As filed with the Securities and Exchange Commission on January 24, 1997
Registration No._____________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
------------------------------------
STEVE J. DAVIS, ESQ.,
EXECUTIVE VICE PRESIDENT, ADMINISTRATIVE SERVICES
AND GENERAL COUNSEL
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
(Name , address, including zip code, and
telephone number, including area
code, of agent for service)
------------------------------------
Copy to:
CRAIG L. MCKNIGHT, EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
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Approximate date of commencement of proposed
sale to public: From time to time after the
effective date of the Registration Statement.
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of maximum maximum
Shares Amount offering aggregate Amount of
to be to be price offering registration
registered (1) registered per Unit (2) price (2) fee
- -------------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Common Stock,
$.25 par value
per share .... 2,000,000 $22.25 $44,500,000 $13,484.85
</TABLE>
(1) This Registration Statement also covers an equal number of Common Stock
purchase rights issuable pursuant to Magellan Health Services, Inc.
Share Purchase Rights Plan, which rights will be transferable only with
related shares of Common Stock.
(2) Estimated solely for the purpose of calculating the registration fee.
In accordance with Rule 457(c) under the Securities Act of 1933, as
amended, such amounts are based on the average of the high and low
prices per share of Common Stock of Magellan Health Services, Inc. on
January 17, 1997, as reported on the New York Stock Exchange.
------------------------------------
<PAGE>
PROSPECTUS
2,000,000 SHARES
MAGELLAN HEALTH SERVICES, INC.
COMMON STOCK
($.25 Par Value)
------------------------------------
The 2,000,000 shares (the "Warrant Shares") of common stock, $.25 par
value ("Common Stock"), of Magellan Health Services, Inc. ("Magellan" or the
"Company"), that are being hereby registered may be offered for sale from time
to time by and for the account of Rainwater-Magellan Holdings, L.P. (the
"Selling Stockholder"). See "Selling Stockholder." The Selling Stockholder
obtained the right to purchase the Warrant Shares at $26.15 per share on January
25, 1996 upon the exercise of a Warrant (the "Warrant") issued pursuant to the
Stock and Warrant Purchase Agreement (as hereinafter defined) in a private
placement transaction with the Company. The Selling Stockholder currently owns
4,000,000 shares (the "Shares") of Common Stock that were acquired on January
25, 1996 pursuant to a Stock and Warrant Purchase Agreement. Magellan will not
receive any of the proceeds from the sale of the Warrant Shares by the Selling
Stockholder.
Magellan is registering the Warrant Shares as required by a Stock and
Warrant Purchase Agreement dated December 22, 1995, as amended, between Magellan
and the Selling Stockholder (the "Stock and Warrant Purchase Agreement").
Magellan has also agreed to pay all fees and expenses incident to such
registration, other than any underwriting discounts or any selling commissions
payable in respect of sales of the Warrant Shares, which will be paid by the
Selling Stockholder. It is estimated that the fees and expenses payable by the
Company in connection with the registration of the Warrant Shares will be
approximately $40,000. Magellan has agreed to keep the Registration Statement
(as hereinafter defined) current and effective with certain exceptions as long
as the Selling Stockholder and its affiliates collectively own at least 25% of
the Shares and the Warrant Shares. See "Plan of Distribution."
The Common Stock is listed on the New York Stock Exchange under the
symbol "MGL." On January 23, 1997, the last reported sale price of the Common
Stock on the New York Stock Exchange was $22.875 per share.
The Selling Stockholder from time to time may offer and sell the
Warrant Shares directly or through agents or broker-dealers on the New York
Stock Exchange or otherwise on prices and terms related to the then current
market price or in privately negotiated transactions. To the extent required,
the names of any agent or broker-dealer and applicable commissions or discounts
and any other required information with respect to any particular offer will be
set forth in an accompanying Prospectus Supplement. See "Plan of Distribution."
The Selling Stockholder reserves the sole right to accept or reject, in whole or
in part, any proposed purchase of the Warrant Shares to be made directly or
through agents.
Certain transfer restrictions have been placed on the Warrant Shares
pursuant to the Stock and Warrant Purchase Agreement. Prior to January 25, 2000,
the Selling Stockholder or its affiliates may not sell or transfer in a
privately negotiated transaction to a single purchaser and its affiliates, or
any "group" (as defined in Rule 13d-5(b)(1) under the Securities Exchange Act of
1934, as amended) any Shares and Warrant Shares which would, in the aggregate,
equal or exceed five percent (5%) of the Common Stock then outstanding on a
fully-diluted basis. This restriction does not affect the transfer of Shares or
Warrant Shares between the Selling Stockholder and its affiliates.
The Selling Stockholder and any agents or broker-dealers that
participate with the Selling Stockholder in the distribution of the Warrant
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "1933 Act"), and any commissions received by them
and any profit on the resale of the Warrant Shares may be deemed to be
underwriting commissions or discounts under the 1933 Act. See "Plan of
Distribution" herein for indemnification arrangements among Magellan and the
Selling Stockholder.
THERE ARE CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN MAGELLAN COMMON
STOCK. FOR A DISCUSSION OF SUCH RISKS, SEE "RISK FACTORS" BEGINNING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is January ,1997.
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AVAILABLE INFORMATION
Magellan is subject to the informational requirements of the Exchange
Act and, accordingly, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission by Magellan can be
inspected and copied at the office of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its Regional Offices located at 7
World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Common Stock of Magellan is listed on the New York Stock Exchange, and such
reports, proxy statements and other information concerning Magellan can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
Magellan has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments, the "Registration Statement") under the 1933
Act, covering the shares of Common Stock being offered by this Prospectus. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information and undertakings set forth in the Registration Statement and
reference is made to such Registration Statement, including exhibits, which may
be inspected and copied in the manner and at the locations specified above, for
further information with respect to Magellan and the Common Stock. Statements
contained in this Prospectus concerning the provisions of any documents are not
necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by
Magellan (Commission File No. 1-6639) are incorporated by reference into this
Prospectus:
(i) Magellan's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, on Form 10-K filed on December 23,
1996;
(ii) The description of the Common Stock in Magellan's registration
statement on Form 8-A filed on December 27, 1996.
In addition, all documents filed by Magellan pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made pursuant to the
Registration Statement shall be deemed to be incorporated by reference into and
to be a part of this Prospectus from the date of filing of such documents. Any
statement contained in a document so incorporated by reference shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained in this Prospectus, or in any other subsequently filed
document which is also incorporated by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superseded.
Magellan will provide, without charge, to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference (not including
exhibits to such documents unless such exhibits are specifically incorporated by
reference in such documents). Requests for copies of such documents should be
directed to Mr. Kevin Helmintoller, Senior Director - Investor Relations,
Magellan Health Services, Inc., 3414 Peachtree Road, N.E., Suite 1400, Atlanta,
Georgia 30326, telephone (404) 841- 9200. These documents may also be accessed
from the Commission's Internet site which is located at www.sec.gov.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Magellan Common Stock.
Acquisition Growth Strategy
The Company has historically grown through acquisitions. There can be
no assurance that the Company will be able to make successful acquisitions in
the future or that any such acquisitions will be successfully integrated into
its operations. In addition, future acquisitions could have an adverse effect
upon the Company's operating results, particularly in the fiscal quarters
immediately following the consummation of such transactions while the acquired
operations are being integrated into its operations.
Green Spring Health Services, Inc. Acquisition and Potential Adverse Reaction
On December 13, 1995, the Company acquired a controlling interest in
Green Spring Health Services, Inc. ("Green Spring"), a leading provider of
managed behavioral healthcare services. The Company's hospitals have contracts
with behavioral managed care companies other than Green Spring. Such other
companies could decide to terminate their contracts with the Company's hospitals
in reaction to the Company's acquisition of a majority interest in one of their
major competitors.
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 in 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 $43.0 million for
the fiscal years ended September 30, 1993, 1994 and 1995, respectively. The
Company reported net revenue and net income of approximately $1.35 billion and
$32.4 million, respectively, for the fiscal year ended September 30, 1996. 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
The Company continually assesses events and changes in circumstances
that could affect its business strategy and the viability of its operating
facilities. During fiscal 1996, the Company consolidated, closed or sold nine
psychiatric hospitals. The Company recorded charges of approximately $4.1
million for the year ended September 30, 1996 as a result of these
consolidations, closures and sales. The Company may elect to consolidate
services in selected markets and to close or sell additional facilities in
future periods depending on market conditions and evolving business strategies.
If the Company closes additional psychiatric hospitals in future periods, it
could result in charges to income for the cost necessary to exit the hospital
operations.
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Potential Reductions in Reimbursement by
Third-Party Payers and Changes in Hospital Payor Mix
The Company's hospitals have been adversely affected by factors
influencing the entire psychiatric hospital industry. Factors which affect the
Company include (i) the imposition of more stringent length of stay and
admission criteria and other cost containment measures by payers; (ii) the
failure of reimbursement rate increases from certain payers that reimburse on a
per diem or other discounted basis to offset increases in the cost of providing
services; (iii) an increase in the percentage of its business that the Company
derives from payers that reimburse on a per diem or other discounted basis; (iv)
a trend toward higher 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 the Company's 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 the Company'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 the Company'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.
Previous Bankruptcy Reorganization
The Company was reorganized pursuant to Chapter 11 of the United States
Bankruptcy Code, effective on July 21, 1992 (the "Reorganization"). Prior to the
Reorganization, the Company's total indebtedness was approximately $1.8 billion
and from February 1991 until July 1992, the Company was in default in the
payment of interest and principal, or both, on substantially all such
indebtedness. The indebtedness was incurred by the Company in connection with a
management buy-out of the Company in 1988 and a hospital-construction program.
As a result of the Reorganization, the Company's long-term debt was reduced by
approximately $700 million and its redeemable preferred stock of $233 million
was eliminated. The holders of such debt and preferred stock received
approximately 97% of Magellan's Common Stock outstanding on July 21, 1992.
Governmental Budgetary Constraints and Healthcare Reform
In the 1995 and 1996 sessions of the United States Congress, the focus
of healthcare legislation has been on budgetary and related funding mechanism
issues. 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 Medicaid expenditures. The
Company cannot predict the effect of any such legislation, if adopted, on its
operations; but the Company anticipates that, although overall Medicare and
Medicaid funding may be reduced from projected levels, the changes in such
programs may provide opportunities to the Company to obtain increased Medicare
and Medicaid business through risk-sharing or partial risk-sharing contracts
with managed care plans and state Medicaid programs.
A number of states in which the Company has operations have either
adopted or are considering the adoption of healthcare reform proposals of
general applicability or Medicaid reform proposals, partly in response to
possible changes in Medicaid law. Where adopted, these state reform laws have
often not yet been fully implemented. The Company cannot predict the effect of
these state healthcare reform and Medicaid reform laws on its operations.
Provider Business-Competition
Each of the Company's hospitals competes with other hospitals, some of
which are larger and have greater financial resources. Some competing hospitals
are owned and operated by governmental agencies, others by nonprofit
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organizations supported by endowments and charitable contributions and others by
proprietary hospital corporations. The Company's hospitals frequently draw
patients from areas outside their immediate locale and, therefore, the Company's
hospitals may, in certain markets, compete with both local and distant
hospitals. In addition, the Company's hospitals compete not only with other
psychiatric hospitals, but also with psychiatric units in general hospitals, and
outpatient services provided by the Company may compete with private practicing
mental health professionals and publicly funded mental health centers. The
competitive position of a hospital is, to a significant degree, dependent upon
the number and quality of physicians who practice at the hospital and who are
members of its medical staff. The Company has entered into joint venture
arrangements with other healthcare providers in certain markets to promote more
efficiency in the local delivery system. The Company believes that its provider
business competes effectively with respect to the factors described above.
However, there can be no assurance that Magellan will be able to compete
successfully in the provider business in the future.
Competition among hospitals and other healthcare providers for patients
has intensified in recent years. During this period, hospital occupancy rates
for inpatient behavioral care patients in the United States have declined as a
result of cost containment pressures, changing technology, changes in
reimbursement, changes in practice patterns from inpatient to outpatient
treatment and other factors. In recent years, the competitive position of
hospitals has been affected by the ability of such hospitals to obtain contracts
with Preferred Provider Organizations ("PPO's"), Health Maintenance
Organizations ("HMO's") and other managed care programs to provide inpatient and
other services. Such contracts normally involve a discount from the hospital's
established charges, but provide a base of patient referrals. These contracts
also frequently provide for pre-admission certification and for concurrent
length of stay reviews. The importance of obtaining contracts with HMO's, PPO's
and other managed care companies varies from market to market, depending on the
individual market strength of the managed care companies. In certain states,
state certificate of need laws place limitations on the Company's and its
competitors' ability to build new hospitals and to expand existing hospitals and
services. These laws do provide some protection from competition, as their
interest is to prevent duplication of services. As of December 31, 1996, the
Company operated 39 hospitals in 12 states (Arizona, Arkansas, California,
Colorado, Indiana, Kansas, Louisiana, Nevada, New Mexico, South Dakota, Texas
and Utah) which do not have certificate of need laws applicable to hospitals.
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 their members
including the behavioral healthcare component. The Company believes that the
most significant factors in a customer's selection of a managed behavioral
healthcare company include price, the extent and depth of provider networks and
quality of services. The Company also believes that the acquisition of Green
Spring creates opportunities to enhance its revenues through managed care
contracts utilizing the continuum of care and through information systems that
support care management and at-risk pricing mechanisms, although no such
assurance can be given. Management believes that its managed care business
competes effectively with respect to these factors. However, there can be no
assurance that Magellan will be able to compete successfully in the managed care
business in the future.
Limitations Imposed by the Credit Agreement
and Senior Note Indenture
In May 1994, the Company entered into a Second Amended and Restated
Credit Agreement (the "Credit Agreement") with certain financial institutions
and issued $375 million of Senior Subordinated Notes (the "Senior Notes") to
institutional investors. In October 1996, the Company entered into a new 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 "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, repurchase issued and
outstanding Common Stock, enter into certain joint venture transactions, incur
liens, make certain restricted payments and investments and enter into
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certain business combination and asset sale transactions. 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 Credit Agreement and the indenture for the Senior
Notes could cause such indebtedness (and by reason of cross-acceleration
provisions, other indebtedness) to become immediately due and payable and/or
could cause the cessation of funding under the Credit Agreement.
Regulatory Environment
The federal government and all states in which the Company operates
regulate various aspects of the Company's businesses. Such regulations provide
for periodic inspections or other reviews of the Company's provider operations
by, among others, state agencies, the United States Department of Health and
Human Services (the "Department") and CHAMPUS to determine compliance with their
respective standards of care and other applicable conditions of participation
which is necessary for continued licensure or participation in identified
healthcare programs, including, but not limited to, Medicare, Medicaid and
CHAMPUS. The Company is also subject to state regulation regarding the admission
and treatment of patients and federal regulations regarding confidentiality of
medical records of substance abuse patients. Although the Company endeavors to
comply with such regulatory requirements, there can be no assurance that the
Company will always be in full compliance. The failure to obtain or renew any
required regulatory approvals or licenses or to qualify for continued
participation in identified healthcare programs could adversely affect the
Company's operations.
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, a subsidiary of Green Spring 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 published final Stark I regulations on August 14, 1995, which govern
how the Department views and reviews these financial relationships.
Additionally, Congress passed legislation (commonly referred to as "Stark II")
which prohibits physicians from referring Medicare or Medicaid patients for
certain designated health services, including inpatient and outpatient hospital
services, to entities in which they have an ownership or investment interest or
with which they have a compensation arrangement. The entity is also prohibited
from billing the Medicare or Medicaid programs for such services rendered
pursuant to a prohibited referral. To the extent designated services are
provided by the Company's provider and managed care operations, physicians who
have a financial relationship with the Company and the Company will be subject
to the provisions of Stark II. Some states
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have passed similar legislation which prohibits the referral of private pay
patients. To date, the Department has not published Stark II regulations.
However, the Department indicated that it will review referrals involving any of
the designated services under the language and interpretations set forth in the
Stark I rule.
The Company's acquisitions and joint venture activities are also
subject to federal antitrust laws. The healthcare industry has recently been an
active area of antitrust enforcement action by the United States Federal Trade
Commission (the "FTC") and the Department of Justice ("DOJ"). The Company's
acquisitions and joint venture arrangements could be the subject of a DOJ or an
FTC enforcement action which, if determined adversely to the Company, could have
a material adverse effect upon the Company's operations.
Changes in laws or regulations or new interpretations of existing laws
or regulations can have an adverse effect on the Company's operating methods,
costs, reimbursement amounts and acquisition and joint venture activities. In
addition, the healthcare industry is subject to increasing governmental
scrutiny, and additional laws and regulations may be enacted which could require
changes in the Company's operations. A federal or state agency charged with
enforcement of such laws and regulations might assert an interpretation of such
laws and resolutions or may increase scrutiny of a previously ignored area,
which may require changes in the Company's operations.
Dependence on Healthcare Professionals
Physicians traditionally have been the source of a significant portion
of the patients treated at the Company's hospitals. Therefore, the success of
the Company's hospitals is dependent in part on the number and quality of the
physicians on the medical staffs of its hospitals and their admission practices.
A small number of physicians account for a significant portion of patient
admissions at some of the Company's hospitals. There can be no assurance that
the Company can retain its current physicians on staff or that additional
physician relationships will be developed in the future. Furthermore, hospital
physicians generally are not employees of the Company and in general Magellan
does not have contractual arrangements with hospital physicians restricting the
ability of such physicians to practice elsewhere.
Potential General and Professional Liability
Effective June 1, 1995, Plymouth Insurance Company, Ltd. ("Plymouth"),
a wholly-owned Bermuda subsidiary of the Company, provides general and hospital
professional liability insurance of up to $25 million per occurrence for the
Company's hospitals. All of the risk of losses from $1.5 million to $25 million
per occurrence has been reinsured with unaffiliated insurers. The Company also
insures with an unaffiliated insurer 100% of the risk of losses between $25
million and $100 million per occurrence, subject to an annual aggregate limit of
$75 million. The Company's general and professional liability coverage is
written on a "claims made or circumstances reported" basis. For reinsured claims
between $10 and $25 million per occurrence, the Company has an annual aggregate
limit of coverage of $30 million. For reinsured claims between $1.5 million and
$10 million per occurrence, the Company has no significant limitations on the
aggregate dollar amounts of coverage.
For the six years from June 1, 1989 through May 31, 1995, the Company
had a similar general and hospital professional liability insurance program. For
those years, the per occurrence deductible (with respect to which the Company
was self-insured) was $2.5 million for the years ended May 31, 1990 and 1991, $2
million for the years ended May 31, 1992 and 1993 and $1.5 million (relating to
the Company's general hospitals sold on September 30, 1993) for the year ended
May 31, 1994. For psychiatric hospitals, Plymouth's coverage did not contain a
per occurrence deductible for the years ended May 31, 1994 and 1995. In December
1994, the per occurrence deductible for the years ended May 31, 1989 and 1990
was eliminated. Plymouth provides coverage with no per occurrence deductible for
hospital system claims which had not been paid prior to December 31, 1994.
Plymouth does not underwrite any insurance policies with any parties other than
the Company or its affiliates and subsidiaries.
The amount of expense relating to Magellan's malpractice insurance may
materially increase or decrease from year to year depending, among other things,
on the nature and number of new reported claims against Magellan and amounts of
settlements of previously reported claims. To date, Magellan has not experienced
a loss in excess of policy limits. Management believes that its coverage limits
are adequate. However, losses in excess of the limits described above or for
which insurance is otherwise unavailable could have a material adverse effect
upon the Company.
7
<PAGE>
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
that in Management's opinion, is not likely to be recovered. There can be no
assurance that these NOL carryforwards will not expire, be reduced or be made
subject to further limitations prior to their potential utilization in future
periods.
Capitation Arrangements
The Company's managed care business contracts with companies holding
state HMO or insurance company licenses on a capitated or "at-risk" basis where
the risk of patient care is assumed by the Company in exchange for a monthly fee
per member regardless of utilization level. As of September 30, 1996,
approximately 30% 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:
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
business.
8
<PAGE>
Shares Eligible for Future Sale
Upon completion of this offering, the Warrant Shares will be eligible
for sale in the open market without restriction. In addition, the Shares
(4,000,000) held by the Selling Stockholder are elibible for sale in the open
market after January 25, 1997, without restriction. In connection with the
acquisition of a majority interest in Green Spring, the remaining Green Spring
stockholders, consisting of four Blue Cross/Blue Shield plans (the "Minority
Stockholders") have the option, under certain circumstances, to exchange their
ownership interests in Green Spring for up to 2,831,739 shares of the Company's
Common Stock or $65.1 million in the Company's subordinated notes (the "Exchange
Option"). Assuming exercise by all of the Minority Stockholders of the Exchange
Option for Common Stock, all 2,831,739 shares of Common Stock issuable upon
exercise of the Exchange Option will be eligible for sale in the open market
without restriction. As of December 31, 1996, the Company's officers, directors
and employees held options for the purchase of 3,226,490 shares of Common Stock
(1,203,210 of which are vested and 2,023,280 of which are subject to vesting
periods of up to four years in duration). Upon exercise, the shares of Common
Stock underlying such options will be eligible for sale on the open market
without restriction, except that Directors and certain Officers of the Company
must effect such sales pursuant to Rule 144 under the 1933 Act. Following this
offering, sales and potential sales of shares of Common Stock in the public
market pursuant to Rule 144 or otherwise could adversely affect the prevailing
market prices for the Common Stock and impair the Company's ability to raise
additional equity capital.
Possible Volatility of Stock Price
The Company believes factors such as announcements with respect to
healthcare reform measures, reductions in government healthcare program
projected expenditures, acquisitions and quarter-to-quarter and year-to-year
variations in financial results could cause the market price of Magellan Common
Stock to fluctuate substantially. Any such adverse announcement with respect to
healthcare reform measures or program expenditures, acquisitions or any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
Magellan Common Stock in any given period. As a result, the market for Magellan
Common Stock may experience price and volume fluctuations unrelated to the
operating performance of Magellan. See "Price Range of Common Stock and Dividend
Policy" on page 12.
THE COMPANY
This section contains forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward looking
statements include, without limitation, the percentage contribution to total
revenues that the Company expects to receive from each of its three lines of
business during fiscal 1997. (See the final sentence of "The Company-- Charter",
"-- Green Spring, " and "-- Magellan Public Solutions"). Actual results may
differ mutually from those projected in such forward looking statements, by,
among other things, the factors identified in "Risk Factors".
Magellan is an integrated national behavioral healthcare company. The
Company operates through three principal subsidiaries engaging in (i) the
provider business, (ii) the managed care business and (iii) the public sector
business.
Charter Behavioral Health Systems, Inc. ("Charter"), the Company's
wholly-owned subsidiary that engages in the provider business, operated 90 acute
care psychiatric hospitals and four residential psychiatric treatment centers
with an aggregate capacity of 8,463 licensed beds as of December 31, 1996.
Charter also manages one acute care psychiatric hospital with 34 licensed beds.
Eighty-eight of Charter's hospitals operate partial hospitalization programs and
the Company operates approximately 150 outpatient centers, staffed by mental
health professionals. Approximately 77% of the Company's fiscal 1996
consolidated revenue was contributed by the provider business. Management
estimates that approximately 65% of its fiscal 1997 consolidated revenue will be
contributed by the provider business.
Green Spring, the Company's 61% owned subsidiary that engages in the
managed care business, provides managed behavioral healthcare services, which
include (i) Enhanced Utilization Management, a utilization review process that
employs clinical criteria designed to provide each patient with accessible,
appropriate and affordable treatment across the entire continuum of care and
services; (ii) Care Management, a fully integrated healthcare model that offers
utilization review services and provides care to patients through the management
of a national network of
9
<PAGE>
contract providers and Green Spring-owned staff model clinics; (iii)
Comprehensive Administrative Services, including member assistance, management
reporting, claims processing, clinical management information and provider
referral systems that are adaptable to customer circumstances and requirements
through a network of more than 30,000 providers nationwide covering
approximately 13.6 million members as of September 30, 1996. Approximately 17%
of the Company's fiscal 1996 consolidated revenue was provided by the managed
care business. Management estimates that approximately 25% of its fiscal 1997
consolidated revenue will be contributed by the managed care business.
Magellan Public Solutions, Inc. ("Public Solutions"), the Company's
wholly-owned subsidiary that engages in the public sector business, provides
specialty home-based behavioral healthcare services, behavioral services in
correctional facilities and troubled and delinquent adolescent facilities
services pursuant to contractual arrangements with governmental agencies.
Approximately 6% of the Company's fiscal 1996 consolidated revenue was provided
by the public sector business. Management estimates that approximately 10% of
its fiscal 1997 consolidated revenue will be contributed by the public sector
business.
Magellan's business strategy is to provide access to a full continuum
of behavioral healthcare and managed care services and to perform such services
in a cost effective manner with monitored results. The Company's integrated
national behavioral healthcare system has the capability to deliver and to
manage the delivery of behavioral healthcare services for large public and
private payers who need assistance in managing the risk of behavioral healthcare
costs.
Magellan was incorporated in 1969 under the laws of the State of
Delaware. The Common Stock is traded on the New York Stock Exchange under the
symbol "MGL." Unless the context otherwise requires, references to Magellan
include Magellan Health Services, Inc. and its subsidiaries. Magellan's
principal executive offices are located at 3414 Peachtree Road, N.E., Suite
1400, Atlanta, Georgia 30326, and its telephone number is (404) 841-9200.
RECENT DEVELOPMENTS
Green Spring Acquisition
On December 13, 1995, the Company acquired a 51% ownership interest in
Green Spring for approximately $68.9 million in cash, the issuance of 215,458
shares of Common Stock valued at approximately $4.3 million and the contribution
of Group Practice Affiliates, a wholly-owned Magellan subsidiary, which became a
wholly-owned subsidiary of Green Spring. On December 20, 1995, the Company
acquired an additional 10% ownership interest in Green Spring for approximately
$16.7 million in cash as a result of an exercise by a minority stockholder of
its Exchange Option for a portion of the stockholder's interest in Green Spring.
The Company currently has a 61% ownership interest in Green Spring.
The Company believes the Green Spring acquisition and the creation of
Public Solutions combined with the existing provider business created the first
fully integrated national behavioral healthcare system and gives the Company the
capability to provide case management and delivery services to large private
organizations and a public sector marketplace seeking increased privatization of
services. The Company changed its name to Magellan Health Services, Inc. on
December 21, 1995 to reflect the broader range of services it expects to provide
as a result of the Green Spring acquisition and the creation of Public
Solutions.
The minority stockholders of Green Spring consist of four Blue
Cross/Blue Shield organizations (the "Blues") that are key customers of Green
Spring. In addition, two other Blues organizations that formerly owned a portion
of Green Spring will continue as customers of Green Spring. As of December 31,
1996, the minority stockholders of Green Spring have the Exchange Option, which
under certain circumstances, allows the minority stockholders to exchange their
ownership interests in Green Spring for 2,831,739 shares of Magellan Common
Stock or $65.1 million in subordinated notes. The Company may elect to pay cash
in lieu of issuing the subordinated notes. The Exchange Option expires December
13, 1998.
Sale of Common Stock and Warrant
On January 25, 1996, the Company completed the sale to the Selling
Stockholder of the Shares, along with the warrant to purchase an additional
2,000,000 shares of Common Stock, pursuant to the Stock and Warrant Purchase
10
<PAGE>
Agreement. The Warrant, which expires in January 2000, entitles the Selling
Stockholder to purchase the Warrant Shares at a per share price of $26.15,
subject to adjustment for certain dilutive events, and provides registration
rights for the Warrant Shares. The aggregate purchase price for the Shares and
the Warrant was $69,732,000. The Selling Stockholder currently owns
approximately 14.0% of the outstanding voting securities of Magellan. The
Warrant becomes exercisable on January 25, 1997 and expires on January 25, 2000.
The Stock and Warrant Purchase Agreement places certain restrictions on
the sale or transfer of the Shares and the Warrant Shares. As a result, no more
than 40,000 Shares may be sold by the Selling Stockholder or its affiliates
prior to January 25, 1997. Further, prior to January 25, 2000, the Selling
Stockholder or its affiliates may not sell or transfer in a privately negotiated
transaction to a single purchaser and its affiliates or a "group" ( as defined
in Rule 13d- 5(b)(1) under the Exchange Act) Shares or Warrant Shares which
would, in the aggregate, equal or exceed five percent (5%) of the Common Stock
then outstanding on a fully-diluted basis. Neither of these restrictions affect
the free transferability of the Shares or the Warrant Shares among the Selling
Stockholder and its affiliates. In addition, the Stock and Warrant Purchase
Agreement contains certain standstill covenants on the part of the Selling
Stockholder which, among other things, prohibit the Selling Stockholder and its
affiliates from purchasing additional shares of Common Stock so that they
collectively own in excess of 20% of the outstanding shares of Common Stock
prior to January, 1998. The Stock and Warrant Purchase Agreement also grants the
Selling Stockholder certain board representation rights. See "Selling
Stockholder".
The Company used $68.0 million of the proceeds from the sale of the
Shares and the Warrant to the Selling Stockholder to repay indebtedness incurred
under the Company's Credit Agreement, which indebtedness was incurred in
connection with the investments in Green Spring during the first quarter of
fiscal 1996.
New Revolving Credit Agreement
On October 28, 1996, the Company entered into a new 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
Company borrowed approximately $121.0 million under the New Revolving Credit
Agreement in October 1996 to (i) pay-off the existing borrowings under the
Revolving Credit Agreement (as hereinafter defined) and (ii) pay for fees and
expenses related to the New Revolving Credit Agreement.
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 Prime Lending Rate.
Interest on Prime Lending Rate loans is payable at the end of each fiscal
quarter and upon conversion to a LIBOR-based loan. Interest on LIBOR-based loans
is payable at the end of their respective one, two, three or six-month terms.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Warrant Shares. All of the proceeds from the sale of the Warrant Shares will be
received by the Selling Stockholder.
11
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed for trading on the New York Stock Exchange
(ticker symbol "MGL"). As of December 31, 1996, there were 11,063 holders of
record of the Company's Common Stock. The following table sets forth the high
and low sales prices of the Company's Common Stock as reported by the American
Stock Exchange (through December 30, 1996) and the New York Stock Exchange from
December 31, 1996 through January 23, 1997:
<TABLE>
<CAPTION>
Common Stock Sales Prices
-------------------------
Calendar Year High Low
- ---------------------------------------- ------ ------
<S> <C> <C> <C>
1994
Fourth Quarter .................. $28 1/2 $ 19
1995
First Quarter ................... $21 1/4 $13 7/8
Second Quarter .................. 19 5/8 15 5/8
Third Quarter ................... 23 1/4 16 1/4
Fourth Quarter .................. 24 1/4 17 3/8
1996
First Quarter ................... $ 25 $21 3/8
Second Quarter .................. 24 7/8 21
Third Quarter ................... 21 5/8 14 3/4
Fourth Quarter .................. 22 5/8 17 3/8
1997
First Quarter (through January 23, 1997) $23 1/8 $20 5/8
</TABLE>
The Company has not declared any cash dividends during the last three
fiscal years. As of December 31, 1996, the Company was prohibited from paying
dividends on its common stock under the terms of its New Revolving Credit
Agreement.
CAPITALIZATION
The following table sets forth the consolidated capitalization of Magellan
as of September 30, 1996 and as adjusted to reflect the potential exercise of
the Warrant at $26.15 per share by the Selling Shareholder.
<TABLE>
<CAPTION>
Actual As Adjusted
------------------ ------------------
September 30, 1996 September 30, 1996
------------------ ------------------
(in thousands, except per share data)
<S> <C> <C>
Revolving Credit Agreement ...................................... $ 105,593 $ 53,333
11.25% Senior Subordinated Notes due 2004 ....................... 375,000 375,000
Other long-term debt ............................................ 91,465 91,465
Stockholders' equity:
Preferred stock, without par value;
10,000 authorized; none issued and outstanding ......... -- --
Common Stock, $.25 par value; 80,000
authorized; 33,007 issued and outstanding; 35,007 issued
and outstanding as adjusted ........................... 8,252 8,752
Additional paid-in capital ............................... 327,681 379,441
Accumulated deficit ...................................... (129,457) (129,457)
Warrants outstanding ..................................... 54 54
Common Stock in Treasury, 4,424 shares ................... (82,731) (82,731)
Cumulative foreign currency adjustments .................. (1,982) (1,982)
--------- ---------
Total stockholders' equity .......................... 121,817 174,077
--------- ---------
Total capitalization ................................ $ 693,875 $ 693,875
========= =========
</TABLE>
12
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial data and
selected pro forma financial data for Magellan for the year ended September 30,
1996. The selected historical financial data for the year ended September 30,
1996 have been derived from the audited historical financial statements of
Magellan. The selected pro forma financial data gives effect to (i) the January
25, 1996 sale of the Shares to the Selling Stockholder, (ii) the September 27,
1996 repurchase of 3,961,505 shares of common stock pursuant to a "Dutch
Auction" self-tender offer to stockholders (the "Share Repurchase") and (iii)
the potential exercise of the Warrant for 2,000,000 shares of common stock by
the Selling Shareholder, as if such transactions had occurred on October 1, 1995
(in thousands, except per share data).
<TABLE>
<CAPTION>
Fiscal Year Ended
September 30, 1996
-----------------------------------------------------
Pro Forma Pro Forma
Before Assumed After Assumed
Exercise of the Exercise of the
Actual Warrant (1) Warrant (2)
------- -------------- ---------------
<S> <C> <C> <C>
Net income ................................ $32,383 $30,598 $32,965
Average number of common shares outstanding 31,104 28,374 30,374
Net income per common share .............. 1.04 1.08 1.09
</TABLE>
(1) The adjustments to pro forma net income , net income per common share and
average number of common shares outstanding result from the issuance of the
Shares to the Selling Stockholder and the Share Repurchase, and the related
adjustments to increase interest expense, net of tax, to effect for changes
in outstanding borrowings under the Credit Agreement for the fiscal year
ended September 30, 1996.
(2) The adjustments to pro forma net income, net income per common share and
average number of common shares outstanding result from the assumed
exercise of the Warrant by the Selling Stockholder and the related
adjustment to decrease interest expense, net of tax, to effect for changes
in outstanding borrowings under the Credit Agreement for the fiscal year
ended September 30, 1996.
13
<PAGE>
SELLING STOCKHOLDER
The following table sets forth certain information with respect to the
ownership of the Warrant Shares as of January 24, 1997, and as adjusted to
reflect the sale of the Warrant Shares offered hereby, by the Selling
Stockholder. The Selling Stockholder has sole voting and investment power with
respect to the Warrant Shares. Under the rules of the Securities and Exchange
Commission, Rainwater, Inc., the general partner of the Selling Stockholder, and
Richard E. Rainwater, the sole shareholder and a director of Rainwater, Inc. are
also deemed to be beneficial owners of the Shares. Darla Moore, Vice President
and a Director of Rainwater, Inc. was elected to the Board of Directors of
Magellan on February 22, 1996 pursuant to the Stock and Warrant Purchase
Agreement.
<TABLE>
<CAPTION>
Beneficial Ownership of Number of Ownership of
Common Stock Before Shares Being Common Stock After
the Offering Offered the Offering (1)
----------------------- ------------ ------------------------
Number Of Number Of
Name Shares Percent Shares Percent
- --------------------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Rainwater-Magellan
Holdings, L.P. 6,000,000 19.6 2,000,000 (2) 4,000,000 14.0
</TABLE>
- ------------------------------------
(1) Assumes that all Shares being offered are sold.
(2) No more than 40,000 Shares may be sold by the Selling Stockholder or
its affiliates prior to January 25, 1997. Further, prior to January 25,
2000, the Selling Stockholder or its affiliates may not sell or
transfer in a privately negotiated transaction to a single purchaser
and its affiliates or any "group" (as defined in Rule 13d-5(b)(1) under
the Exchange Act) Shares (including shares underlying the Warrant)
which would equal or exceed five percent (5%) of the Common Stock then
outstanding on a fully-diluted basis.
PLAN OF DISTRIBUTION
The Warrant Shares may be sold from time to time by the Selling
Stockholder on the New York Stock Exchange or any national securities exchange
or automated interdealer quotation system on which shares of Common Stock are
then listed, through negotiated transactions or otherwise. Certain transfer
restrictions have been placed on the Warrant Shares offered hereby pursuant to
the Stock and Warrant Purchase Agreement, which in general restrict the sale of
the Shares prior to January 25, 1997. See "Recent Developments -- Sale of Common
Stock and Warrant". The Warrant Shares will be sold at prices and on terms then
prevailing, at prices related to the then current market price or at negotiated
prices. The Selling Stockholder may effect sales of the Warrant Shares directly
or by or through agents, brokers, dealers or underwriters and the Warrant Shares
may be sold by one or more of the following methods: (a) underwritten public
offerings, (b) ordinary brokerage transactions, (c) purchases by a broker-dealer
as principal and resale by such broker-dealer for its own account pursuant to
this Prospectus, (d) in "block" sales, and (e) privately negotiated
transactions. At the time a particular offer is made, a Prospectus Supplement,
if required, will be distributed that sets forth the name or names of agents,
broker-dealers or underwriters, any commissions and other terms constituting
compensation and any other required information. In effecting sales,
broker-dealers engaged by the Selling Stockholder and/or the purchasers of the
Warrant Shares may arrange for other broker-dealers to participate. Broker-
dealers will receive commissions, concessions or discounts from the Selling
Stockholder and/or the purchasers of the Warrant Shares in amounts to be
negotiated prior to the sale. Sales will be made only through broker-dealers
registered as such in a subject jurisdiction or in transactions exempt from such
registration. As of the date of this Prospectus, there are no selling
arrangements between the Selling Stockholder and any broker or dealer.
In offering the Warrant Shares, the Selling Stockholder and any
brokers, dealers or agents who participate in a sale of the Warrant Shares by
the Selling Stockholder may be considered "underwriters" within the meaning of
Section 2(11) of the 1933 Act, and any profits realized by the Selling
Stockholder and the compensation of any broker/dealers may be deemed to be
underwriting discounts and commissions.
14
<PAGE>
As required by the Stock and Warrant Purchase Agreement, Magellan has
filed the Registration Statement, of which this Prospectus forms a part, with
respect to the sale of the Warrant Shares. Magellan has agreed to keep the
Registration Statement current and effective, with certain exceptions, for so
long as the Selling Stockholder and its affiliates collectively own at least 25%
of the Shares (including the Warrant Shares) issued pursuant to the Stock and
Warrant Purchase Agreement.
Magellan will not receive any of the proceeds from the sale of the
Warrant Shares by the Selling Stockholder. Magellan will bear the costs of
registering the Warrant Shares under the 1933 Act, including the registration
fee under the 1933 Act, its legal and accounting fees and any printing fees. The
Selling Stockholder will bear the cost of underwriting commissions and/or
discounts, if any, and selling commissions.
Pursuant to the terms of the Stock and Warrant Purchase Agreement,
Magellan and the Selling Stockholder have agreed to indemnify each other and
certain other related parties for certain liabilities, including liabilities
under the 1933 Act, in connection with the registration of the Warrant Shares.
LEGAL MATTERS
The legality of the Shares are passed upon for the Selling Stockholder
by Steve J. Davis, Esq., Executive Vice President, Administrative Services and
General Counsel of the Company, 3414 Peachtree Road, N.E., Atlanta, Georgia
30326.
EXPERTS
The audited consolidated financial statements and schedule of Magellan
Health Services, Inc. and subsidiaries included in the Magellan Annual Report on
Form 10-K for the year ended September 30, 1996 incorporated by reference in
this Prospectus and elsewhere in this Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
Future consolidated financial statements and schedules of Magellan
Health Services, Inc. and subsidiaries and the reports thereon of Arthur
Andersen LLP also will be incorporated by reference in this Registration
Statement of which this Prospectus is a part in reliance upon the authority of
that firm as experts in giving those reports to the extent said firm has audited
those financial statements and consented to the use of their reports thereon.
15
<PAGE>
- ------------------------------------------- -----------------------------
No person has been authorized in connection
with the offering made hereby to give any
information or to make any representation
not contained in this Prospectus and, if
given or made, such information or 2,000,000 SHARES
representation must not be relied upon as
having been authorized by Magellan or the
Selling Stockholder. This Prospectus does MAGELLAN HEALTH
not constitute an offer to sell or a SERVICES, INC.
solicitation of an offer to buy any of the
securities offered hereby in any
jurisdiction in which it is unlawful to
make such offer or solicitation. Neither COMMON STOCK
the delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication that
the information contained herein is correct
as of any time subsequent to the date
hereof.
--------------------------- -----------------------------
PROSPECTUS
-----------------------------
TABLE OF CONTENTS
Available Information.....................2
Incorporation of Certain Documents
by Reference............................2
Risk Factors..............................3
The Company...............................9
Recent Developments......................10
Use of Proceeds..........................11
Price Range of Common Stock
and Dividend Policy....................12
Capitalization...........................12
Selected Financial Information...........13
Selling Stockholder......................14
Plan of Distribution.....................14
Legal Matters............................15
Experts ................................15
January , 1997
- ------------------------------------------ ----------------------------
16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee $13,484.85
Legal Fees and Expenses 10,000.00
Accounting Fees and Expenses 4,000.00
Blue Sky Fees and Expenses (including legal fees and expenses) 1,000.00
Printing 5,000.00
Miscellaneous 6,515.15
----------
Total $40,000.00
==========
</TABLE>
All of the above items, except for the registration fee, are estimates.
Although the Selling Stockholder will not bear any of the expenses set forth
above, the Selling Stockholder will bear the cost of underwriting commissions
and/or discounts, if any, and selling commissions.
Item 15. Indemnification of Directors and Officers
The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law (the "DGCL") provides that a Delaware corporation has
the power to indemnify its officers and directors in certain circumstances.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such action or suit provided that such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such director or officer shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such director or officer is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) or (b) or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith; provided that indemnification provided for by Section 145 or granted
pursuant thereto shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled. Section 145 also empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Article VII of the Bylaws of Magellan provide, in substance, that
Magellan shall indemnify directors and officers against all liability and
related expenses incurred in connection with the affairs of Magellan if: (a) in
the case of actions not by or in the right of Magellan, the director or officer
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of Magellan, and (with respect to a criminal
proceeding) had no reasonable cause to believe his conduct was unlawful; and (b)
in the case of actions by or in the right of Magellan, the
17
<PAGE>
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Magellan, provided that no
indemnification shall be made for a claim as to which the director or officer is
adjudged liable to Magellan unless (and only to the extent that) an appropriate
court determines that, in view of all the circumstances, such person is fairly
and reasonably entitled to indemnity.
In addition, Section 102(b)(8) of the DGCL permits Delaware
corporations to include a provision in their certificates of incorporation
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary as a director,
provided that such provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of the law, (iii) for
unlawful payment of dividends or other unlawful distributions, or (iv) for any
transactions from which the director derived an improper personal benefit.
Article Twelve of Magellan's Certificate of Incorporation sets forth such a
provision.
Magellan maintains directors' and officers' liability insurance with
various providers in the aggregate amount of $60 million.
The Selling Stockholder has agreed to indemnify the Company, its
directors and officers (who sign the Registration Statement), and certain
controlling persons against certain liabilities, including liabilities under the
1933 Act subject to such limitations as set forth in the Stock and Warrant
Purchase Agreement.
The foregoing summaries are necessarily subject to the complete text of
the statutes, Certificate of Incorporation, Bylaws, insurance policies and
agreements referred to above and are qualified in their entirety by reference
thereto.
For the undertaking with respect to indemnification, see Item 17.
Item 16. Exhibits
4.1 Restated Certificate of Incorporation of the Company, as filed
in Delaware on October 16, 1992, which was filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1992, and is incorporated herein by
reference.
4.2 Certificate of Ownership and Merger merging Magellan Health
Services, Inc. (a Delaware corporation) into Charter Medical
Corporation (a Delaware corporation), as filed in Delaware on
December 21, 1995, which was filed as Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and is incorporated herein by reference.
4.3 Form of Share Purchase Rights Plan among the Company and First
Union National Bank of North Carolina, N.A., which was filed
as Exhibit 2.5 to the Company's Registration Statement on Form
8-A dated July 8 1992, and is incorporated herein by
reference.
4.4 Stockholders' Agreement, dated December 13, 1995, among Green
Spring Health Services, Inc., Blue Cross and Blue Shield of
New Jersey, Inc., Health Care Service Corporation,
Independence Blue Cross, Pierce County Medical Bureau, Inc.
and the Company, which was filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995, and is incorporated herein by
reference.
4.5 Exchange Agreement, dated December 13, 1995, among Blue Cross
and Blue Shield of New Jersey, Inc., Health Care Service
Corporation, Independence Blue Cross, Pierce County Medical
Bureau, Inc. and the Company, which was filed as Exhibit 4(e)
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1995, and is incorporated
herein by reference.
18
<PAGE>
4.6 Stock and Warrant Purchase Agreement, dated December 22, 1995,
between the Company and Richard E. Rainwater, which was filed
as Exhibit 4(f) to the Company's quarterly report on Form 10-
Q for the quarterly period ended December 31, 1995, and is
incorporated herein by reference.
4.7 Amendment No. 1 to Stock and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Rainwater-Magellan
Holdings, L.P., which was filed as Exhibit 4(a) to the
Company's quarterly report on Form 10-Q for the quarterly
period ended March 31, 1996, and is incorporated by reference
herein.
5.1 Opinion of Steve J. Davis as to the legality of the Common
Stock to be registered.
23.1 Consent of Steve J. Davis (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney.
- ------------------------------------
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
securities registered hereby, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section 10(a)(3) of the 1933 Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
Provided, however, that the undertakings set forth in paragraphs (i)
and (ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the 1933 Act, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
that is incorporated by reference in this Registration Statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and
19
<PAGE>
controlling persons of the registrant, the registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling persons
of the registrant in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on the 23rd day of
January, 1997.
MAGELLAN HEALTH SERVICES, INC.
By:/s/ Howard A. McLure
------------------------------
Howard A. McLure
Vice President and Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on January 23,
1997 in the capacities and on the date indicated.
* Date: January 23, 1997
- ----------------------------------- ------------------------
E. Mac Crawford
President and Chairman of the Board
(Principal Executive Officer)
* Date: January 23, 1997
- ----------------------------------- ------------------------
Craig L. McKnight
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Howard A. McLure Date: January 23, 1997
- ----------------------------------- ------------------------
Howard A. McLure
Vice President and Controller
(Principal Accounting Officer)
Date: January 23, 1997
- ----------------------------------- ------------------------
Edwin M. Banks
Director
21
<PAGE>
* Date: January 23, 1997
- ----------------------------------- ------------------------
G. Fred DiBona, Jr.
Director
* Date: January 23, 1997
- ----------------------------------- ------------------------
Andre C. Dimitriadis
Director
* Date: January 23, 1997
- ----------------------------------- ------------------------
A. D. Frazier, Jr.
Director
* Date: January 23, 1997
- ----------------------------------- ------------------------
Raymond H. Kiefer
Director
* Date: January 23, 1997
- ----------------------------------- ------------------------
Gerald L. McManis
Director
* Date: January 23, 1997
- ----------------------------------- ------------------------
Darla Moore
Director
*The undersigned Attorney-in-Fact, by signing his name below, does hereby sign
this Registration Statement on behalf of the indicated officers and directors of
the Registrant pursuant to a Power of Attorney executed by such persons and
filed with the Securities and Exchange Commission.
By: /s/ Howard A. McLure Date: January 23, 1997
------------------------------- ------------------------
Howard A. McLure
22
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit
<S> <C> <C>
4.1 Restated Certificate of Incorporation of the Company, as filed in Delaware
on October 16, 1992, which was filed as Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1992, and is
incorporated herein by reference. IBR
4.2 Certificate of Ownership and Merger merging Magellan Health Services, Inc.
(a Delaware corporation) into Charter Medical Corporation (a Delaware
corporation), as filed in Delaware on December 21, 1995, which was filed as
Exhibit 3(c) to the Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and is incorporated herein by reference. IBR
4.3 Form of Share Purchase Rights Plan among the Company and First Union
National Bank of North Carolina, N.A., which was filed as Exhibit 2.5 to
the Company's Registration Statement on Form 8-A dated July 6, 1992, and is
incorporated herein by reference. IBR
4.4 Stockholders' Agreement, dated December 13, 1995, among Green Spring Health
Services, Inc., Blue Cross and Blue Shield of New Jersey, Inc., Health Care
Service Corporation, Independence Blue Cross, Pierce County Medical Bureau,
Inc. and the Company, which was filed as Exhibit 4(d) to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended December 31,
1995, and is incorporated herein by reference. IBR
4.5 Exchange Agreement, dated December 13, 1995, among Blue Cross and Blue
Shield of New Jersey, Inc., Health Care Service Corporation, Independence
Blue Cross, Pierce County Medical Bureau, Inc. and the Company, which was
filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended December 31, 1995, and is incorporated herein by
reference. IBR
4.6 Stock and Warrant Purchase Agreement, dated December 22, 1995, between the
Company and Richard E. Rainwater, which was filed as Exhibit 4(f) to the
Company's quarterly report on Form 10-Q for the quarterly period ended
December 31, 1995, and is incorporated herein by reference. IBR
4.7 Amendment No. 1 to Stock and Warrant Purchase Agreement, dated January 25,
1996, between the Company and Rainwater-Magellan Holdings, L.P., which was
filed as Exhibit 4(a) to the Company's quarterly report on Form 10-Q for
the quarterly period ended March 31, 1996, and is incorporated by reference
herein. IBR
5.1 Opinion of Steve J. Davis as to the legality of the Common Stock to be
registered.
23.1 Consent of Steve J. Davis (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney.
- ------------------------------------
</TABLE>
23
January 23, 1997
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Re: Form S-3 Registration Statement relating to 2,000,000 shares of
Common Stock, par value $.25 per share, of Magellan Health Services, Inc.
-------------------------------------------------------------------------
Ladies and Gentlemen:
I have acted as counsel for Magellan Health Services, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the offering from time to time of up to 2,000,000 shares (the
"Shares") of Common Stock, par value $.25 per share, of the Company, by
Rainwater-Magellan Holdings, L.P.
As such counsel, I have examined and relied upon such records,
documents, certificates and other instruments as in my judgment are necessary or
appropriate to form the basis for the opinions hereinafter set forth. In all
such examinations, I have assumed the genuineness of signatures on original
documents and the conformity to such original documents of all copies submitted
to me as certified, conformed or photographic copies, and as to certificates of
public officials, I have assumed the same to have been properly given and to be
accurate.
Based upon the foregoing, I am of the opinion that the Shares have been
duly authorized and validly issued and are fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the Prospectus that forms a part of the Registration Statement.
Very truly yours,
/s/ Steve J. Davis
-------------------------
Steve J. Davis
Executive Vice President, Administrative Services,
and General Counsel
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our reports dated
November 7, 1996 included in Magellan Health Services, Inc.'s Annual Report on
Form 10-K for the fiscal year ended September 30,1996 and to all references to
our firm included in this Registration Statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 23, 1997
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, E. MAC CRAWFORD, President, Chief
Executive Officer, and Chairman of the Board of Magellan Health Services, Inc.
(the "Company"), do hereby appoint Howard A. McLure, Vice President and
Controller of the Company and Steve J. Davis, Executive Vice President,
Administrative Services and General Counsel of the Company, or any one of them,
my true and lawful attorney-in-fact for me and in my name for the purpose of
executing on my behalf (i) the Company's Registration Statement on Form S-3, or
any amendments or supplements thereto, for the registration of shares of Common
Stock of the Company to be issued in connection with the exercise of warrants to
purchase Common Stock of the Company issued to Rainwater-Magellan Holdings, L.P.
and the subsequent resale of such Common Stock; (ii) any application for
registration or qualification (or exemption therefrom) of such shares under the
Blue Sky or other federal or state securities laws and regulations; and (iii)
any other document or instrument deemed necessary or appropriate by any of them
in connection with such application for registration or qualification (or
exemption therefrom); and for the purpose of causing any such registration
statement or any subsequent amendment or supplement to such registration
statement to be filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ E. Mac Crawford
--------------------------------------
E. MAC CRAWFORD
President, Chief Executive Officer, and
Chairman of the Board
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, CRAIG L. McKNIGHT, Executive Vice
President and Chief Financial Officer of Magellan Health Services, Inc. (the
"Company"), do hereby appoint Howard A. McLure, Vice President and Controller of
the Company and Steve J. Davis, Executive Vice President, Administrative
Services and General Counsel of the Company, or any one of them, my true and
lawful attorney-in-fact for me and in my name for the purpose of executing on my
behalf (i) the Company's Registration Statement on Form S-3, or any amendments
or supplements thereto, for the registration of shares of Common Stock of the
Company to be issued in connection with the exercise of warrants to purchase
Common Stock of the Company issued to Rainwater-Magellan Holdings, L.P. and the
subsequent resale of such Common Stock; (ii) any application for registration or
qualification (or exemption therefrom) of such shares under the Blue Sky or
other federal or state securities laws and regulations; and (iii) any other
document or instrument deemed necessary or appropriate by any of them in
connection with such application for registration or qualification (or exemption
therefrom); and for the purpose of causing any such registration statement or
any subsequent amendment or supplement to such registration statement to be
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ Craig L. McKnight
---------------------------------------
CRAIG L. McKNIGHT
Executive Vice President and Chief
Financial Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, G. FRED DiBONA, JR., a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the exercise of warrants to purchase Common Stock of the Company issued to
Rainwater-Magellan Holdings, L.P. and the subsequent resale of such Common
Stock; (ii) any application for registration or qualification (or exemption
therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ G. Fred DiBona, Jr.
---------------------------------------
G. FRED DiBONA, JR.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, ANDRE C. DIMITRIADIS, a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the exercise of warrants to purchase Common Stock of the Company issued to
Rainwater-Magellan Holdings, L.P. and the subsequent resale of such Common
Stock; (ii) any application for registration or qualification (or exemption
therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ Andre C. Dimitriadis
---------------------------------------
ANDRE C. DIMITRIADIS
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, A. D. FRAZIER, JR., a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the exercise of warrants to purchase Common Stock of the Company issued to
Rainwater-Magellan Holdings, L.P. and the subsequent resale of such Common
Stock; (ii) any application for registration or qualification (or exemption
therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ A. D. Frazier, Jr.
---------------------------------------
A. D. FRAZIER, JR.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, RAYMOND H. KIEFER, a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ Raymond H. Kiefer
---------------------------------------
RAYMOND H. KIEFER
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, GERALD L. McMANIS, a Director of
Magellan Health Services, Inc. (the "Company"), do hereby appoint Howard A.
McLure, Vice President and Controller of the Company and Steve J. Davis,
Executive Vice President, Administrative Services and General Counsel of the
Company, or any one of them, my true and lawful attorney-in-fact for me and in
my name for the purpose of executing on my behalf (i) the Company's Registration
Statement on Form S-3, or any amendments or supplements thereto, for the
registration of shares of Common Stock of the Company to be issued in connection
with the investment in Common Stock of the Company by Rainwater-Magellan
Holdings, L.P.; (ii) any application for registration or qualification (or
exemption therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ Gerald L. McManis
---------------------------------------
GERALD L. McMANIS
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, DARLA MOORE, a Director of Magellan
Health Services, Inc. (the "Company"), do hereby appoint Howard A. McLure, Vice
President and Controller of the Company and Steve J. Davis, Executive Vice
President, Administrative Services and General Counsel of the Company, or any
one of them, my true and lawful attorney-in-fact for me and in my name for the
purpose of executing on my behalf (i) the Company's Registration Statement on
Form S-3, or any amendments or supplements thereto, for the registration of
shares of Common Stock of the Company to be issued in connection with the
exercise of warrants to purchase Common Stock of the Company issued to
Rainwater-Magellan Holdings, L.P. and the subsequent resale of such Common
Stock; (ii) any application for registration or qualification (or exemption
therefrom) of such shares under the Blue Sky or other federal or state
securities laws and regulations; and (iii) any other document or instrument
deemed necessary or appropriate by any of them in connection with such
application for registration or qualification (or exemption therefrom); and for
the purpose of causing any such registration statement or any subsequent
amendment or supplement to such registration statement to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 23rd day of
January, 1997.
/s/ Darla Moore
---------------------------------------
DARLA MOORE
Director
