) the use of the proceeds of the
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Loans or issuance of Letters of Credit, (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not
any Indemnitee is a party thereto, or (iv) any actual or alleged presence or
Release of Hazardous Materials on any property owned or operated by the
Borrowers or any of the Subsidiaries, or any Environmental Claim related in
any way to the Borrowers or the Subsidiaries; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or willful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the expiration
of any Letter of Credit, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Administrative Agent, the Syndication Agent, the
Collateral Agent, any Lender or either Issuing Bank. All amounts due under this
Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender and Issuing Bank is hereby authorized at
any time and from time to time, except to the extent prohibited by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender or Issuing Bank to or for the credit or the account of any
Borrower against any of and all the obligations of any Borrower now or hereafter
existing under this Agreement and other Loan Documents held by such Lender or
Issuing Bank, irrespective of whether or not such Lender or Issuing Bank shall
have made any demand under this Agreement or such other Loan Document and
although such obligations may be unmatured. The rights of each Lender and
Issuing Bank under this Section 9.06 are in addition to other rights and
remedies (including other rights of setoff) which such Lender or Issuing Bank
may have.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN
DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Syndication Agent, the Collateral Agent, any Lender or
either Issuing Bank in exercising any power or right hereunder or under any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative
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Agent, the Syndication Agent, the Collateral Agent, the Issuing Banks and the
Lenders hereunder and under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or any other Loan Document or
consent to any departure by the Borrowers or any other Loan Party therefrom
shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. No notice or
demand on the Borrowers in any case shall entitle the Borrowers to any other
or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any other Loan Document (excluding
Letters of Credit) nor any provision hereof or thereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Borrowers and the Required Lenders (or, in the case of any other such
Loan Document, the parties thereto with the prior written consent of the
Required Lenders); provided, however, that no such agreement shall (i) decrease
the principal amount of, or extend the maturity of or any scheduled principal
payment date or date for the payment of any interest on any Loan or any date for
reimbursement of an L/C Disbursement, or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on any Loan or L/C Disbursement,
without the prior written consent of each Lender affected thereby, (ii) change
or extend the Commitment or decrease or extend the date for payment of the
Commitment Fees of any Lender without the prior written consent of such Lender,
(iii) amend or modify the provisions of Section 2.17 or 9.04(i), the provisions
of this Section, the definition of the term "Required Lenders" or release any
Guarantor from its obligations under the Guarantee Agreement (other than in
accordance with the Guarantee Agreement) or release from any Lien granted under
any Security Document all or any substantial part of the Collateral (except with
respect to sales or transfers of, and other transactions relating to,
Collateral permitted pursuant to the Security Documents), without the prior
consent of each Lender or (iv) change (A) the allocation of any prepayment, to
be allocated between the Note Repurchase Loans and Revolving Loans pursuant to
Section 2.13 or (B) the application of any prepayment or repayment of Note
Repurchase Loans pursuant to Sections 2.11(b), 2.12(b) or 2.13(d), in each case
without the prior written consent of Lenders holding a majority of the aggregate
outstanding principal amount of the Note Repurchase Loans; provided, further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent, the Syndication Agent, the Collateral Agent
or either Issuing Bank hereunder or under any other Loan Document without the
prior written consent of the Administrative Agent, the Syndication Agent, the
Collateral Agent or such Issuing Bank, as the case may be.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan
or participation in any L/C Disbursement, together with all fees, charges and
other amounts which are treated as interest on such Loan or participation in
such L/C Disbursement under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan or
participation in accordance with applicable law, the rate of interest payable in
respect of such Loan or participation hereunder, together with all Charges
payable in respect thereof, shall be limited to the Maximum Rate and, to the
extent lawful, the interest and Charges that would have been payable in respect
of such Loan or participation but were not payable as a result of the operation
of this Section 9.09 shall be cumulated and the interest and Charges payable to
such Lender in respect of other Loans or participations or periods shall be
increased (but not above the Maximum Rate therefor) until such
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cumulated amount, together with interest thereon at the Federal Funds
Effective Rate to the date of repayment, shall have been received by such
Lender.
SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and
the other Loan Documents constitute the entire contract between the parties
relative to the subject matter hereof. Any other previous agreement among the
parties with respect to the subject matter hereof is superseded by this
Agreement and the other Loan Documents. Nothing in this Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any party
other than the parties hereto and thereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED TO SUCH PARTY, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in
Section 9.03. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting
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in New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined in
such New York State or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative
Agent, the Syndication Agent, the Collateral Agent, either Issuing Bank or
any Lender may otherwise have to bring any action or proceeding relating to
this Agreement or the other Loan Documents against the Borrowers or its
properties in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.16. Confidentiality. The Administrative Agent, the
Syndication Agent, the Collateral Agent, each Issuing Bank and each of the
Lenders agrees to keep confidential (and to use its best efforts to cause its
respective agents and representatives to keep confidential) the Information (as
defined below) and all copies thereof, extracts therefrom and analyses or other
materials based thereon, except that the Administrative Agent, the Syndication
Agent, the Collateral Agent, either Issuing Bank or any Lender shall be
permitted to disclose Information (a) to such of its respective officers,
directors, employees, agents, auditors, affiliates and representatives as need
to know such Information, (b) to the extent requested by any regulatory
authority, (c) to the extent otherwise required by applicable laws and
regulations or by any subpoena or similar legal process, (d) in connection with
any suit, action or proceeding relating to the enforcement of its rights
hereunder or under the other Loan Documents or (e) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 9.16 or (ii) becomes available to the Administrative Agent, the
Syndication Agent, either Issuing Bank, any Lender or the Collateral Agent on a
nonconfidential basis from a source other than the Borrowers. For the purposes
of this Section, "Information" shall mean all financial statements,
certificates, reports, agreements and information (including all analyses,
compilations and studies prepared by the Administrative Agent, the Syndication
Agent, the Collateral Agent, either Issuing Bank or any Lender based on any of
the foregoing) that (i) are received from the Borrowers and related to the
Borrowers, any shareholder of any of the Borrowers or any employee, customer or
supplier of the Borrowers, other than any of the foregoing that were available
to the Administrative Agent, the Syndication Agent, the Collateral Agent, either
Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure
thereto by the Borrowers, and (ii) are in the case of Information provided after
the date hereof, clearly identified at the time of delivery as confidential.
The provisions of this Section 9.16 shall remain operative and in full force and
effect regardless of the expiration and term of this Agreement.
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SECTION 9.17. Obligations Joint and Several. (a) Each Borrower
agrees that it shall, jointly with the other Borrowers and severally, be liable
for all the Obligations. Each Borrower further agrees that the Obligations of
the other Borrowers may be extended and renewed, in whole or in part, without
notice to or further assent from it, and that it will remain bound upon its
agreement hereunder notwithstanding any extension or renewal of any Obligation
of the other Borrowers.
(b) Each Borrower waives presentment to, demand of payment from and
protest to the other Borrowers of any of the Obligations, and also waives notice
of acceptance of its obligations and notice of protest for nonpayment. The
Obligations of a Borrower hereunder shall not be affected by (i) the failure of
any Lender or Issuing Bank or the Administrative Agent or Collateral Agent to
assert any claim or demand or to enforce any right or remedy against the other
Borrowers under the provisions of this Agreement or any of the other Loan
Documents or otherwise; (ii) any rescission, waiver, amendment or modification
of any of the terms or provisions of this Agreement, any of the other Loan
Documents or any other agreement; or (iii) the failure of any Lender or Issuing
Bank to exercise any right or remedy against any other Borrower.
(c) Each Borrower further agrees that its agreement hereunder
constitutes a promise of payment when due and not of collection, and waives any
right to require that any resort be had by any Lender or Issuing Bank to any
balance of any deposit account or credit on the books of any Lender or Issuing
Bank in favor of any other Borrower or any other person.
(d) The Obligations of each Borrower hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason,
including compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations of the other Borrowers or
otherwise. Without limiting the generality of the foregoing, the Obligations of
each Borrower hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Administrative Agent, the Collateral Agent or any
Lender or Issuing Bank to assert any claim or demand or to enforce any remedy
under this Agreement or under any other Loan Document or any other agreement, by
any waiver or modification in respect of any thereof, by any default, failure or
delay, willful or otherwise, in the performance of the Obligations of the other
Borrowers, or by any other act or omission which may or might in any manner or
to any extent vary the risk of such Borrower or otherwise operate as a discharge
of such Borrower as a matter of law or equity.
(e) Each Borrower further agrees that its obligations hereunder shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any Obligation of
the other Borrowers is rescinded or must otherwise be restored by the
Administrative Agent, the Collateral Agent or any Lender or Issuing Bank upon
the bankruptcy or reorganization of any of the other Borrowers or otherwise.
(f) In furtherance of the foregoing and not in limitation of any
other right which the Administrative Agent, the Collateral Agent or any Lender
or Issuing Bank may have at law or in equity against any Borrower by virtue
hereof, upon the failure of a Borrower to pay any Obligation when and as the
same shall become due, whether at maturity, by acceleration, after notice of
prepayment or otherwise, each other Borrower hereby promises to and will, upon
receipt of written demand by the Administrative Agent, forthwith pay, or cause
to be paid, in cash the amount of such unpaid Obligations, and thereupon each
Lender shall, in a reasonable manner, assign the amount of
<PAGE>
94
the Obligations of the other Borrowers owed to it and paid by such Borrower
pursuant to this guarantee to such Borrower, such assignment to be pro tanto
to the extent to which the Obligations in question were discharged by such
Borrower, or make such disposition thereof as such Borrower shall direct (all
without recourse to any Lender and without any representation or warranty by
any Lender).
(g) Upon payment by a Borrower of any sums as provided above, all
rights of such Borrower against another Borrower, as the case may be, arising as
a result thereof by way of right of subrogation or otherwise shall in all
respects be subordinated and junior in right of payment to the prior
indefeasible payment in full of all the Obligations to the Lenders and Issuing
Banks.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
MAGELLAN HEALTH SERVICES, INC.,
by /s/ James R. Bedenbough
-----------------------------
Name: James R. Bedenbough
Title: Vice President and
Treasurer
CHARTER BEHAVIORAL HEALTH SYSTEM OF
NEW MEXICO, INC. as a Subsidiary
Borrower,
by /s/ Charlotte A. Sanford
-----------------------------
Name: Charlotte A. Sanford
Title: Treasurer
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent, Collateral Agent and an
Issuing Bank,
by /s/ Thomas H. Korlark
-----------------------------
Name: Thomas H. Korlark
Title: Vice President
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, individually and as
Syndication Agent and an Issuing
Bank,
by /s/ Joseph H. Towell
-----------------------------
Name: Joseph H. Towell
Title: Sr V.P.
Signature page to the
Amended and Restated Credit Agreement
<PAGE>
BANK POLSKA KASA OPIEKI S.A.
PEKAD S.A. GROUP
NEW YORK BRANCH
by /s/ William A. Shea
-------------------------
Name: William A. Shea
Title: Vice President
Senior Lending Officer
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as Co-Agent,
by /s/ Farboud Tavangar
-------------------------
Name: Farboud Tavangar
Title: First Vice President
<PAGE>
FIRST AMERICAN NATIONAL BANK,
by /s/ Sandy Hamrick
-------------------------
Name: Sandy Hamrick
Title: Vice President
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
as Co-Agent,
by /s/ Janet L. Williams
--------------------------
Name: Janet L. Williams
Title: Duly Authorized Co Agent
<PAGE>
THE BANK OF NEW YORK,
as Co-Agent,
by /s/ Gregory L. Batson
---------------------------
Name: Gregory L. Batson
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA,
as Co-Agent,
by /s/ W.J. Brown
-------------------------
Name: W.J. Brown
Title: Vice President
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST,
by /s/ Jeffrey W. Maillet
-------------------------
Name: Jeffrey W. Maillet
Title: Sr. Vice Pres.-Portfolio Mgr.
<PAGE>
EXHIBIT 10(i)
MAGELLAN HEALTH SERVICES, INC.
1997 STOCK OPTION PLAN
1. Purpose. The purpose of the Magellan Health Services, Inc. 1997 Stock
Option Plan is to motivate and retain officers and other key employees of
Magellan Health Services, Inc. and its Subsidiaries who have major
responsibility for the attainment of the primary long-term performance goals of
Magellan Health Services, Inc.
2. Definitions. The following terms shall have the following meanings:
"Board" means the Board of Directors of the Corporation.
"Change in Control" means the effective date of the occurrence, at any time
after March 18, 1997, of one or more of the following events: (i) the sale,
lease, transfer or other disposition, in one or more related transactions, of
all or substantially all of the Corporation's assets to any person or related
group of persons, including a "group" as such term is used in Section 13(d)(3)
of the Exchange Act, (ii) the merger or consolidation of the Corporation with
or into another corporation, the merger of another corporation into the
Corporation or any other transaction, to the extent that the stockholders of the
Corporation immediately prior to any such transaction hold less than 50 percent
of the total voting power or of the voting stock of the surviving corporation
resulting from any such transaction, (iii) any person or related group of
persons, including a "group" as such term is used in Section 13(d)(3) of the
Exchange Act, whether such person or group of persons is a stockholder of the
Corporation as of March 18, 1997, holds 30 percent or more of the voting power
or of the voting stock of the Corporation, or (iv) the liquidation or
dissolution of the Corporation. Notwithstanding any provisions hereof to the
contrary, the term Change in Control shall not be construed to apply to the
transactions contemplated by the Real Estate Purchase and Sale Agreement, dated
as of January 29, 1997, by and between the Corporation and Crescent Real Estate
Equities Limited Partnership, as amended, modified, supplemented or restated.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
promulgated thereunder.
"Committee" means a committee of two or more members of the Board
constituted and empowered by the Board to administer the Plan in accordance with
its terms.
"Corporation" means Magellan Health Services, Inc., a Delaware corporation.
"Director" means a member of the Board.
<PAGE>
-2-
"Disability" means a physical or mental condition under which the
Participant qualifies for (or will qualify for after expiration of a waiting
period) disability benefits under the long-term disability plan of the
Corporation or a Subsidiary that employs such Participant.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means: (1) if the Stock is listed on a national
securities exchange (as such term is defined by the Exchange Act) or is traded
on the Nasdaq National Market System on the date of award or other
determination, the price equal to the mean between the high and low sales prices
of a share of Stock on said national securities exchange or on said Nasdaq
National Market System on that date (or if no shares of the Stock are traded on
that date but there were shares traded on dates within a reasonable period both
before and after such date, the Fair Market Value shall be the weighted average
of the means between the high and low sales prices of the Stock on the nearest
date before and the nearest date after that date on which shares of the Stock
are traded); (2) if the Stock is traded both on a national securities exchange
and in the over-the-counter market, the Fair Market Value shall be determined by
the prices on the national securities exchange; and (3) if the Stock is not
listed for trading on a national securities exchange and is not traded on the
Nasdaq National Market System or otherwise in the over-the-counter market, then
the Committee shall determine the Fair Market Value of the Stock from time to
time in its sole discretion.
"Option" means an Option granted pursuant to Section 6.
"Participant" means an employee of the Corporation or any of its
Subsidiaries who is selected to participate in the Plan in accordance with
Section 4.
"Plan" means the Magellan Health Services, Inc. 1997 Stock Option Plan, as
amended.
"Stock" means the common stock, par value $0.25 per share, of the
Corporation.
"Stock Option Agreement" means the written agreement or instrument which
sets forth the terms of an Option granted to a Participant under this Plan.
"Subsidiary" means any corporation, as defined in Section 7701 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder, of which the Corporation, at the time, directly or indirectly, owns
50% or more of the outstanding securities having ordinary voting power to elect
directors (other than securities having voting power only by reason of a
contingency).
3. Administration. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee, acting in its absolute
discretion, shall exercise such powers and take such action as expressly called
for under this Plan and, further, shall have the power to
<PAGE>
-3-
interpret the Plan, to determine the terms of each Stock Option Agreement
(subject to the provisions of the Plan) and (subject to Section 18 and Rule
16b-3 under the Exchange Act, if applicable) to take such other action in the
administration and operation of this Plan as the Committee deems equitable under
the circumstances. All actions of the Committee shall be binding on the
Corporation, on each affected Participant and on each other person directly or
indirectly affected by such action. No member of the Board shall serve as a
member of the Committee unless such member is a "non-employee director" within
the meaning of Rule 16b-3 under the Exchange Act. The Committee shall have the
right to delegate to the chief executive officer of the Corporation the
authority to select Participants and to grant Options (except with respect to
any person who, with respect to the last completed fiscal year of the
Corporation, has been designated by the Corporation as a named executive officer
of the Corporation, as that term is defined in Item 402(a)(3) of Regulation S-K,
issued by the Securities and Exchange Commission), subject to any review,
approval or notification required by the Committee or as otherwise may be
required by law.
4. Participation. Participants in the Plan shall be limited to those
officers and employees of the Corporation or any of its Subsidiaries who have
been selected to participate in the Plan by the Committee acting in its absolute
discretion.
5. Maximum Number of Shares Subject to Options. Subject to the
provisions of Section 9, there shall be 1,500,000 shares of Stock reserved for
use under this Plan, and such shares of Stock shall be reserved to the extent
that the Committee and the Board deems appropriate from authorized but unissued
shares of Stock or from shares of Stock which have been reacquired by the
Corporation. Any shares of Stock subject to any Option which are not purchased
after the cancellation, expiration, exchange or forfeiture of such Option shall
again become available for use under this Plan. All authorized and unissued
shares issued upon exercise of Options under the Plan shall be fully paid and
nonassessable shares.
6. Grant of Options. The Committee, acting in its absolute discretion,
shall have the right to grant Options to Participants under this Plan from time
to time; provided, that the maximum number of shares of Stock issuable upon
exercise of Options shall not exceed 1,500,000, subject to adjustment as
provided in Section 9. No Option shall be granted after December 31, 2000. The
maximum number of shares of Stock that may be covered by Options granted to any
Participant under the Plan shall not exceed 1,000,000, subject to adjustment as
provided in Section 9.
7. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by Stock Option Agreements in such form as the Committee from
time to time shall approve, including any such terms and conditions not
inconsistent with the provisions set forth in the Plan as the Committee may
determine; provided, that such Stock Option Agreements and the Options granted
shall comply with and be subject to the following terms and conditions:
<PAGE>
-4-
(a) Employment. Each Participant shall agree to remain in the employ
of and to render services to the Corporation or a Subsidiary thereof for such
period as the Committee may require in the Stock Option Agreement; provided,
that such agreement shall not impose upon the Corporation or any Subsidiary
thereof any obligation to retain the Participant in its employ for any period.
(b) Number of Shares. Each Stock Option Agreement shall state the
total number of shares of Stock to which it pertains.
(c) Exercise Price. The exercise price per share for Options shall
be Fair Market Value of the Stock on the date of grant, subject to adjustment as
contemplated by Section 9.
(d) Medium and Time of Payment. The exercise price shall be payable
upon the exercise of the Option, or as provided in Section 7(e) if the
Corporation adopts a broker-directed cashless exercise/resale procedure, in each
case in an amount equal to the number of shares then being purchased times the
per share exercise price. Payment shall be in cash.
In addition to the payment of the purchase price of the shares of Stock
then being purchased, a Participant shall also, pursuant to Section 16, pay to
the Corporation or otherwise provide for payment of an amount equal to the
amount, if any, which the Corporation at the time of exercise is required to
withhold under the income tax withholding provisions of the Code and other
applicable income tax laws.
(e) Method of Exercise. All Options shall be exercised (i) by
written notice directed to the Secretary of the Corporation at its principal
place of business, accompanied by payment of the option exercise price, in
accordance with the foregoing subsection (d), for the number of shares specified
in the notice of exercise and by any documents required by Section 14, or (ii)
by complying with the exercise and other provisions of any broker-directed
cashless exercise/resale procedure adopted by the Corporation and approved by
the Committee, and by delivery of any documents required by Section 14. The
Corporation shall make delivery of such shares within a reasonable period of
time or in accordance with applicable provisions of any such broker-directed
cashless exercise/resale procedure; provided, that if any law or regulation
requires the Corporation to take any action (including but not limited to the
filing of a registration statement under the Securities Act of 1933 and causing
such registration statement to become effective) with respect to the shares
specified in such notice before their issuance, then the date of delivery of
such shares shall be extended for the period necessary to take such action.
(f) Term of Options. Except as otherwise specifically provided in
the Plan, the terms of all Options shall commence on the date of grant and shall
expire not later than February 28, 2007.
<PAGE>
-5-
(g) Exercise of Options. Options are exercisable only to the extent
they are vested as provided in the Stock Option Agreement. After Options have
vested in accordance with the terms of the Stock Option Agreement, such Options
are exercisable at any time, in whole or in part during their terms if the
Participant is at the time of exercise employed by the Company or a Subsidiary.
If a Participant's employment with the Corporation or any Subsidiary is
terminated for any reason other than death or disability, the vested portion of
each Option held by such Participant on the date of such termination may be
exercised for six (6) months following the date of termination of employment
(but not after expiration of the term of the Option). In the event of the death
or Disability of a Participant, the vested portion of each Option held by such
Participant on the date of such event may be exercised within twelve (12) months
of the date of such event (but not after the expiration of the term of the
Option).
In the event of the death of a Participant, the vested portion of each
Option previously held by such Participant may be exercised within the time set
forth above by the executor, other legal representative or, if none, by the heir
or legatee of such Participant.
(h) Adjustments Upon Changes in Capitalization. Upon a change in
capitalization pursuant to Section 9, the number of shares covered by an Option
and the per share option exercise price shall be adjusted in accordance with the
provisions of Section 9.
(i) Transferability. No Option shall be assignable or transferable
by the Participant except by will or by the laws of descent and distribution.
The designation of a beneficiary shall not constitute a transfer; and, during
the lifetime of a Participant, all Options held by such Participant shall be
exercisable only by him or by his lawful representative in the event of his
incapacity.
(j) Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to shares covered by his Option until the date of the
issuance of the shares to him and only after such shares are fully paid. Unless
specified in Section 9, no adjustment will be made for dividends or other rights
for which the record date is prior to the date of such issuance.
(k) Miscellaneous Provisions. The Stock Option Agreements authorized
under the Plan may contain such other provisions not inconsistent with the terms
of this Plan as the Committee shall deem advisable.
8. Vesting. Options granted under this Plan shall be exercisable only to
the extent such Options have become vested pursuant to this Section 8. An
Option shall vest at the rate of 331/3 percent of the shares covered by the
Option on each of the first three anniversary dates of the grant of the Option
if the Participant is an employee of the Company or a Subsidiary on such dates.
<PAGE>
-6-
9. Change in Capitalization. If the Stock should, as a result of a stock
split or stock dividend, combination of shares, recapitalization or other change
in the capital structure of the Corporation or exchange of Stock for other
securities by reclassification or otherwise, be increased or decreased or
changed into, or exchanged for, a different number or kind of shares or other
securities of the Corporation, or any other corporation, then the number of
shares covered by Options, the number and kind of shares which thereafter may be
distributed or issued under the Plan and the per share option price of Options
shall be appropriately adjusted consistent with such change in such manner as
the Committee may deem equitable to prevent dilution of or increase in the
rights granted to, or available for, Participants.
10. Fractional Shares. In the event that any provision of this Plan or a
Stock Option Agreement would create a right to acquire a fractional share of
Stock, such fractional share shall be disregarded.
11. Successor Corporation. If the Corporation is merged or consolidated
with another corporation or other legal entity and the Corporation is not the
surviving corporation or legal entity, or in the event all or substantially all
of the assets or common stock of the Corporation is acquired by another
corporation or legal entity, or in the case of a dissolution, reorganization or
liquidation of the Corporation, the Board, or the board of directors or
governing body of any corporation or other legal entity assuming the obligations
of the Corporation hereunder, shall either: (i) make appropriate provision for
the preservation of Participants' rights under the Plan in any agreement or plan
it may enter into or adopt to effect any of the foregoing transactions; or (ii)
upon written notice to each Participant, provide that all Options, whether or
not vested, may be exercised within thirty days of the date of such notice and
if not so exercised, shall be terminated.
12. Change in Control. Notwithstanding any provisions in the Plan to the
contrary, in the event of a Change in Control, any unvested and outstanding
Options awarded to Participants under the Plan automatically shall become fully
vested and exercisable in accordance with the terms thereof.
13. Non-Alienation of Benefits. Except insofar as applicable law
otherwise may require, (i) no Options, rights or interest of Participants or
Stock deliverable to any Participant at any time under the Plan shall be subject
in any manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any
attempt to so alienate, sell, transfer, assign, pledge, attach, charge or
otherwise encumber any such amount, whether presently or thereafter payable,
shall be void; and (ii) to the fullest extent permitted by law, the Plan shall
in no manner be liable for, or subject to, claims, liens, attachments or other
like proceedings or the debts, liabilities, contracts, engagements or torts of
any Participant or beneficiary. Nothing in this Section 13 shall prevent a
Participant's rights and interests under the Plan from being transferred by will
or by the laws of descent and distribution; provided, that no transfer by will
or by the laws of descent and distribution shall be effective to bind the
Corporation unless the Committee or its designee shall have been furnished
before or
<PAGE>
-7-
after the death of such Participant with a copy of such will or such other
evidence as the Committee may deem necessary to establish the validity of the
transfer.
14. Listing and Qualification of Shares. The Corporation, in its
discretion, may postpone the issuance or delivery of shares of Stock until
completion of any stock exchange listing, or other qualification or registration
of such shares under any state or federal law, rule or regulation, as the
Corporation may consider appropriate, and may require any Participant to make
such representations, including, but not limited to, a written representation
that the shares are to be acquired for investment and not for resale or with a
view to the distribution thereof, and to furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
in compliance with applicable law, rules and regulations. The Corporation may
cause a legend or legends to be placed on such certificates to make appropriate
reference to such representation and to restrict transfer in the absence of
compliance with applicable federal or state securities laws.
15. No Claim or Right Under the Plan. No employee of the Corporation or
any Subsidiary shall at any time have the right to be selected as a Participant
in the Plan nor, having been selected as a Participant and granted an Option, to
be granted any additional Option. Neither the action of the Corporation in
establishing the Plan, nor any action taken by it or by the Board or the
Committee thereunder, nor any provision of the Plan, nor participation in the
Plan, shall be construed to give, and does not give, to any person the right to
be retained in the employ of the Corporation or any Subsidiary, or interfere in
any way with the right of the Corporation or any Subsidiary to discharge or
terminate any person at any time without regard to the effect such discharge or
termination may have upon such person's rights, if any, under the Plan.
16. Taxes. The Corporation may make such provisions and take such steps
as it may deem necessary or appropriate for the withholding of all federal,
state, local and other taxes required by law to be withheld with respect to
Options under the Plan, including, but not limited to, (i) deducting the amount
required to be withheld from salary or any other amount then or thereafter
payable to a Participant, beneficiary or legal representative, (ii) requiring a
Participant, beneficiary or legal representative to pay to the Corporation the
amount required to be withheld as a condition of releasing the Stock, or (iii)
complying with applicable provisions of any broker-directed cashless
exercise/resale procedure adopted by the Corporation pursuant to Section 7(e).
17. No Liability of Directors. No member of the Board or the Committee
shall be personally liable by reason of any contract or other instrument
executed by such member on his behalf in his capacity as a member of the Board
or Committee, nor for any mistake of judgment made in good faith, and the
Corporation shall indemnify and hold harmless each employee, officer and
Director, to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Board) arising out of any act or
omission to act in connection with the Plan to the fullest extent permitted or
<PAGE>
-8-
required by the Corporation's governing instruments and, in addition, to the
fullest extent of any applicable insurance policy purchased by the Corporation.
18. Other Plans. Nothing contained in the Plan is intended to amend,
modify or rescind any previously approved compensation plans or programs entered
into by the Corporation or its Subsidiaries. The Plan shall be construed to be
in addition to any and all such plans or programs. No award of Options under
the Plan shall be construed as compensation under any other executive
compensation or employee benefit plan of the Corporation or any of its
Subsidiaries, except as specifically provided in any such plan or as otherwise
provided by the Committee. The adoption of the Plan by the Board shall not be
construed as creating any limitations on the power or authority of the Board to
adopt such additional compensation or incentive arrangements as the Board may
deem necessary or desirable.
19. Amendment or Termination. This Plan may be amended by the Board from
time to time to the extent that the Board deems necessary or appropriate;
provided, no such amendment shall be made absent the approval of the
stockholders of the Corporation: (1) if stockholder approval of such amendment
is required for continued compliance with Rule 16b-3 of the Exchange Act, or (2)
if stockholder approval of such amendment is required by any other applicable
laws or regulations or by the rules of any stock exchange as long as the Stock
is listed for trading on such exchange. The Committee also may suspend the
granting of Options under this Plan at any time and may terminate this Plan at
any time; provided, the Corporation shall not have the right to modify, amend or
cancel any Option granted before such suspension or termination unless (1) the
Participant consents in writing to such modification, amendment or cancellation
or (2) there is a dissolution or liquidation of the Corporation or a transaction
described in Section 11 of this Plan.
20. Captions. The captions preceding the sections of the Plan have been
inserted solely as a matter of convenience and shall not, in any manner, define
or limit the scope or intent of any provisions of the Plan.
21. Governing Law. The Plan and all rights thereunder shall be governed
by, and construed in accordance with, the laws of the State of Georgia, without
reference to the principles of conflicts of law thereof.
22. Expenses. All expenses of administering the Plan shall be borne by
the Corporation.
23. Effective Date. The Plan shall be effective as of the date of its
adoption by the Board, subject to approval of this Plan by the stockholders of
the Corporation after the date of its adoption.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 326,243,000
<SECURITIES> 0
<RECEIVABLES> 151,620,000
<ALLOWANCES> 0
<INVENTORY> 1,508,000
<CURRENT-ASSETS> 497,939,000
<PP&E> 141,824,000
<DEPRECIATION> 34,376,000
<TOTAL-ASSETS> 891,530,000
<CURRENT-LIABILITIES> 218,924,000
<BONDS> 391,926,000
0
0
<COMMON> 8,330,000
<OTHER-SE> 136,234,000
<TOTAL-LIABILITY-AND-EQUITY> 891,530,000
<SALES> 1,021,662,000
<TOTAL-REVENUES> 1,021,662,000
<CGS> 0
<TOTAL-COSTS> 830,248,000
<OTHER-EXPENSES> 102,069,000
<LOSS-PROVISION> 47,456,000
<INTEREST-EXPENSE> 39,324,000
<INCOME-PRETAX> 2,565,000
<INCOME-TAX> 1,025,000
<INCOME-CONTINUING> (5,408,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,253,000
<CHANGES> 0
<NET-INCOME> (10,661,000)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY
STATEMENTS
Magellan Health Services, Inc. (the "Company") and its representatives may
make forward looking statements (as such term is defined in the Private
Securities Litigation Reform Act) from time-to-time. The Company wants to
invoke to the fullest extent possible the protection of the Private Securities
Litigating Reform Act and the judicially created "bespeaks caution" doctrine
with respect to such statements. Accordingly, the Company is filing this
Exhibit 99, which lists certain factors that may cause actual results to differ
materially from those in such forward looking statements.
This list is not necessarily exhaustive. The Company operates in a rapidly
changing business, and new risk factors emerge periodically. There can be no
assurance that this Exhibit lists all material risks to the Company at any
specific point in time.
Impact of the Crescent Transactions
The Company relinquished control of Charter Behavioral Health Systems
("CBHS") upon consummation of the Cresent Transactions. Magellan's operational
input in CBHS will be limited to those rights provided by the franchise
agreements and the CBHS Operating Agreement.
The Franchise Fees payable to the Company by CBHS are subordinated in
payment to the $41.7 million annual base rent, 5% minimum escalator rent and,
in certain circumstances, the additional rent due Crescent under the CBHS
Facilities Lease. If CBHS encounters a decline in earnings or financial
difficulties, such amounts due Crescent will be paid before any Franchise
Fees are paid. The remainder of CBHS' available cash will then be applied in
such order of priority as CBHS may determine, in the reasonable discretion of
the CBHS board, to all other operating expenses of CBHS, including the
current and accumulated Franchise Fees. The Company will be entitled to
pursue all available remedies for breach of the Master Franchise Agreement,
except that the Company does not have the right to take any action that could
reasonably be expected to force CBHS into bankruptcy or receivership. In
addition, if CBHS' encounters a decline in earnings or financial
difficulties, it is possible that cash flow from CBHS' operations will not be
sufficient to pay all or a portion of the Franchise Fees when due, which
could have a material adverse effect on Magellan's financial position,
earnings and cash flows.
The Company has used the proceeds of the Crescent Transactions to reduce
net interest expense by repaying long-term debt where possible and investing
the remaining proceeds in short-term cash equivalents. Although net interest
expense will be lower, the Company's reduced earnings as a result of the
Crescent Transactions could be even more pronounced until capital resource
allocation decisions (e.g., acquisitions) related to the net proceeds from
the Crescent Transactions are implemented.
Limitations Imposed by the New Revolving Credit Agreement
and Senior Note Indenture
In May 1994, the Company entered into a Second Amended and Restated Credit
Agreement (the "Credit Agreement") with certain financial institutions and
issued $375 million of Senior Subordinated Notes (the "Senior Notes") to
institutional investors. The Credit Agreement was terminated in October 1996
and the Company entered into
<PAGE>
a new Credit Agreement (the "Revolving Credit Agreement"). The Revolving Credit
Agreement was terminated in June 1997 as a result of the Crescent Transactions
and the Company entered into a New Revolving Credit Agreement (the"New Revolving
Credit Agreement"). The New Revolving Credit Agreement and the indenture for
the Senior Notes contain a number of restrictive covenants which, among other
things, limit the ability of the Company and certain of its subsidiaries to
incur other indebtedness, enter into certain joint venture transactions, incur
liens, make certain restricted payments and investments, enter into certain
business combination and asset sale transactions, make capital expenditures and
repurchase outstanding common stock. These restrictions could adversely affect
the Company's ability to conduct its operations, finance its capital needs or to
pursue attractive business combinations and joint ventures if such opportunities
arise. Under the New Revolving Credit Agreement, the Company also is required
to maintain certain specified financial ratios. Failure by the Company to
maintain such financial ratios or to comply with the restrictions contained in
the New Revolving Credit Agreement and the indenture for the Senior Notes could
cause such indebtedness (and by reason of cross-acceleration provisions, other
indebtedness) to become immediately due and payable and/or could cause the
cessation of funding under the New Revolving Credit Agreement.
Acquisition Growth Strategy
The Company has historically grown through acquisitions. There can be no
assurance that the Company will be able to make successful acquisitions in the
future or that any such acquisitions will be successfully integrated into its
operations. In addition, future acquisitions could have an adverse effect upon
the Company's operating results, particularly in the fiscal quarters immediately
following the consummation of such transactions while the acquired operations
are being integrated into its operations.
Human Affairs International, Inc. Acquisition and
Potential Adverse Reaction
On August 5, 1997, the Company announced that it had signed a definitive
agreement for the purchase of the Human Affairs International, Inc. ("HAI")
for approximately $122.1 million in cash. HAI manages the care of
approximately 15 million covered lives through employee assistance programs
and managed behavioral health plans. The Company expects to fund the
acquisition of HAI with cash on hand. The Company will account for the
acquisition of HAI using the purchase method of accounting. The HAI
acquisition is subject to federal and state approval and other customary
matters and is expected to close in the first quarter of fiscal 1998.
The Company may be required to make additional contingent payments of up
to $300 million to Aetna U.S. Healthcare (the "Contingent Payments") over the
five-year period subsequent to closing under certain circumstances. The
Company expects to fund the Contingent Payments, if any, with a combination
of cash on hand, future cash flows from operations and borrowing capacity
under the New Revolving Credit Agreement.
Magellan and CBHS' hospitals have contracts with behavioral managed care
companies other than Green Spring and HAI. Such other companies could decide to
terminate their contracts with Magellan and CBHS' hospitals in reaction to the
Company's announcement of acquiring one of their major competitors. In
addition, many of Green Spring and HAI's customers are competitors in various
local markets. The announcement of the HAI acquisition could adversely impact
the ability of Green Spring and HAI to attract and retain customers or to
effectively negotiate contractual arrangements with new or existing customers.
Also, there can be no assurance that HAI will be successfully integrated into
Company's operations.
Historical Operating Losses
The Company experienced losses from continuing operations before
reorganization items, extraordinary items and the cumulative effect of a change
in accounting principle during each fiscal year since the completion of a
management buyout in 1988 through fiscal 1995. Such losses amounted to $81.7
million for the ten-month period ended July 31, 1992, $8.1 million for the
two-month period ended September 30, 1992 and $39.6 million, $47.0 million and
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$43.0 million for the fiscal years ended September 30, 1993, 1994 and 1995,
respectively. The Company reported net revenue and income from continuing
operations of approximately $1.35 billion and $32.4 million, respectively, for
the year ended September 30, 1996. The Company also reported net revenue and
income from continuing operations before extraordinary items of approximately
$997.0 million and $24.1 million for the nine months ended June 30, 1996,
respectively, compared to net revenue and loss from continuing operations before
extraordinary items of $1.0 billion and $5.4 million, respectively, for the nine
months ended June 30, 1997. There can be no assurance that the Company's
profitability for the year ended September 30, 1996 will continue in future
periods. The Company's history of losses could have an adverse effect on its
operations.
Potential Hospital Closures
CBHS' management continually assesses events and changes in circumstances
that could effect its business strategy and the viability of its operations.
During fiscal 1995 and 1996, Magellan consolidated, closed or sold 15 and 9
psychiatric hospitals, respectively. During fiscal 1997, Magellan
consolidated, closed or sold three psychiatric hospitals and its one general
hospital. Magellan recorded charges against income, as a result of these
consolidations, closures and sales. CBHS may pursue acquisitions in markets
where it does not currently have a presence and in markets where it has
existing hospital operations. CBHS' management may elect to consolidate
services in selected markets by closing additional facilities in future
periods depending on market conditions and evolving business strategies. If
CBHS closes additional psychiatric hospitals in future periods, it could
result in charges to income for the cost necessary to exit the hospital
operations, which would result in lower equity in earnings of CBHS for the
Company.
Potential Reductions in Reimbursement by
Third-Party Payers and Changes in Hospital Payer Mix
Magellan and CBHS hospitals have been adversely affected by factors
influencing the entire psychiatric hospital industry. Factors which have
affected psychiatric hospitals include (i) the imposition of more stringent
length of stay and admission criteria and other cost containment measures by
payers; (ii) the failure of reimbursement rate increases from certain payers
that reimburse on a per diem or other discounted basis to offset increases in
the cost of providing services; (iii) an increase in the percentage of its
business that the Company derives from payers that reimburse on a per diem or
other discounted basis; (iv) a trend toward higher deductibles and co-insurance
for individual patients; (v) pricing pressure related to increasing rate of
claims denials by third party payers; and (vi) a trend toward limiting employee
health benefits, such as reductions in annual and lifetime limits on mental
health coverage. Any of these factors could result in reductions in the amounts
that Magellan and CBHS hospitals can expect to collect per patient day for
services provided.
For the fiscal year ended September 30, 1996, the Company derived
approximately 21% of its gross psychiatric patient service revenue from managed
care organizations (primarily HMOs and PPOs, as hereinafter defined), 25% from
other private payers (primarily commercial insurance and Blue Cross), 28% from
Medicare, 17% from Medicaid, 3% from the Civilian Health and Medical Program for
the Uniformed Services ("CHAMPUS") and 6% from other government programs.
Changes in the mix of Magellan and CBHS's patients among the managed care
organizations, Medicare and Medicaid categories, and among different types of
private-pay sources, can significantly affect the profitability of Magellan and
CBHS's hospital operations. Therefore, there can be no assurance that payments
under governmental and private third-party payer programs will remain at levels
comparable to present levels or will, in the future, be sufficient to cover the
costs of providing care to patients covered by such programs.
Dependence on Healthcare Professionals
Physicians traditionally have been the source of a significant portion of
the patients treated at Magellan and CBHS' hospitals. Therefore, the success of
Magellan and CBHS's hospitals is dependent in part on the number and quality of
the physicians on the medical staffs of its hospitals and their admission
practices. A small number of physicians account for a significant portion of
patient admissions at some of Magellan and CBHS's hospitals. There can be no
assurance that Magellan and CBHS can retain its current physicians on staff or
that additional physician relationships will be developed in the future.
Furthermore, hospital physicians generally are not employees of Magellan and
CBHS and in general, Magellan and CBHS do not have contractual arrangements with
hospital physicians restricting the ability of such physicians to practice
elsewhere.
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Potential General and Professional Liability
Effective June 1, 1995, Plymouth Insurance Company, Ltd. ("Plymouth"), a
wholly-owned Bermuda subsidiary of the Company, provides general and hospital
professional liability insurance up to $25 million per occurrence for the
Company's hospitals. All of the risk of losses from $1.5 million to $25 million
per occurrence has been reinsured with unaffiliated insurers. The Company also
insures with an unaffiliated insurer 100% of the risk of losses between $25
million and $100 million per occurrence, subject to an annual aggregate limit of
$75 million. The Company's general and professional liability coverage is
written on a "claims made or circumstances reported" basis. For reinsured
claims between $10 and $25 million per occurrence, the Company has an annual
aggregate limit of coverage of $30 million. For reinsured claims between $1.5
million and $10 million per occurrence, the Company has no significant
limitations on the aggregate dollar amounts of coverage.
For the six years from June 1, 1989 through May 31, 1995, the Company had a
similar general and hospital professional liability insurance program. For
those years, the per occurrence deductible (with respect to which the Company
was self-insured) was $2.5 million for the years ended May 31, 1990 and 1991, $2
million for the years ended May 31, 1992 and 1993 and $1.5 million (relating to
the Company's general hospitals sold on September 30, 1993) for the year ended
May 31, 1994. For psychiatric hospitals, Plymouth's coverage did not contain a
per occurrence deductible for the years ended May 31, 1994 and 1995. In
December 1994, the per occurrence deductible for the years ended May 31, 1989
and 1990 was eliminated. Plymouth provides coverage with no per occurrence
deductible for hospital system claims which had not been paid prior to December
31, 1994. Plymouth does not underwrite any insurance policies with any parties
other than the Company or its affiliates and subsidiaries.
The liability recorded relating to Magellan's general and professional
liability may materially increase or decrease from year to year depending, among
other things, on the nature and number of new reported claims against Magellan
and amounts of settlements of previously reported claims. To date, Magellan has
not experienced a loss in excess of policy limits. Management believes that its
coverage limits are adequate. However, losses in excess of the limits described
above or for which insurance is otherwise unavailable could have a material
adverse effect upon the Company.
Potential Expiration and Realization Uncertainties Related
to Estimated Tax Net Operating Loss Carryforwards
As of September 30, 1996, the Company had estimated tax net operating loss
("NOL") carryforwards of approximately $250 million available to reduce future
federal taxable income. These NOL carryforwards expire in 2006 through 2010 and
are subject to adjustment upon examination by the Internal Revenue Service. Due
to the ownership change which occurred as a result of the Reorganization, the
Company's utilization of NOLs generated prior to the effective date of the
Reorganization is limited. Based on this limitation and certain other factors,
the Company has recorded a valuation allowance of approximately $102.2 million
against the amount of the NOL deferred tax asset at September 30, 1996 that in
Management's opinion, is not likely to be recovered. There can be no assurance
that these NOL carryforwards will not expire, be reduced or be made subject to
further limitations prior to their potential utilization in future periods.
The Company incurred a gain for federal income tax purposes of
approximately $50 million as a result of the Crescent Transactions. The Company
intends to utilize net operating loss carryforward ("NOL") to offset such
taxable gains to the extent NOLs are available. The expected utilization of
NOLs as a result of the Crescent Transactions will accelerate the payment of
federal income taxes in future periods, resulting in lower cash flows from
operations in future periods.
Governmental Budgetary Constraints and Healthcare Reform
In the 1995 and 1996 sessions of the United States Congress, the focus of
healthcare legislation has been on budgetary and related funding mechanism
issues. Both the Congress and the Clinton Administration have made proposals to
reduce the rate of increase in projected Medicare and Medicaid expenditures and
to change funding mechanisms and other aspects of both programs. If enacted,
these proposals would generally reduce Medicare and
<PAGE>
Medicaid expenditures. The Company cannot predict the effect of any such
legislation, if adopted, on its operations or CBHS operations; but the Company
anticipates that, although overall Medicare and Medicaid funding may be reduced
from projected levels, the changes in such programs may provide opportunities to
the Company to obtain increased Medicare and Medicaid business through
risk-sharing or partial risk-sharing contracts with managed care plans and state
Medicaid programs.
A number of states in which the Company and CBHS have operations have
either adopted or are considering the adoption of healthcare reform proposals of
general applicability or Medicaid reform proposals, partly in response to
possible changes in Medicaid law. Where adopted, these state reform laws have
often not yet been fully implemented. The Company cannot predict the effect of
these state healthcare reform and Medicaid reform laws on its operations or CBHS
operations.
Provider Business-Competition
Each of Magellan and CBHS's hospitals competes with other hospitals, some
of which are larger and have greater financial resources. Some competing
hospitals are owned and operated by governmental agencies, others by nonprofit
organizations supported by endowments and charitable contributions and others by
proprietary hospital corporations. The hospitals frequently draw patients from
areas outside their immediate locale and, therefore, the Company's hospitals
may, in certain markets, compete with both local and distant hospitals. In
addition, Magellan and CBHS's hospitals compete not only with other psychiatric
hospitals, but also with psychiatric units in general hospitals, and outpatient
services provided by Magellan and CBHS may compete with private practicing
mental health professionals and publicly funded mental health centers. The
competitive position of a hospital is, to a significant degree, dependent upon
the number and quality of physicians who practice at the hospital and who are
members of its medical staff. The Company has entered into joint venture
arrangements with other healthcare providers in certain markets to promote more
efficiency in the local delivery system. The Company believes that its provider
business and CBHS compete effectively with respect to the aforementioned
factors. However, there can be no assurance that Magellan or CBHS will be able
to compete successfully in the provider business in the future.
Competition among hospitals and other healthcare providers for patients has
intensified in recent years. During this period, hospital occupancy rates for
inpatient behavioral care patients in the United States have declined as a
result of cost containment pressures, changing technology, changes in
reimbursement, changes in practice patterns from inpatient to outpatient
treatment and other factors. In recent years, the competitive position of
hospitals has been affected by the ability of such hospitals to obtain contracts
with Preferred Provider Organizations ("PPO's"), Health Maintenance
Organizations ("HMO's") and other managed care programs to provide inpatient and
other services. Such contracts normally involve a discount from the hospital's
established charges, but provide a base of patient referrals. These contracts
also frequently provide for pre-admission certification and for concurrent
length of stay reviews. The importance of obtaining contracts with HMO's, PPO's
and other managed care companies varies from market to market, depending on the
individual market strength of the managed care companies. State certificate of
need laws regulate the Company and its competitors' ability to build new
hospitals and to expand existing hospital facilities and services. These laws do
provide some protection from competition, as their interest is to prevent
duplication of services. In most cases, these laws do not restrict the ability
of the Company or its competitors to offer new outpatient services. As of June
30, 1997, the Company operated three hospitals in two states (Louisiana, New
Mexico) and CBHS operated 35 hospitals in 10 states (Arizona, Arkansas,
California, Colorado, Indiana, Kansas, Nevada, South Dakota, Texas and Utah)
which do not have certificate of need laws applicable to hospitals.
Managed Care Business - Competition
The managed healthcare industry is being affected by various external
factors including rising healthcare costs, intense price competition, and market
consolidation by major managed care companies. Magellan faces competition from
a number of sources including other behavioral health managed care companies and
traditional full service managed care companies that contract to provide
behavioral healthcare benefits. Also, to a lesser extent, competition exists
from fully capitated multi-specialty medical groups and individual practice
associations that directly contract with managed care companies and other
customers to provide and manage all components of healthcare for the members
including the behavioral healthcare component. The Company believes that the
most significant factors in a customer's selection of
<PAGE>
a managed behavioral healthcare company include price, the extent and depth of
provider networks and quality of services. The Company also believes that the
acquisition of Green Spring and potential acquisition of HAI creates
opportunities to enhance its revenues through managed care contracts utilizing
the continuum of care and through information systems that support care
management and at-risk pricing mechanisms, although no such assurance can be
given. Management believes that its managed care business competes effectively
with respect to these factors. However, there can be no assurance that Magellan
will be able to compete successfully in the managed care business in the future.
Regulatory Environment
The federal government and all states in which the Company and CBHS'
operate regulate various aspects of the Company's and CBHS' businesses. Such
regulations provide for periodic inspections or other reviews of the Company's
and CBHS' provider operations by, among others, state agencies, the United
States Department of Health and Human Services (the "Department") and CHAMPUS to
determine compliance with their respective standards of care and other
applicable conditions of participation which is necessary for continued
licensure or participation in identified healthcare programs, including, but not
limited to, Medicare, Medicaid and CHAMPUS. The Company and CBHS' are also
subject to state regulation regarding the admission and treatment of patients
and federal regulations regarding confidentiality of medical records of
substance abuse patients. Although the Company and CBHS endeavor to comply with
such regulatory requirements, there can be no assurance that the Company and
CBHS will always be in full compliance. The failure to obtain or renew any
required regulatory approvals or licenses or to qualify for continued
participation in identified healthcare programs could adversely affect the
Company's and CBHS operations.
The Company is also subject to federal and state laws that govern financial
and other arrangements between healthcare providers. These laws often prohibit
certain direct and indirect payments between healthcare providers that are
designed to induce overutilization of services paid for by Medicare or Medicaid.
Such laws include the anti-kickback provisions of the federal Medicare and
Medicaid Patients and Program Protection Act of 1987. These provisions
prohibit, among other things, the offer, payment, solicitation or receipt of any
form of remuneration in return for the referral of Medicare and Medicaid
patients. GPA, the Green Springs subsidiary that owns or manages professional
group practices, is subject to the federal and the state illegal remuneration,
practice of medicine and certain other laws which prohibit the subsidiary from
owning, but not managing, professional practices. In addition, some states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. The Company endeavors to comply with all federal and
state laws applicable to its business. However, a violation of these federal
and state laws may result in civil or criminal penalties for individuals or
entities or exclusion from participation in identified healthcare programs.
Magellan's managed care business operations, in some states, are subject to
utilization review, licensure and related state regulation procedures. Green
Spring provides managed behavioral healthcare services to various Blue
Cross/Blue Shield plans that operate Medicare and Medicaid health maintenance
organizations or other at-risk managed care programs and that participate in the
Blue Cross Federal Employees health program. As a contractor to these Blue
Cross/Blue Shield plans, Green Spring is indirectly subject to federal and, with
respect to the Medicaid program, state monitoring and regulation of performance
and financial reporting requirements. Although Magellan believes that it is in
compliance with all current state and federal regulatory requirements applicable
to the managed care business it conducts, failure to do so could adversely
affect its operations.
Physician ownership of or investment in healthcare entities to which they
refer patients has come under increasing scrutiny at both state and federal
levels. Congress passed legislation (commonly referred to as "Stark I") which
prohibits physicians from referring Medicare patients for clinical laboratory
services to an entity with which the physician has a financial relationship.
The Department recently published final Stark I regulations on August 14, 1995.
Such regulations will govern how the Department views and reviews these
financial relationships. Additionally, Congress passed legislation (commonly
referred to as "Stark II") which prohibits physicians from referring Medicare or
Medicaid patients for certain designated health services, including inpatient
and outpatient hospital services, to entities in which they have an ownership or
investment interest or with which they have a compensation arrangement. The
entity is also prohibited from billing the Medicare or Medicaid programs for
such services rendered pursuant to a prohibited referral. To the extent
designated services are provided by the Company's and CBHS' provider and managed
care operations, physicians who have a financial relationship with the Company
and CBHS' will be subject to the provisions of Stark II. Some states have
passed similar legislation which prohibits the referral of private pay patients.
To date, the
<PAGE>
Department has not published Stark II regulations. However, the Department
indicated that it will review referrals involving any of the designated services
under the language and interpretations set forth in the Stark I rule.
The Company's acquisitions and joint venture activities are also subject to
federal antitrust laws. The healthcare industry has recently been an active
area of antitrust enforcement action by the United States Federal Trade
Commission (the "FTC") and the Department of Justice ("DOJ"). The Company's
acquisitions and joint venture arrangements could be the subject of a DOJ or an
FTC enforcement action which, if determined adversely to the Company, could have
a material adverse effect upon the Company's operations.
The Company receives from CBHS fixed franchise fees of $78.3 million, which
may increase in certain circumstances. The Company provides CBHS with an array
of services, including advertising and marketing assistance, risk management
services, outcomes monitoring, consultation with respect to matters relating to
CBHS: business in which the Company has expertise and the Company's operation of
a telephone call ceter utilizing the "1-800-CHARTER" telephone number. The
Company believes that the franchise fee arrangements described above are
consistent with the Medicare Law Amendments because such arrangements do not
involve the Company's referral of patients to CBHS. However, there can be no
assurance that regulatory agencies or private parties will not challenge the
Company based on alleged violations of the Medicare Law Amendments.
Changes in laws or regulations or new interpretations of existing laws or
regulations can have an adverse effect on the Company's operating methods,
costs, reimbursement amounts and acquisition and joint venture activities. In
addition, the healthcare industry is subject to increasing governmental
scrutiny, and additional laws and regulations may be enacted which could require
changes in the Company's operations. A federal or state agency charged with
enforcement of such laws and regulations might assert an interpretation of such
laws and resolutions or may increase scrutiny of a previously ignored area,
which may require changes in the Company's operations.
Capitation Arrangements
The Company's managed care business contracts with companies holding state
HMO or insurance company licenses on a capitated or "at-risk" basis where the
risk of patient care is assumed by the Company in exchange for a monthly fee per
member regardless of utilization level. As of June 30, 1997, approximately 40%
of Green Spring's managed care members were under capitated arrangements.
During fiscal 1996, approximately 70% of Green Spring's revenues were from
at-risk contracts. Increases in utilization levels under capitated contractual
arrangements could adversely effect the operations of the managed care business.
Some jurisdictions are taking the position that capitated agreements in
which the provider bears the risk should be regulated by insurance laws. In
this regard, Green Spring's primary customers are comprised of Blue Cross/Blue
Shield Plans and other insurance entities which are licensed insurance
organizations in their respective states. Green Spring offers "carved out"
managed mental health benefits, on a wholesale basis, as a vendor to the
regulated insurance organizations. Most current employer group relationships
are also contracted through the respective regulated insurance organizations.
However, as Magellan and Green Spring develop more direct risk arrangements on a
retail basis directly with employer groups or other non-insurance entity
customers, the Company may be required to obtain insurance licenses in the
respective states where the direct risk arrangements are to be pursued. There
can be no assurance that the Company can obtain the insurance licenses required
by the respective states in a timely or cost effective manner to respond to
market demand.
Mental Health Parity Legislation
In October 1996, President Clinton signed a bill submitted by the U.S.
Congress that prohibits health plans from setting annual or lifetime caps on
mental health coverage ("parity") at levels below those set for general
medical/surgical healthcare services. The bill does not require a health plan
to offer or provide mental health services and does not affect other terms and
conditions of health plans, such as inpatient day or outpatient visit limits or
scope of benefits, nor does this bill prohibit health plans from utilizing other
forms of cost containment. The definition of mental health services in the bill
excludes substance abuse and chemical dependency. The effective date for the
parity legislation is January 1, 1998. Other key components of the parity
legislation are as follows:
<PAGE>
1) Employers with 50 or fewer employees are exempt from the parity
legislation.
2) Health plans that incur increased costs of 1% or more as a result of the
parity legislation will be exempt.
3) The parity legislation expires on September 30, 2001 unless extended by
Congress.
The Company views the parity legislation as an acknowledgment by the
Federal government of the importance of effective treatment of mental health
disorders for society in general. The parity legislation could result in cost
containment mechanisms by third party payers such as the elimination of mental
health benefit plans or encouraging the utilization of managed care
organizations to administer mental health benefit plans, which could both result
in lower demand and lower revenue per equivalent patient day in the Company's
provider business. However, this bill is subject to administrative and judicial
interpretation, neither of which the Company is able to predict. There can be
no assurance that such interpretations will not adversely effect the Company's
businesses.
Possible Volatility of Stock Price
The Company believes factors such as announcements with respect to
healthcare reform measures, reductions in government healthcare program
projected expenditures, acquisitions and quarter-to-quarter and year-to-year
variations in financial results could cause the market price of Magellan Common
Stock to fluctuate substantially. Any such adverse announcement with respect to
healthcare reform measures or program expenditures, acquisitions or any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
Magellan Common Stock in any given period. As a result, the market for Magellan
Common Stock may experience price and volume fluctuations unrelated to the
operating performance of Magellan.
